How Volkswagen Got Away With Diesel Deception

22 Sep 2015 | Author: | No comments yet »

Shame on VW for its deception. The CEO has to go.

Martin Winterkorn’s days as head of Volkswagen AG appeared numbered on Tuesday after the German carmaker said a scandal over falsified vehicle emission tests in the United States could affect 11 million of its cars worldwide. Volkswagen chief Martin Winterkorn has offered his “deepest apologies” for the pollution-cheating scandal engulfing the auto giant and threatening to tarnish Germany’s industrial reputation. “I am infinitely sorry that we have disappointed people’s trust.The Volkswagen emissions-rigging scandal has shifted into high gear, as company officials have admitted that up to 11 million diesel vehicles worldwide included software intended to evade air-quality testing.

BERLIN — Volkswagen AG’s emissions scandal crisis escalated Tuesday as the company issued a profit warning, set aside billions to cover the fallout and saw its shares take another battering. The Tagesspiegel newspaper, citing unidentified sources on Volkswagen’s supervisory board, said the board would decide on Friday to replace the 68-year-old with Matthias Mueller, the head of the automaker’s Porsche sports car business.

And, according to Bloomberg, the US Department of Justice has opened a criminal probe, which could result in charges against the company under criminal provisions of the US Clean Air Act or more general statutes against fraud. It is the world’s No. 2 car maker and one of Germany’s, and the world’s, best-known brands – the very symbol of reliable Teutonic technology, performance and value. Millions of people all over the world trust our brands, our cars and our technologies.” The company, one of the heavyweights of the German blue-chip DAX index, has seen its market capitalisation slashed by nearly a third in two days and said the costs of the scandal will cause it to miss its profit targets for this year. “Our company was dishonest, with the EPA and the California Air Resources board, and with all of you and – in my German words – we have totally screwed up,” Mr Horn said at an event in New York, according to video posted by CNBC. Weil, a supervisory board member representing Volkswagen’s second-largest shareholder, earlier this year helped Winterkorn to see off a challenge to his leadership by long-time chairman Ferdinand Piech and earlier this month backed the CEO’s contract extension.

Shares in Europe’s biggest carmaker plunged almost 20 percent on Monday after it admitted using software that deceived U.S. regulators measuring toxic emissions in some of its diesel cars. VW shares, which dived 18.6 per cent on Monday, plunged by another 20 per cent on the Frankfurt stock exchange as the new revelations, including a warning that it will have to lower its profit outlook, sent investors fleeing.

I apologize in every way to our customers, to authorities and the whole public for the wrongdoing.” The damage to Volkswagen’s reputation was reflected in the market’s response. The fall comes on top of Monday’s hefty 17 percent decline and means the company has lost an eye-watering 25 billion euros or so in just two days of frenzied trading. The trigger to the company’s market woes was last Friday’s revelation from the U.S.’ Environmental Protection Agency that VW rigged nearly half a million cars to defeat U.S. smog tests.

Once it had concluded, however, the car would return to emitting nitrogen oxides, linked to asthma and respiratory illness, at levels up to 40 times the legal limit. It also warned that sum could rise, adding diesel cars with so-called Type EA 189 engines built into about 11 million Volkswagen models worldwide had shown a “noticeable deviation” in emission levels between testing and road use.

The company told U.S. regulators that it intentionally installed software programmed to switch engines to a cleaner mode during official emissions testing. In its citation, the agency said that the company had systematically placed the devices in four-cylinder Audi and Volkswagen diesel models since 2009. Volkswagen deserves the pain, for using “defeat” software to fool air-quality regulators into thinking the cars are far less polluting than they really are. It added that the software is also installed in other vehicles with diesel engines, but that for the “majority of these engines the software does not have any effect.” Volkswagen said that new vehicles with EU 6 diesel engines currently on sale in the European Union comply with legal requirements and environmental standards.

