Financial Times

Volkswagen emission test cheating rocks Europe’s car manufacturers

by Andy Sharman ­ London Jeevan Vasagar ­ Berlin

September 22, 2015 | 2:45 am
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The European car industry was shaken yesterday after Volkswagen’s share price fell almost 20 per cent over its admission that it cheated on US emissions tests, triggering calls for a
broader inquiry into the sector.

More than €13bn was wiped off VW’s market capitalisation, triggering a wider fall in carmakers’ shares, after Martin Winterkorn, the group’s chief executive, apologised and ordered an
external investigation into the affair.

The German government called for an urgent probe into whether VW and other carmakers had also manipulated emissions’ tests in Germany. Sigmar Gabriel, Germany’s vicechancellor,
said it was a “bad episode” for the car industry.

The world’s second­biggest carmaker was ordered on Friday to recall nearly half a million cars in the US after it admitted to the US regulator, the Environmental Protection Agency,
that it had fitted “defeat devices” to bypass environmental standards.

The EPS and California Air Resources Board have now begun procuring other manufacturers’ vehicles to test for similar devices, while Berlin plans to examine whether emissions data
have been manipulated.

The news prompted a fall in carmakers’ shares with Daimler, BMW, Renault and PSA Peugeot Citroën each being sold off amid investor concerns over the potential scale of the cost
to the broader industry. VW faces billions of dollars in fines and warranty costs, possible criminal charges for executives and class­action lawsuits from US drivers.

Stuart Pearson, analyst at Exane BNP Paribas, said VW was unlikely to have been the only company to game the system globally. “The artificial gaming of emissions tests threatens
to become the car industry’s Libor moment.”

The European Commission said it was taking the matter “very seriously” and was in contact with both Volkswagen and the EPA. One top 10 shareholder in VW said it could be very
costly to VW’s reputation.

“There is scope for a whole array of lawsuits in a variety of jurisdictions. The other question to ask is: is this an industry­wide problem? Will other car groups admit to similar cheating?”
Jochen Flasbarth, junior minister in Germany’s environment ministry, said: “We are facing a case of blatant consumer deception and environmental damage. I expect VW to reveal,
without any gaps, how and to what extent these manipulations have taken place.”

Campaign groups have long suspected carmakers of using “defeat devices” and have uncovered examples of vehicles with far worse fuel economy performance on the road than
advertised, and far higher emissions of nitrogen oxides than claimed.

The software algorithms in “defeat devices” form, they say, part of wider trickery used to circumvent lab tests widely considered hopelessly outdated.

Fitch Ratings warned that VW, which has a credit rating of A, could be downgraded if the scandal spreads.

Max Warburton, analyst at Bernstein said the case would also have consequences for the broader car industry.

European carmakers, including Fiat Chrysler, sell a far higher proportion of diesel­engined vehicles in the US than domestic or Asian manufacturers.


By Andy Sharman ­ London Jeevan Vasagar ­ Berlin

by Andy Sharman ­ London Jeevan Vasagar ­ Berlin

September 22, 2015 | 2:45 am
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