Did Volkswagen’s Deception Cost US Taxpayers Millions?

24 Sep 2015 | Author: | No comments yet »

As Volkswagen Takes Heat, Car Maker’s Ads Tout Fuel Efficiency.

BERLIN (AP) — Volkswagen CEO Martin Winterkorn resigned Wednesday, days after admitting that the world’s top-selling carmaker had rigged diesel emissions to pass U.S. tests during his tenure.German automaker Volkswagen has seen its stock price tumble about 30% since the Environmental Protection Agency announced last Friday that the automaker manipulated software to hide the emissions its cars produce. No replacement was announced, and VW still has no easy exit from a scandal that has suddenly dented a reputation for trustworthiness that took decades to build.

Above all, I am stunned that misconduct on such a scale was possible in the Volkswagen Group,” Winterkorn said in a statement issued by the carmaker. Following a two-day free fall that had axed 35 per cent – or 25 billion euros (HK$215 billion) – off the company’s market value on Monday and Tuesday, the shares had bounced back on Wednesday and were showing a gain of 5.94 per cent at 112.30 euros after Winterkorn’s announcement. The automaker has now admitted it cheated on emissions tests, misinforming U.S. regulators about the measurements of toxic emissions in some of its diesel cars.

Winterkorn took responsibility for the “irregularities” found by U.S. inspectors in VW’s diesel engines, but insisted he had personally done nothing wrong. “I am doing this in the interests of the company even though I am not aware of any wrongdoing on my part,” his statement said. “Volkswagen needs a fresh start … I am clearing the way for this fresh start with my resignation.” Winterkorn, 68, resigned following a crisis meeting of the Volkswagen supervisory board’s executive committee. In addition to investigations from France to South Korea, public prosecutors in Germany also said they were examining information and evaluating legal suits already filed against the company by a number of private individuals to decide whether to launch a full criminal inquiry against those responsible at VW. Its acting chairman, Berthold Huber, said company directors are “resolved to embark with determination on a credible new beginning.” Huber said a successor will be discussed at a board meeting on Friday that was originally intended to approve extending Winterkorn’s contract through 2018. According to the US authorities, VW has admitted that it equipped about 482,000 cars in the United States with sophisticated software that covertly turns off pollution controls when the car is being driven.

The volatility of the stock is shown in the chart above, including the EPA announcement on Friday, the announcement of a class action lawsuit, news of the CEO resigning, and more. Winterkorn, VW’s boss since 2007, had come under intense pressure since the EPA’s disclosure Friday that stealth software makes VW’s 2009-2015 model cars powered by 2.0-liter diesel engines run cleaner during emissions tests than in actual driving. So far this year, Volkswagen has aired 36 different television spots, and 14 are focused on “Clean Diesel” products, according to ad tracker iSpot.tv.

The EPA, which announced the allegations last Friday along with California state authorities, is conducting an investigation that could lead to fines amounting to a maximum of more than US$18 billion. VW later acknowledged that similar software exists in 11 million diesel cars worldwide and was setting aside 6.5 billion euros to cover the costs of the scandal. The European carmakers’ association ACEA said that while it recognised the gravity of the affair, “there is no evidence to suggest that it’s a problem across the whole industry”. But the EPA has said it will screen for defeat devices in other manufacturers’ diesel vehicles now on the road, although it declined to identify which brands would be tested.

There is no immediate way of restoring VW’s reputation, but only total transparency can resolve the scandal and salvage its brand, said Jeremy Robinson-Leon, chief operating officer at Group Gordon, a New York-based corporate and crisis PR firm. “The most important thing is that VW comes out and tells the public what happened, who was involved and make sure that it doesn’t happen again,” he said. The German company is likely to face tough questioning in the US House of Representatives’ energy and commerce committee, which announced plans for a hearing in the coming weeks. U.S. regulators raised questions about VW’s diesel emissions in March 2014, and insisted on answers for another 18 months before the company finally acknowledged installing the stealth software. Economy Minister Sigmar Gabriel said it’s important the scandal is cleared up quickly and “the consequences are drawn.” But he cautioned against casting doubt on the quality of Volkswagen as a whole or the rest of the country’s auto industry. “The damage that some people have unleashed for the company and its employees is huge — but I think we should take care not to make a general debate about the quality of Volkswagen or the whole German auto industry out of this,” Gabriel said at the Frankfurt auto show. While the impact remains unclear, VW is “one of Germany’s most important global champions” and an “important growth driver for the German economy.” Another unanswered question is whether Volkswagen was alone in trying to dupe emissions testers.

Germany’s biggest bank, Deutsche Bank, has already lowered its forecast for the main German stock market index, the DAX, where carmakers account for 25 percent of its total value.

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