CEO Martin Winterkorn issued an apology on Sunday for the U.S. scandal, promised an internal investigation and acknowledged that his company had “broken the trust of our customers and the public.” South Korea said Tuesday it would investigate emission levels of Volkswagen diesel vehicles in the wake of the rigging scandal in the U.S. that has heaped pressure on Winterkorn. The crisis has sent shockwaves through Germany, with Chancellor Angela Merkel calling for “complete transparency” from a company long seen as a beacon of the country’s engineering excellence, and newspapers putting the blame squarely on Winterkorn. In a statement issued by the EPA, Cynthia Giles, the assistant administrator at the EPT’s Office of Enforcement and Compliance Assurance, called the intentional circumvention of federal emissions tests “illegal” and “a threat to public health.” The company immediately responded to the allegations on Friday, stating that it was “committed to fixing the issue as soon as possible,” and adding that Volkswagen was fully cooperating with the investigation. With the government, the public, our customers, our employees, and very importantly, with our dealers.” The shockwaves from the scandal were being felt across the sector as traders wondered who else may get embroiled.

The German government is to also conduct new emissions tests in VW’s diesel cars, while France called for a wider Europe-wide investigation into Volkswagen’s practices — and into those of French automakers. TV commercials lauding its “clean diesel” cars, was challenged by authorities as far back as 2014 over tests showing emissions exceeded California state and U.S. federal limits. While diesel vehicles are estimated to account for less than 1 percent of US auto sales in 2014, the Union of Concerned Scientists estimates that they could be emitting between 10 to 25 percent of all nitrogen oxide emissions from passenger vehicles.

In the second, one needs to ask why such a far-reaching violation was not reported to the top and then things will get tough too.” Porsche’s Mueller was promoted to Volkswagen’s executive board on March 1 and was previously its head product strategist. Defeat device cases, he explained, got a lot of bad press in the 1970s and 1980s. “Auto manufacturers know better, because the defeat device concept in auto manufacturing is well known — every one knows you’re not allowed to do it and that if you do, you’re subject to recalls and fines.” The use of defeat devices, he explained, is intended to boost car performance. As a management board member of family-owned Porsche SE , he is also close to the Porsche-Piech clan that has a controlling shareholding in Volkswagen.

With such a device installed, the energy and fuel that normally would go to running the pollution control devices would instead be able to give the car added horsepower and acceleration, which consumers like. Winterkorn has built Volkswagen into a global powerhouse since he took the helm in 2007, with brands ranging from budget Seats and Skodas to premium Audis and top-end Lamborghinis. Some scientists, however, warn that this violation could have the effect of giving diesel a bad name, despite the fact that clean diesel technologies have been successfully developed. “Those cars passed certification, and they can function with those limits,” said Young. “What we want is for them to function as well in the real world as they do on the test bench.” In 2007, the EPA reduced the allowable amount of nitrous oxide emissions as part of the so-called Tier 2 Program aimed at getting emissions from diesel vehicles on par with those burning gasoline.

But he has also faced criticism for a centralised management style which some analysts say has hampered the company’s efforts to address long-standing underperformance in North America. But in the space of 24 hours, Volkswagen has gone from one people could trust to one people don’t know what to think of,” said Nigel Currie, an independent U.K.-based sponsorship and branding consultant. Christian Stadler, professor of strategic management at the Warwick Business School, said he was surprised at the scale of the VW’s potential infringement but noted that companies that transgressed U.S. regulations rarely pay the full fine that could be imposed. But shares in rivals including Peugeot, Renault and Fiat Chrysler fell on Tuesday amid signs regulators across the world will step up scrutiny of vehicle tests, which environmentalists have long criticised for exaggerating fuel-saving and emissions results. “No doubt we will hear a lot from plaintiffs’ attorneys representing the poor car buyers but I guess the group that would have been hurt most would have been the other car manufacturers who compete with Volkswagen,” said one Swiss-based hedge fund manager, speaking on condition of anonymity.

VW conceded that the costs it is booking in the third quarter are “subject to revaluation” in light of its investigations and that 2015 earnings targets will be adjusted. The EPA said on Monday it would widen its investigation to other automakers, and French Finance Minister Michel Sapin said on Tuesday an EU-wide inquiry was needed too. If he didn’t know about the emissions scam, he should have because he is no stranger to Volkswagen’s deep – and evidently exceedingly creative – technological tradition and innovations.

Germany’s transport ministry said it would send an investigative commission to study whether cars built at Volkswagen’s headquarters complied with German and European emissions guidelines. The European Commission said it was in contact with Volkswagen and U.S. authorities, and it was premature to say whether specific checks on the carmaker’s vehicles were needed.

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