The Latest: Economists Say VW a New Risk to German Growth

23 Sep 2015 | Author: | No comments yet »

Future of Volkswagen CEO uncertain amid emissions scandal.

Royal, who announced on Tuesday that France had launched a probe to establish whether VW had also used software that deceived US regulators measuring toxic emissions in some of its diesel cars in France, described the matter as one of “particularly irresponsible fraud”. “The victims are workers whose situation has been made more precarious, consumers who were duped and also the state which pays subsidies for purchases of clean vehicles,” she said. Volkswagen Chief Executive Martin Winterkorn faces a reckoning with his board on Wednesday, summoned to explain the falsification of U.S. emissions tests in the biggest scandal in the 78-year history of the world’s largest carmaker.The rigging of diesel emissions by Volkswagen and other car manufacturers is a public health catastrophe “worse than the black plague” that is responsible for tens of thousands of premature deaths in the UK alone. “Everybody has been affected by diesel emissions – we know it has killed people.BERLIN (AP) — Volkswagen’s share price swung wildly Wednesday as the future of CEO Martin Winterkorn hung in the balance amid the company’s growing emissions scandal.

The German Green Party claimed Angela Merkel’s government admitted that it knew about VW’s test rigging software in an answer to a parliamentary question in July. “The government told us in July that it knew about this software, which has been used in the USA, and it’s clear they knew the software was widely in use,” Oliver Krischer, the deputy leader of the Greens told N24 television. “The government worked with the auto industry, not to see that emissions levels were reduced, but so that the measuring system was set up to allow the cars meet the necessary standards on paper,” Mr Krischer alleged. A source close to the company said a five-member executive committee was grilling Winterkorn at the company’s headquarters in Wolfsburg, Germany, and was likely to make a recommendation on his future ahead of a full board meeting on Friday. Having fallen below 100 euros for the first time in nearly four years, Volkswagen AG’s share price recovered to trade 2.5 percent higher at 108.5 euros. Alexander Dobrind, the transport minister, has denied the government failed to monitor the car industry and has already ordered an inquiry into the VW scandal. Wednesday’s gyrations followed declines of 17 percent and 20 percent in the first two days of the week that saw nearly 25 billion euros (around $28 billion) wiped off the company’s market value.

The probes of Volkswagen’s technology to cheat air pollution tests have widened to include New York and Connecticut among other US states, adding to investigations of the German automaker by federal investigators and a growing list of countries, reports Bloomberg. “Environmental Protection Agency investigators in Michigan had already been probing the carmaker for allegedly cheating on US air pollution tests, said the person, who requested anonymity because the matter isn’t public. “Matt Mittenthal, a spokesman for New York Attorney General Eric Schneiderman, said in an e-mail today that he could confirm New York is part of a multistate group investigating Volkswagen but was unable to say which other states were part of the probe. “The German government opened its own probe on Tuesday. German Chancellor Angela Merkel has called for it to move “as quickly as possible” to restore confidence in a company held up for generations as a paragon of German engineering excellence. Environment Canada also started an investigation, promising unspecified “enforcement action” if the carmaker cheated in that country.” Mr Schneiderman said: “No company should be allowed to evade our environmental laws or promise consumers a fake bill of goods. But the board is in a tricky situation, with the 68-year-old CEO showing no sign of resigning after a hitherto highly successful eight year reign, in which the company doubled its sales and almost tripled its profits. We look forward to collaborating with attorneys general across the nation on this matter.” Other states are also looking at filing class actions suits against the world’s biggest car-maker and, according to reports the US Department of Justice (DoJ) is looking into the issue, which raises the possibility of the company and individual executives facing criminal charges.

A story in the Tagesspiegel newspaper, denied by Volkswagen, said the board would replace him with Matthias Mueller, head of the automaker’s Porsche sports car business. As VW counts the cost of the fraud, which is likley to cost the company billions and could lead to class action law suits in the US, Mark Holman of TwentyFour Asset Management says the scandal could bankrupt the firm. “This is obviously extrapolating to a worst case scenario but just what a bear market thrives upon; any potential floor on prices will probably be reached before all these headlines are out of the way. “There are likely to be law suits, criminal actions, board level firings, rating agency downgrades, stock price revisions, maybe even selling restrictions on the company, brand damage, increased financing costs, removal from SRI indices etc. “Our take is that the €6.5bn set aside to cover the costs of the scandal is nowhere near enough, but also that the company, just like BP, will get through this….if only everything in life was as reliable as an emissions test.” The escalating scandal is accelerating across the global corporate bond markets. Winterkorn, who was due to have his contract extended at Friday’s board meeting, did not mention his future in a video message posted on the company’s website on Tuesday, in which he repeated his apology for a scandal which has wiped out tens of billions of dollars from the company’s value. Volkswagen is not the only car manufacturer whose cars emit more than they are legally allowed In London, one-fifth of all deaths are said to be the result of long-term exposure to air pollution in London in one year. Other countries, such as South Korea, have also ordered investigations into emission levels of VW cars and there’s growing speculation the company may face class-action suits for mis-selling products.

The story has sent shockwaves through the car market, with dealers in the United States reporting people holding back from buying diesel cars and “#dieselgate” trending on Twitter. The car expert then tells the BBC about a number of tweaks that manufacturers across the industry regularly use to boost test numbers without falling foul of the rules: -Finally, the expert says: “Cars can detect being tested. Barrowcliffe said the Volkswagen scandal may be the catalyst for change. “The information has been out there for quite some time but governments and consumers have ignored it,” Barrowcliffe said.

Talks may continue on Friday at a gathering of the full 20-person board, which plays an oversight role and was supposed to sign off on a contract extension for Winterkorn.” Winterkorn has run the Germany-based company since 2007. Environmentalists have long complained that carmakers game the testing regime to exaggerate the fuel-efficiency and emissions readings of their vehicles.

As for Volkswagen, Deutsche Bank called the scandal an “investor’s nightmare” and cut its recommendation to “hold” from “buy”, predicting rising costs for making diesel cars would wipe out the company’s cost-cutting program. Schneiderman said he had opened an investigation into the Volkswagen cars and would collaborate with other states to enforce consumer and environmental protections in the case. After diving 17pc percent on Monday, VW shares closed down a further 19.8pc Tuesday – wiping one-third off its market value – as the automaker’s revelations that 11 million cars worldwise could be affected, including a warning that it will have to lower its profit outlook, sent investors fleeing and threatened to topple the chief executive. Volkswagen was challenged by authorities as far back as 2014 over tests showing emissions exceeded California state and U.S. federal limits, but held off admitting wrongdoing until regulators threatened to withhold certification for its 2016 diesel models. Winterkorn has long been accused by critics of an excessively centralized and hands-on management style, which they say has led to production delays and hindered the company’s ability to adapt to local market needs.

He added, however, that the good image of German goods has deeper roots, “is rooted in excellent products from thousands of companies and, thank God, does not depend on a single company. In 2012, the launch of the Lamborghini brand’s Aventador got delayed by about six months after the CEO requested a different dashboard following a test drive, one company source said. Worries that others may have indulged in similar malpractices have hit the share prices of many other auto makers in Europe, though not on the scale of VW.

The problems afflicting German carmakers prompted the country’s biggest bank, Deutsche Bank, to revise down its view on the main German stock market.

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