Volkswagen emissions-cheating probe spreads to Asia

22 Sep 2015 | Author: | No comments yet »

Volkswagen Scandal Spreads to Asia as South Korea Begins Probe.

The fallout from Volkswagen AG’s admission that it had cheated on emission tests in the U.S. is spreading to Asia, as South Korea said it will check whether the German automaker complied with its pollution standards.FRANKFURT — Martin Winterkorn was uncharacteristically subdued last week when, on the eve of the Frankfurt auto show, he stepped into a beam of blue light to show off the latest products from the Volkswagen empire.

South Korea will test emissions on diesel versions of VW’s Jetta, Golf, and Audi AG’s A3 sedan in October, Park Pan Kyu, deputy director of the country’s environment ministry, said by phone. The chief executive certainly knew what was coming days later: allegations that Volkswagen had cheated to pass US emissions tests, touching off a scandal that has called his leadership into question and seriously damaged the automaker’s reputation. Europe’s biggest carmaker derived about 40 percent of its volume sales last year from Asia, home to its largest market China. “The bigger concern is how it impacts their European reputation, which is much more important market for them, particularly in diesel,” said Janet Lewis, Hong Kong-based analyst at Macquarie Group Ltd. “To the extent that they can’t grow their U.S. business in their quest to be the No. 1 automaker by 2018, they therefore become more reliant on the China market.” Volkswagen sells about 40 percent of its vehicles in the Asia Pacific region, according to data compiled by Bloomberg. Winterkorn apologized Sunday, saying the company had “broken the trust of our customers and the public.” Volkswagen said it would stop selling the remainder of its 2015 model Volkswagen and Audi diesels and not offer its 2016 diesel cars, which were just arriving in US showrooms.

Analysts say Winterkorn will have to answer tough questions — including when he and other top executives at Volkswagen, which is known for being a tightly controlled, autocratic organization, first learned of the deception. More than 90 percent of about 25,000 vehicles VW sold in South Korea this year through August were diesel models, according to Korea Automobile Importers & Distributors Association data.

The automaker didn’t respond to a request for a breakdown on the diesel models it sells in China or whether the regulators have contacted it about the U.S. admission. “The way the system works in China is that it triggers a review, when somebody has a problem related to regulatory compliance in one market,” said Bill Russo, Shanghai-based managing director at Gao Feng Advisory Co. “It raises some question of whether the practices that led to that problem could exist in another market so it could cause other government organizations to take another look and see if in fact they’re complying.” The General Administration of Quality Supervision, Inspection and Quarantine didn’t immediately reply to a fax seeking comments on whether they will inspect VW. New Zealand isn’t aware of any issues with vehicles sold in the country that are compliant with European or Australian standards, Transport Minister Simon Bridges said in an e-mailed response.

Its share of the US market has been stuck at about 2 percent, and the new revelations will probably undercut its effort to lure American consumers, in part by promoting “clean” diesel engines that were supposed to be more fuel-efficient than gasoline engines, yet also peppy and environmentally responsible. “I feel like I was misled,” said Tony German, a health care administrator in Austin, Texas, who owns a 2010 diesel Audi A3, one of the cars affected by the EPA action. “VW has been successful in promoting their high-mileage, clean diesel engines — and now they are telling us they are neither.” Fitch Ratings said the EPA action, and the prospect of billions of dollars in penalties, could affect Volkswagen’s debt rating, though the automaker has ample financial resources. Several US law firms announced plans to sue on behalf of consumers who said Volkswagen deceived them into believing they were buying environmentally friendly vehicles. It is possible to reduce the amount of nitrogen oxide — a gas that is a major contributor to smog and is linked to respiratory ailments including asthma, emphysema and bronchitis — emitted by diesel engines. The software measured factors like the position of the steering wheel, the vehicle’s speed, and even barometric pressure to sense when the car was being tested, the EPA said. For years, the European Union put a priority on fuel economy rather than emissions and set standards that were much more lax than in the United States.

Stephan Weil, prime minister of Lower Saxony, said, “Manipulation of an emissions test is completely unacceptable.” But Weil, also a VW board member, said consequences can be discussed only after an investigation.

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