€6.5 Billion Charge

Damage from VW Scandal Widens

michael horn_Darren Ornitz_Reuters_2
At the ill-timed New York launch of VW's 2016 Passat on Monday, the German automaker's U.S. chief, Michael Horn, told guests: "We have totally screwed up.'' Two more senior VW executives from Germany who were scheduled to appear at the event at the Brooklyn Navy Yards cancelled at the last minute.
  • Why it matters

    Why it matters

    The scandal over VW’s rigged emissions tests could erode confidence in German diesel technology in general, hurting by association rivals Daimler, BMW and Porsche.

  • Facts

    Facts

    • VW Chief Executive Martin Winterkorn will meet Wednesday with VW’s supervisory board.
    • VW’s share price fell as much as 20 percent on Monday, and was down another 6 percent on Tuesday morning in Frankfurt.
    • Experts said construction flaws were likely to blame for high emissions in some VW diesel models, but the technology was sound.
  • Audio

    Audio

  • Pdf

The damage from VW’s emissions rigging scandal in the United States spread quickly Tuesday, as the automaker’s shares plummeted for a second day, U.S. and South Korean investigators were said to open new probes, and calls grew for the resignation of the chief executive.

Volkswagen said 11 million diesel cars have the software that illegally tricks emissions regulators. The German automaker issued a profit warning, saying it was setting aside €6.5 billion ($7.3 billion) in the third quarter to cover the costs of fixing the vehicles.

VW shares plunged 23 percent in Frankfurt, after falling by up to 20 percent on Monday. As of 4:34 p.m. local time, VW shares were down 23 percent at €111.55, their lowest level since December of 2011.

In a video released Tuesday evening in Frankfurt, the VW chief executive, Martin Winterkorn, apologized again for situation, promised a thorough investigation and asked that he be allowed to continue at the helm.

“The irregularities discovered in these motors is against everything that Volkswagen stands for,” Mr. Winterkorn said. “We are now actively clarifying the details of the situation, without exception or favor. Everything is going to be put on the table as fast and completely as possible.”

Mr. Winterkorn said VW continued to work with the authorities. Getting to the bottom of the situation — how the software was used to evade emissions tests in the United States — has the highest priority, he said.

“The words ‘manipulation’ and ‘Volkswagen’ should never be spoken together in the same breath again,” Mr. Winterkorn said in the video. “Four billion people around the world trust our technology. I apologize deeply for this to our customers, the authorities and the public for this wrongdoing.”

“Believe me, we will do everything to compensate our customers and everything to win back their trust,” he said. “I know that this has brought a lot into question, I understand that. But it would be a mistake to tarnish the honest work of the 600,000 people who work at Volkswagen.”

A Berlin daily newspaper, Tagesspiegel, on Tuesday reported that Mr. Winterkorn was expected to be replaced on Friday by the chief executive of Porsche, Matthias Müller.

VW called the report, based on unnamed sources, “ridiculous.”

Tomorrow, a steering committee of VW’s supervisory board will meet with Mr. Winterkorn. On Friday, the full panel will meet on the crisis. In Germany, the group is responsible for hiring and firing the chief executive and setting major policy.

Mr. Winterkorn, who earlier this year survived a power struggle with one of the automaker’s largest shareholders, no longer has the support of the supervisory board, Tagesspiegel reported, citing people close to the situation.

The German chief executive, who has overseen VW’s climb to the world’s largest volume maker of vehicles, has been at the helm of Volkswagen since 2007. After the scandal broke last weekend, Mr. Winterkorn apologized but did not say whether he knew of the systematic trickery used to falsify emissions tests since 2009.

On Tuesday, the German chancellor, Angela Merkel, called for Volkswagen to provide “full transparency” in a scandal that threatens to set back not just the Wolfsburg-based automaker but may also taint the low-emission, diesel engine technology championed by many German automakers besides VW. Ms. Merkel’s remarks were her first public comments on the scandal.

The world’s largest automaker may face penalties of up to $18 billion after the U.S. Environmental Protection Agency on Friday stated that VW had designed illegal “defeat device” software that cuts nitrogen oxide emissions when cars are undergoing emission tests, generating false results for almost half a million VW- and Audi-brand cars.

 

The Diesel Debacle-01

 

“The matter will be discussed at the next steering committee meeting of the supervisory board,” said Bernd Osterloh, the head of the employee works council at VW, which is based in Wolfsburg. “The damage to the image is huge. We demand a rapid and comprehensive investigation.”

Mr. Osterloh added that he continued to support Mr. Winterkorn.

But Mr. Winterkorn faces an uphill battle to ride out a storm of controversy, experts said. The task appeared to grow more daunting Monday when U.S. media reported that the U.S. Justice Department also planned to open an investigation into the case, which could set VW up for more fines or sanctions.

But the damage wasn’t limited to the United States, a market that the German automaker, despite its success in Europe and China, has never been able to crack in a big way. On Monday, South Korea said it, too, planned to investigate whether VW’s autos had violated local emissions testing, Bloomberg reported, citing an interview with the country’s deputy environment minister, Park Pan Gyu.

Bloomberg reported that unidentified people close to the Justice Department confirmed the agency was looking into the case.

 

michael horn_dpa_Chris Melzer_1
VW’s U.S. chief, Michael Horn, at the German automaker’s launch party in New York City on Monday for the 2016 Passat, one of the cars that uses illegal software to trick U.S. emissions testers. The launch event was scheduled before the scandal broke last weekend. Source: Chris Melzer / DPA

 

On Monday, two senior VW executives abruptly cancelled their appearance at a big event in New York City to launch Volkswagen’s new 2016 Passat — one of the cars that uses the illegal “defeat” software to rig U.S. emissions test. The event, held in a large glass hall at the Brooklyn Navy Yard, featured the rock musician Lenny Kravitz and hundreds of guests who were invited before the scandal came to light.

Two senior VW executives who were supposed to speak at the launch — Herbert Diess, chairman of the Volkswagen brand’s management board, and Heinz-Jakob Neusser, VW’s board member in charge of technical development — abruptly cancelled their appearance on Monday, leaving the stage to the automaker’s head of U.S. operations, Michael Horn, who apologized: “We have totally screwed up.”

Since the scandal broke late Friday — followed by VW’s admission of guilt over the weekend — the automaker’s shares plunged 20 percent on Monday, their biggest ever one-day fall, wiping some €15 billion, or $16.8 billion, off VW’s market value.

 

Diesel Manufacturers in Europe-01

 

On Tuesday in Frankfurt, the sell-off continued and accelerated after the automaker issued its profit warning on Tuesday morning in Frankfurt.

Shares of VW German rivals Daimler and BMW were also down about 5 percent in Frankfurt, as was Continental, the German auto parts maker.

The stock market declines came as calls rose again for Mr. Winterkorn, who has promised a full investigation, to step down.

Analysts said they doubted such systematic manipulation of emissions testing could have been carried out without the knowledge of senior VW executives. Besides Mr. Winterkorn, analysts in Germany were questioning the role played by Ulrich Hackenberg, the development chief at VW’s luxury unit Audi, who had been development chief for VW-brand cars until 2013.

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