LONDON (CNNMoney) — Volkswagen is being engulfed by a growing crisis over its attempt to make millions of diesel cars appear cleaner than they are.
The scandal broke Friday, September 18, 2015, when U.S. regulators said the German company had programmed some 500,000 vehicles to emit lower levels of harmful emissions in official tests than on the roads.
Volkswagen stunned investors Tuesday, September 22, by admitting that the problem was much bigger than that: internal investigations had found significant discrepancies in 11 million vehicles worldwide.
It set aside 6.5 billion euros ($7.3 billion) to cover the cost of recalls and “efforts to win back the trust of our customers,” trashing its profit forecast for the year in the process.
Shares in Volkswagen plunged 18% Tuesday, after crashing 17% Monday. That means about a third of the value of the group has been wiped out in two days.
A global problem
“Now it looks like it’s becoming a very global issue. It really will be bad for the reputation of the company for a couple of years, it will take time to rebuild the trust of the customers,” said Klaus Breitenbach, automotive analyst at Baader Bank. “It’s really worrying for the company and also for the whole industry.”
It’s hard to overstate the significance of the crisis in Germany, where making quality cars is central to the country’s reputation as a manufacturing and export powerhouse. The auto industry accounts for about 20% of exports, and employs 775,000 people directly.
Volkswagen, which also owns the Audi and Porsche brands, overtook Toyota earlier this year to become the world’s biggest automaker by vehicle sales.
Authorities in Germany have ordered the country’s car makers to come clean on the scale of emissions manipulation. Britain and France have called for a Europe-wide investigation, and Italy wants to know whether it has been affected.
“It is premature to comment on whether any specific immediate surveillance measures are also necessary in Europe and [on] the implications for vehicles sold by Volkswagen in Europe,” said a spokesperson for the European Commission.
“But let me be clear: We need to get to the bottom of this. For the sake of our consumers and the environment, we need certainty that the industry scrupulously respects emissions limits.”
South Korea said it would investigate whether four VW models were meeting emissions standards.
Can Volkswagen CEO survive?
Apart from the financial damage — Volkswagen could in theory face fines of up to $18 billion in the U.S. alone — the company could lose its chief executive over the affair.
CEO Martin Winterkorn, who survived an attempt to remove him earlier this year, apologized to customers on Sunday for breaking their trust.
Some analysts say his position at the top of Volkswagen is threatened by the scandal. The company was forced to deny German media reports on Tuesday that Winterkorn would be replaced on Friday by Porsche CEO Matthias Mueller.
Michael Horn, the head of Volkswagen in the U.S., admitted late Monday, September 21, that the company had “totally screwed up.”
“Let’s be clear about this, our company was dishonest with the [Environmental Protection Agency], and the California air resources board, and with all of you,” Horn said. “In my German words, we have totally screwed up.”
Regulators in the U.S. said Volkswagen cheated on environmental standards by programming engine management software in some diesel cars to turn on emission controls only when being tested. Cars equipped with the device would run up to 40 times more emissions when on the road, the EPA said.
Volkswagen has been ordered to recall the vehicles, and the company is halting sales of some cars in the U.S.
The models affected include the VW Jetta, Beetle and Golf from 2009 through 2015, the Passat from 2014-2015 as well as the Audi A3, model years 2009-2015. Owners of the “CleanDiesel” automobiles have filed a class action lawsuit against Volkswagen.
“We must fix those cars and prevent this from ever happening again and we have to make things right with the government, the public, our customers, our employees and also very important, our dealers,” Horn said.
The scandal dragged down shares in other carmakers on fear the fallout could affect the wider industry.
Daimler, the maker of Mercedes-Benz, was down 6% on Tuesday, while BMW lost 5%. Both companies said the issue is not affecting their cars.
