Germany ups pressure on VW as scandal takes on new dimension

November 4, 2015 09:25 AM

German officials stepped up the pressure on Volkswagen to clean up its act on Wednesday after it revealed it had understated the fuel consumption of some vehicles, opening a new front in the crisis at Europe's biggest carmaker.

The company said late on Tuesday it had understated the level of carbon dioxide emissions in up to 800,000 cars sold in Europe, and consequently their fuel usage. This means affected vehicles are more expensive to drive than their buyers had been led to believe.

The revelations add a new dimension to a crisis that had previously focused on VW cheating tests for smog-causing nitrogen oxide emissions. They are the first to threaten to make a serious dent in the firm's car sales since the scandal erupted as they could deter cost-conscious consumers, analysts said.

Shares in Volkswagen were down 8.9 % by 1309 GMT (8.06 a.m. ET), wiping about another 3 billion euros ($3.3 billion) off its market value.

The latest admission provoked some of the strongest criticism yet from the German government of Volkswagen, which is part of an auto industry that employs over 750,000 people in the country, has been a symbol of German engineering prowess and dwarfs other sectors of the economy.

Transport minister Alexander Dobrindt said the latest irregularities had caused "irritation in my ministry and with me".

Chancellor Angela Merkel's spokesman, Steffen Seibert, said the carmaker had to take steps to prevent this happening again. "VW has a duty to clear this up transparently and comprehensively," he added. "It's important (for VW) to create structures to avoid such cases."

The latest revelations, which led to Volkswagen adding 2 billion euros to its expected costs from the scandal, are also the first time gasoline cars have been drawn into the scandal.

VW said most of the 800,000 cars affected by the CO2 issue had diesel engines such as VW's top-selling Golf, Audi's A3 hatchback and the Skoda Octavia but two models were gasoline: the VW Polo and the Audi A1, both with 1.4 liter engine and cylinder cut-off.


"Another week, another shock in the VW story," Exane BNP Paribas analyst Stuart Pearson wrote in a note. "We add another 4 billion euros in recall costs and fear a harsher commercial impact," said Pearson, who rates VW "neutral".

The biggest business crisis in VW's 78-year history erupted on Sept. 18 when U.S. authorities exposed VW's use of "defeat devices" to cheat tests for emissions of nitrogen oxide. VW admitted such software was installed in up to 11 million diesel vehicles worldwide.

The scandal has wiped nearly a third - or almost 24 billion euros - off its stock market value.

VW's latest admission came after U.S. environmental regulators said the carmaker had failed to inform them that similar devices were installed on larger 3.0 liter engines used in luxury sport utility vehicles from Porsche and Audi.

The carmaker has denied this, but said on Tuesday it would immediately start talking to "responsible authorities" about what to do about the latest findings on fuel consumption and CO2 emissions - areas which U.S. watchdogs have yet to address.

Some analysts and investors criticized the September appointment of Matthias Mueller as VW group CEO, questioning whether the former head of its Porsche division and a company veteran was the right man to lead an overhaul of the business.

Porsche's North American division has stopped sales of diesel-powered Cayenne SUVs from model years 2014 to 2016 until further notice. Audi followed suit on Wednesday, saying it has halted deliveries of affected A6, A7, A8 and Q5 models.

"From an outside perspective and we are sure for the majority of VW employees, the degree and extent of cheating that has been discovered so far is beyond imagination," wrote analyst Arndt Ellinghorst of banking advisory firm Evercore ISI.

The effects of the scandal have so far barely been reflected in VW sales figures, however - although it was the only German carmaker to report a decline in car registrations in Germany in October.

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