VW Emissions Scandal Spreads to Asia as Korea Begins Probe

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Can VW Win Back Trust After Admitting Diesel Dupes?
  • Korea's environment ministry to test emissions of VW vehicles
  • U.S. Justice Department said to be investigating Volkswagen

The fallout from Volkswagen AG’s admission that it had cheated on emission tests in the U.S. is spreading to Asia, as South Korea said it will check whether the German automaker complied with its pollution standards.

South Korea will test emissions on diesel versions of VW’s Jetta, Golf, and Audi AG’s A3 sedan in October, Park Pan Kyu, deputy director of the country’s environment ministry, said by phone. The investigation will involve about 4,000 to 5,000 vehicles that were imported to Korea since 2014, Park said.

“We found it necessary to review the emissions of the models under probe in the U.S., although the U.S. has a more rigid emissions standard than Korea does,” Park said. “We have no plans at the moment to expand the investigation to other makers or models but will continue to closely monitor the situation.”

South Korea is reviewing Volkswagen’s compliance after the company admitted to systematically cheating on U.S. air pollution tests, while Germany said it may investigate the matter. Europe’s biggest carmaker derived about 40 percent of its volume sales last year from Asia, home to its largest market China.

“The bigger concern is how it impacts their European reputation, which is much more important market for them, particularly in diesel,” said Janet Lewis, Hong Kong-based analyst at Macquarie Group Ltd. “To the extent that they can’t grow their U.S. business in their quest to be the No. 1 automaker by 2018, they therefore become more reliant on the China market.”

Deliveries of Volkswagen in China fell 5.8 percent in the eight months through August. Industrywide passenger-vehicle sales in the country climbed 6.3 percent in the same period, according to the China Passenger Car Association.

More than 90 percent of about 25,000 vehicles VW sold in South Korea this year through August were diesel models, according to Korea Automobile Importers & Distributors Association data. They included the models under probe in the U.S.

Shares of both Hyundai Motor Co. and its affiliate Kia Motors Corp. rose 3.1 percent in Seoul on Tuesday after brokerages including Samsung Securities Co., IBK Securities Co. and KB Investment & Securities co. said the South Korean carmakers may benefit from VW’s woes.

“It seems inevitable that Volkswagen’s image gets tarnished and sales fall,” Lee Sang Hyun, an analyst at IBK Securities Co. wrote in a report. “We expect Hyundai Motor Group to benefit from VW’s recall.”

In China, VW sells gasoline versions of the models involved in the U.S. probe. The automaker didn’t respond to a request for a breakdown on the diesel models it sells in China or whether the regulators have contacted it about the U.S. admission.

“The way the system works in China is that it triggers a review, when somebody has a problem related to regulatory compliance in one market,” said Bill Russo, Shanghai-based managing director at Gao Feng Advisory Co. “It raises some question of whether the practices that led to that problem could exist in another market so it could cause other government organizations to take another look and see if in fact they’re complying.”

The General Administration of Quality Supervision, Inspection and Quarantine didn’t immediately reply to a fax seeking comments on whether they will inspect VW. Calls made to the media department of Chinese Ministry of Environmental Protection went unanswered.

New Zealand isn’t aware of any issues with vehicles sold in the country that are compliant with European or Australian standards, Transport Minister Simon Bridges said in an e-mailed response. Australia’s transportation regulator said it’s seeking clarification from Volkswagen as to whether vehicles supplied to the Australian market utilize similar software to that used in the U.S.

There’s no emission issue yet in Malaysia, said Madani Sahari, chief executive officer of Malaysia Automotive Institute. Singapore’s National Environment Agency said it’s working on a response. Taiwan’s air quality regulator said it’s checking with VW’s local agent on imported cars.

— With assistance by Tian Ying, Alexandra Ho, and Rose Kim

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