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Emission test scandal forces VW to issue profit warning
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The crisis enveloping Volkswagen AG, the world’s top-selling carmaker, escalated yesterday as the company issued a profit warning following a stunning admission that some 11 million of its diesel vehicles worldwide were fitted with software at the center of a US emissions scandal.
The German company said it was setting aside around 6.5 billion euros (US$7.3 billion) to cover the fallout from the scandal that has tarnished VW’s reputation, raised questions over the future of CEO Martin Winterkorn and battered its share price.
Winterkorn pledged a fast and thorough investigation.
“Millions of people across the world trust our brands, our cars and our technologies,” he said in a video message. “I am endlessly sorry that we have disappointed this trust. I apologize in every way to our customers, to authorities and the whole public for the wrongdoing.”
“We are asking, I am asking for your trust on our way forward,” he said. “We will clear this up.”
The damage to Volkswagen’s reputation is reflected in the market’s response. Volkswagen shares closed 19.82 percent down at 106 euros yesterday, having lost a total of 35 percent in two trading days and wiping out 25 billion euros in market capitalization.
The trigger to the company’s market woes was last Friday’s revelation from the US Environmental Protection Agency that VW rigged nearly half a million cars to defeat US smog tests.
The company told US regulators that it intentionally installed software programed to switch engines to a cleaner mode during official emissions testing. The software then switches off again, enabling cars to drive more powerfully on the road while emitting as much as 40 times the legal pollution limit.
“In my German words: we have totally screwed up,” the head of Volkswagen’s US division, Michael Horn, told an audience in New York on Monday.
In a statement yesterday, VW gave more details, admitting that there were “discrepancies” related to vehicles with Type EA 189 engines and involving some 11 million vehicles worldwide. The number of vehicles involved is more than the 10 million or so cars it sold in 2014.
Volkswagen said it is “working intensely” to solve the problem and it “does not tolerate any kind of violation of laws whatsoever.”
To cover the necessary service measures and what VW says are “other efforts to win back the trust” of customers, the company said it is setting aside some 6.5 billion euros in the current quarter. There was no mention of fines or penalties in the company’s statement. The EPA has indicated that it could, in theory, fine the German carmaker up to US$18 billion.
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