Volkswagen Vows to Get to Bottom of Scandal as Probe WidensBy
Automaker sets aside $7.3 billion in initial tally of costs
U.S. safety regulator says entire industry under scrutiny
Volkswagen AG Chief Executive Officer Martin Winterkorn vowed to get to the bottom of the scandal shaking the German carmaker and promised to do everything possible to prevent such an incident from happening again as the probe into VW’s diesel manipulations expanded around the globe.
“At this point, I don’t have the answers to all the questions,” Winterkorn said in a video posted on the automaker’s website. “But we’re in the process of ruthlessly investigating the issue, and to that end everything will be put on the table as fast, thoroughly and transparently as possible.”
The executive’s dismissal is imminent, Germany’s Hannoverschen Allgemeinen Zeitung reported on Tuesday, citing unidentified members of the supervisory board. The panel’s top representatives are convening in the northern German city of Braunschweig, one day earlier than previously planned, and Winterkorn has lost the backing of major shareholders, the newspaper said.
VW earlier Tuesday said 11 million vehicles were equipped with diesel engines at the center of a widening scandal over faked pollution controls that will cost the company at least 6.5 billion euros ($7.3 billion). The shares declined 20 percent, bringing its drop in two days to 35 percent, or about 23 billion euros in market value.
“It’s not just a U.S. matter for VW -- you have regulators all over the globe looking into it with potentially numerous fines to come,” said Vincenzo Longo, a strategist for IG Group in Milan. “We don’t see any stop to this bloodbath unless there is a change at the head of VW and full cooperation with authorities. Some heads need to roll to get investors buying back VW.”
Winterkorn has been at the center of scrutiny since the U.S. Environmental Protection Agency revealed on Friday that VW cheated on air-pollution tests. While the 68-year-old CEO repeated Tuesday that he’s deeply sorry and promised a thorough investigation, he didn’t specifically comment on his role. He’ll need to explain to the supervisory board, which was set to vote this week on his contract extension, how deep the malfeasance spread throughout the carmaker.
The woes follow record earnings last year, when the company’s operating profit climbed 8.8 percent to 12.7 billion euros after selling more than 10 million vehicles for the first time.
Regulators from Germany, France, South Korea and Italy have vowed to scrutinize Volkswagen’s vehicles. Germany said it will send an investigative team led by Deputy Transport Minister Michael Odenwald to VW’s headquarters in Wolfsburg this week to speak with officials and examine documents. The team will seek to determine whether the cars affected in the case were built according to German and European standards, the ministry said.
“I hope the facts can be on the table as quickly as possible,” German Chancellor Angela Merkel said on Tuesday.
Several U.S. states, including New York, have also begun investigating Volkswagen’s diesel emissions.
Volkswagen shares tumbled 26.2 euros to 106 euros in Frankfurt. That followed a 19 percent dive the previous day.
“Volkswagen is working at full speed to clarify irregularities concerning a particular software used in diesel engines,” the company said in a statement. The manufacturer said the money that’s being set aside could increase as investigations continue, adding that earnings forecasts for 2015 will be adjusted to take into account the costs of the scandal.
The so-called defeat device was installed in a certain type of diesel engine, which powers models including the VW Passat sedan and the Audi A3 compact. For the majority of the 11 million vehicles involved, the software has no effect, VW said. Regulators will be looking to verify that after VW dragged its feet on the U.S. investigation for nearly a year. The EPA probe alone exposes the company to fines of as much as $18 billion. The U.S. Justice Department has begun its own probe into the matter, according to two U.S. officials familiar with the inquiry.
Porsche SE, the holding company that owns 51 percent of Volkswagen’s voting shares, said VW’s provision will also have an effect on its profit this year.
Volkswagen’s cheating on the diesel-emissions tests hurts the reputation of the whole auto industry and will bring greater scrutiny on all automakers, Mark Rosekind, who runs the U.S. National Highway Traffic Safety Administration, told an industry group today in suburban Detroit.
“If they did it, anyone else can do it,” he told reporters following the speech. “You’re not just going to worry about one person, unfortunately that now is extended to the entire industry.”
— With assistance by Patrick Donahue, Tommaso Ebhardt, Keith Naughton, and Christie Smythe
To continue reading this article you must be a Bloomberg Professional Service Subscriber.
If you believe that you may have received this message in error please let us know.