A widening emissions
scandal at Volkswagen — an engineering feat of a more sinister kind, in which
cars were wired to deceive air pollution tests — has now cost the company’s top
executive his job. It has enraged customers and devastated the company’s stock
price. Analysts are warning the fallout could infect Germany’s economy, and the
fragile Eurozone with it.
In less than a week,
the scandal has battered the reputation that the entire Germany auto industry
guarded carefully for decades.
“This has tarnished a
huge, iconic company, so it’s going to be a long and slow process to restore
this company,” said Karen Brenner, a business professor who is executive
director of law and business initiatives at New York University. “The damage is
only beginning to unfold.”
Thomas Donaldson, a
professor of legal studies and business ethics at the Wharton School of the
University of Pennsylvania, said the scandal had few historical parallels:
“I’ve never seen a corporate Watergate of this stripe.”
around the world warned this week that the damage could spread beyond
Volkswagen. They noted that the list of vehicles equipped with the cheating
devices included the Audi A3, a luxury brand, and expressed worries over
whether consumers around the world would turn away from other German
automakers. That would deliver yet another jolt to the country’s economy, where
one in seven jobs is tied directly or indirectly to the auto industry.
Indeed, on Thursday,
the German magazine Autobild reported that a test of BMW's X3 SUV found that
the car emitted more emissions in the real world than what lab tests produced.
BMW issued a statement saying that it "does not manipulate or rig any
emissions tests." Nevertheless, the stock plunged nearly 7 percent in
“While the German
economy defied Greece, the euro crisis and the Chinese slowdown, it could now
be facing the biggest downside risk in a long while,” Carsten Brzeski, an
economist for the investment bank ING, wrote in a research note. “The irony of
all of this is that the threat could now come from the inside, rather than from
Consumers and analysts
say that threat is particularly large because Volkswagen, unlike other
automakers who recalled vehicles en masse in recent years due to safety
concerns, has admitted it deliberately misled regulators and consumers. The
company faces potentially billions of dollars in government fines for its
actions, along with possible criminal charges.
Volkswagen said this
week that 11 million of its vehicles worldwide, including nearly 500,000 in the
U.S., were rigged to pass emissions tests, even while emitting nitrogen oxide
at up to 40 times U.S. federal standards. Its chief executive, Martin
Winterkorn, resigned on Wednesday as the fallout mounted.
“I am shocked by the
events of the past few days. Above all, I am stunned that misconduct on such a
scale was possible in the Volkswagen Group,” Winterkorn said in a statement.
The consequences for
the company - and possibly its home economy - are mounting.
stock has plummeted since last Friday, when the Environment Protection Agency
announced that a “defeat device” was installed in some 482,000 U.S. cars,
spanning model years 2009 through 2015.
The company now faces
up to $18 billion in fines from the EPA and is under investigation by the
Department of Justice.
On Thursday, the
European Union urged all 28 member states to launch their own investigations
into the company. Volkswagen said earlier this week it had set aside more than
$7 billion to fix the problems with its cars and begin to repair its reputation
with customers, but many analysts say that amount will fall far short of what
the company will pay out in fines and car repairs.
The consumer advocacy
group U.S. PIRG says the company should offer full refunds to anyone who bought
one of the cars installed with the regulator-evading devices. Even if
Volkswagen “fixes” the vehicles to restrict their emissions, the cars won’t
perform as advertised, said Ed Mierzwinski, consumer program director for U.S.
“The harm is so
severe, the deception is so severe, and that how do you make the consumer whole
without buying the car back?” Mierzwinksi said.
The scandal undercuts
Volkswagen’s green image, along with the reputation for craftsmanship that has
helped German automakers gain market share in the United States, Europe and
many fast-growing Asian car markets.
That reputation is
summed up by Volkswagen’s 2014 Super Bowl ad, which features a father telling
his daughter, in the style of “It’s a Wonderful Life”, that every time a VW
vehicle passes 100,000 miles, a German engineer gets his wings.
Japan-based Toyota this year to become the world’s largest automaker. German
automakers produce about half the cars sold every year in Western Europe and
they’ve gained market share in the United States over the last decade,
according to Deutsche Bank. A recent report from a German government trade
promotion arm claims nearly eight out of 10 “premium” automobiles around the
world are made by German companies.
Making “attractive and
environmentally friendly” cars was a key to its growth and its ability to
weather economic trouble, Volkswagen wrote in its latest annual report.
That attraction has
evaporated for many consumers. Drawn by the promise of an environmentally
friendly car, they now fear the cars’ tarnished reputation will weigh on resale
“The CEO resigning, it
doesn’t really impact me. I want to know what they’re actually going to do for
all of these supposedly clean diesels car owners,” said Christa Mrgan, 34, of
Mrgan bought a 2011
Jetta SportWagen because it promised low emissions and enough room for her two
kids. Now, she’s planning to buy a cargo bike this week. “I don’t want this
car,” she said. “It makes me feel sick that I’ve been driving this car for
about four-and-a-half years and belching all these toxic fumes into the
Rebuilding that trust
could be a lengthy process. After some Audi cars started accelerating out of
control in the 1980s, it took a decade for its sales in the U.S. to recover,
Deutsche Bank analysts wrote in a research note Wednesday.
“Back in the days Audi
suffered a massive loss in reputation and this wasn’t even about cheating,” the
Regaining trust will
be especially difficult in the auto industry, because car buyers research their
decisions carefully and Americans see their cars as an extension of themselves,
said Trina Hamilton, a University of Buffalo professor who studies corporate
“Whether you drive a
Prius or a Hummer or a VW, you make some sort of judgment, however stereotyped,
about people,” said Hamilton, who drives a diesel 2013 Jetta SportWagen. “If
you bought this as a signal of your environmental commitment, that is
tarnished. I feel kind of conspicuous driving it now.”
have caused trouble for other automakers in recent years. General Motors this
month agreed to pay the government $900 million to settle a criminal
investigation into how it handled ignition switches that caused fatal wrecks
and forced the recall of 2.6 million cars. And 11 manufacturers have recalled
tens of millions of cars and trucks because of faulty airbags made by Takata,
the largest auto recall in U.S. history.
Volkswagen from those cases, Mierzwinksi said, is intent. “GM had a car that
was defective,” he said. “Volkswagen made their car defective on purpose.”
Reference Link : https://www.bullscapitalmarkets.com/fundamental/138/obloquy-on-volkswagen-menaces-germany%E2%80%99s-economy.php#
So, what, should I sell VW stocks? (probably not, it is 4% up since yesterday) Or should I go and visit the VW servis to let them set my engine to low power?