Confidence in the automotive industry has been rocked this week by revelations that Volkswagen has been systemically cheating on emissions tests for 11mn diesel vehicles in the US.
The fallout has resulted in a third of the value being wiped off recently traded shares in the $60bn company.
VW has been using special “defeat” software and complex algorithms to reduce pollutant level during emissions tests by US regulators. There is now renewed concern about emissions in Europe, where diesel-powered vehicles account for 53% of new cars, compared with just 1% in the US.
The EPA says that the so-called defeat device only activates the cars’ most stringent emissions controls during laboratory testing, leaving them disabled during normal operation. This was hiding the fact that these diesel vehicles were emitting 40 times the allowed limits of nitrogen oxides (NOx).
Volkswagen’s CEO, Martin Winterkorn, has already resigned following the discovery, and the German car manufacturer has to set aside $7.3bn to cover the costs associated with the issue.
However, this might not be enough, as these actions could be considered a violation of the Clean Air Act in the US — an offense that carries a maximum penalty of $18bn, excluding criminal penalties.
“We’ll have to wait and see how the residual value of cars will be affected,” said Klaus Holzer, a service head at Auto Wichert, which operates 16 VW franchises in the Hamburg metropolitan area, told Bloomberg.
“It will depend on how Volkswagen manages to put the record straight. The only option we have is to react to what the big corporation is doing. It’s up to Volkswagen to determine what direction they want to go with their partners, including the German dealers.”
German Transport Minister Alexander Dobrindt has noted: “Manipulations could come to light in Europe too, and this is something that is being discussed in the current talks with Volkswagen.”
The share price of the rival German manufacturer BMW has also fallen by more than 5% after a car magazine reported that road tests by the International Council on Clean Transportation (ICCT) – who helped spark the VW scandal – revealed a BMW X3 model went 11 times over EU emissions limits.
BMW has remained quiet, choosing only to say in a statement: “There is no function to recognise emissions testing cycles at BMW. All emissions systems remain active outside the testing cycles.”
Moving forward, only thorough investigations be regulators will reveal the true depth of the problem, on both sides of the Atlantic. In the short-term the scandal raises big questions about emissions in Europe and US, and shows the need for some soul-searching in the industry.