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Emissions scandal exposes Volkswagen's dark side

September 21, 2015 19:34 IST
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Volkswagen may also have to compensate customers for misleading them about a car's performance with working emission control systems, notes Olaf Storbeck.

Volkswagen has driven headlong into a Libor moment. Authorities in the United States say Europe's biggest carmaker rigged emissions tests.

The revelations are reminiscent of the bank rate-fixing scandals.

With VW, it is too early to know how widespread the bad behaviour was, whether bosses knew, and who else was at it.

But without rogue traders to blame, VW may well find it harder to excuse itself.

According to U.S. regulators, VW admitted on Sept. 3 that some of its diesel vehicles were fitted with a device which the authorities said would "cheat on clean air rules".

There was, regulators said, a "sophisticated software algorithm" that turned on a car's emission control technology when the vehicle was undergoing official emissions testing.

During normal driving, emissions of nitrogen oxides, an exhaust gas harmful to humans, were up to 40 times above the legal limit. Turning off the emission control system during normal use apparently helped to improve driving performance.

VW Chief Executive Martin Winterkorn has already apologised, publicly. He has ordered an investigation, led by people hitherto unconnected to the carmaker.

Volkswagen has also recalled 500,000 diesel vehicles sold in the United States since 2009.

If non-U.S. vehicles were fitted with a similar device, the health scare - and the ensuing reputational damage - may be far bigger. In Germany, 48 percent of all new passenger cars are diesel, compared to less than 1 percent in the United States.

Banks accused of rigging Libor could point to rogue individuals, acting to enrich themselves personally, to reduce the negative impact.

Volkswagen may struggle to save face similarly.

The design of a new car is a multi-year collaborative activity. The opportunity for individual Volkswagen engineers to gain personally seems limited. Meanwhile, the German group is known for having a centralised internal culture.

U.S. authorities may be able to levy fines on Volkswagen of up to $18 billion, Reuters reports.

Volkswagen may also have to compensate customers for misleading them about a car's performance with working emission control systems.

Shareholders could sue for compensation too.

The market seems to have few illusions about the depth of VW's embarrassment and its cost.

Shares sank 22 percent on Sept. 21, wiping away more than 13 billion euros in market capitalisation.

If this plays out anything like Libor, there could be worse to come.

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

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