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Volkswagen

The Volkswagen Emissions Scandal Just Got A Lot Bigger

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November 3, 2015, 4:56 PM ET
The logo of German car maker Volkswagen can be seen as dark clouds hang in the sky over a Volkswagen trader in Hanover, central Germany, on September 22, 2015.
The logo of German car maker Volkswagen can be seen as dark clouds hang in the sky over a Volkswagen trader in Hanover, central Germany, on September 22, 2015.Photograph by Julian Stratenschulte—AFP/Getty Images

Volkswagen said on Tuesday it found data “inconsistencies” on carbon dioxide emissions for 800,000 more cars, the latest sign of trouble for Europe’s biggest automaker, already reeling from an emissions scandal.

Volkswagen said it faces about 2 billion euros ($2.19 billion) in economic risks from the newly disclosed issue, which mostly affects small diesel engines and one gasoline one. They are unrelated to U.S. regulators’ allegations on Monday that larger diesel engines mostly used in Porsche and Audi sports utility vehicles were designed to cheat emissions tests.

The carmaker said it would immediately start talking to “responsible authorities” about what to do about the latest findings.

“From the very start I have pushed hard for the relentless and comprehensive clarification of events,” Volkswagen Chief Executive Matthias Mueller said in a statement. “We will stop at nothing and nobody. This is a painful process but it is our only alternative.”

Europe’s largest carmaker had previously admitted to installing cheat software on up to 11 million vehicles worldwide with 2.0 liter diesel engines. But the latest allegations from U.S. regulators and the automaker itself suggest that both larger and smaller motors and even non-diesel ones may have deceived regulators.

“VW is leaving us all speechless,” said Arndt Ellinghorst of banking advisory firm Evercore ISI after the disclosure about the smaller engines. “It seems to us that this is another issue triggered by VW’s internal investigation and potentially related to Europe.”

VW has so far denied allegations regarding the larger 3.0 liter diesel engines made by the U.S. Environmental Protection Authority (EPA), saying no software had been installed to “alter emissions’ characteristics in a forbidden manner” on the larger engines. It did not immediately respond to questions on Tuesday, saying it would only correspond in writing.

The biggest business crisis in VW’s 78-year history has wiped as much as a third off its stock market value, forced out long-time CEO Martin Winterkorn and rocked the auto industry – a key employer and source of export income in Germany.

“Volkswagen has done a disservice to German industry,” Ulrich Grillo, the head of the Federation of German industries, told a conference on Tuesday, adding the firm had an obligation to the whole industry to clear up the scandal quickly.

German Chancellor Angela Merkel and the European Commission, the European Union’s executive body, called for clarity and transparency to clean up the scandal.

VW’s supervisory board will hold a special meeting Monday to discuss the financial implications of the scandal, two sources with knowledge of the matter told Reuters.

The company took a 6.7 billion euro hit in third-quarter results to cover initial costs related to the scandal. Some analysts have said the final bill could reach as much as 35 billion euros in regulatory fines, lawsuits and vehicle refits.

VW shares fell 1.5 percent to close at 111 euros. The VW statement about the additional 800,000 cars with emissions issues came out after the Frankfurt market had closed.

MORE PRESSURE

VW is under huge pressure to identify those responsible for the cheating and fix affected vehicles, and it has come under fire from lawmakers, investors and analysts for a slow response.

Some analysts and investors criticized the appointment of Mueller as group CEO, questioning whether a company veteran was the right man to lead an overhaul of the business.

Top players on VW’s supervisory board, including the head of Lower Saxony, VW’s second-largest shareholder, are in close contact with the carmaker and seeking information from its top management on the latest accusations by EPA, two sources familiar with the matter said on Tuesday.

VW was the only brand of Germany’s top carmakers to post lower sales in a growing German market in October, the Federal Motor Transport Authority (KBA) said on Tuesday. New registrations of the VW brand fell 0.7 percent while BMW, Porsche, Opel and Mercedes all reported higher deliveries in a market that was up 1 percent to 278,000 cars.

Audi said on Tuesday it had not installed defeat devices in its 3 liter V6 diesel engines and is aiming to meet with California regulators in the next week to explain its position as well as how the software works. Seeking belated authorization of the software could be one option to try to solve the matter, the spokesman said.

“It would cause the biggest possible shock to VW if those accusations are true,” said Stefan Bratzel, head of the Center of Automotive Management think-tank near Cologne.

“VW keeps touting utmost transparency but they really should have put all the cards on the table. There is a lot of need for explanation, from Audi too.”

Rival German carmaker BMW reiterated on Tuesday it had not manipulated emissions tests, as it posted a surprise rise in third-quarter operating profit.

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