Volkswagen and Audi could be facing a major credibility crisis in the UK after the German manufacturer was accused of "fixing" emissions tests for some of its vehicles by the US government, according to vehicle valuations firm Glass’s.
On Friday 18 September, the US government ordered Volkswagen to recall almost half a million cars, after it said it had found that the company had used software to cheat emission tests, allowing its cars to produce significantly more pollution than the legal limit.
Models included the VW Beetle, Golf and Passat, as well as the Audi A3. The allegations go as far back as 2008.
According to the United States Environment Protection Agency (EPA): "A sophisticated software algorithm on certain Volkswagen vehicles detects when the car is undergoing official emissions testing, and turns full emissions controls on only during the test. The effectiveness of these vehicles’ pollution emissions control devices is greatly reduced during all normal driving situations. This results in cars that meet emissions standards in the laboratory or testing station, but during normal operation, emit nitrogen oxides, or NOx, at up to 40 times the standard."
Such a device is known as a ‘defeat device’.
VW could face a civil penalty of up to $37,500 for each vehicle sold in violation, meaning the manufacturer could be facing billions of dollars’ worth of fines.
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In response issued on Friday, Martin Winterkorn, chief executive officer of Volkswagen AG, said: "The Board of Management at Volkswagen AG takes these findings very seriously. I personally am deeply sorry that we have broken the trust of our customers and the public. We will cooperate fully with the responsible agencies, with transparency and urgency, to clearly, openly, and completely establish all of the facts of this case. Volkswagen has ordered an external investigation of this matter."
He said: "The trust of our customers and the public is and continues to be our most important asset. We at Volkswagen will do everything that must be done in order to re-establish the trust that so many people have placed in us, and we will do everything necessary in order to reverse the damage this has caused. This matter has first priority for me, personally, and for our entire Board of Management."
In a statement released on the 20th, VW said: "To cover the necessary service measures and other efforts to win back the trust of our customers, Volkswagen plans to set aside a provision of some 6.5 billion EUR recognized in the profit and loss statement in the third quarter of the current fiscal year. Due to the ongoing investigations the amounts estimated may be subject to revaluation. Earnings targets for the Group for 2015 will be adjusted accordingly."
Now the German marque has been warned it could face a credibility gap outside of the US. In the UK, Rupert Pontin, head of valuations at Glass’s said: "Our understanding is that VW have admitted that the accusations made against them are true, although we don’t yet know whether similar ‘fixes’ affect UK models.
"Whatever the final truth, this is potentially very damaging for the Audi and Volkswagen brands. Essentially, the company has deliberately set out to mislead legislators and customers.
"If you are a fleet or private motorist who has chosen a VW or Audi, with the emissions performance of that vehicle being a major benefit, then you are going to feel cheated. No question.
"Exactly how this plays out is very difficult to predict but it could affect the used values of Audis and VWs. These are brands built on decades of credibility and that credibility has been badly damaged."
Pontin added: ""Our view has been for a while that Volkswagen sells too many cars for a semi-prestige brand and Audi too many for a prestige one. The volumes are large enough that they are creating downward pressure on RVs.
"The emissions scandal is obviously not going to help this situation. If buyers lose trust in the brands, then there is inevitably less demand and values suffer."
Lucia Caudet, spokesperson for the European Commission, said that the EU Commission was taking the matter seriously, and had been in contact with VW, EPA and the California Air Resources (CARB) to establish the details of the case.
She said: "Investigations are ongoing within Volkswagen as well as in the US and in Germany. Therefore, it is premature to comment on whether any specific immediate surveillance measures are also necessary in Europe and whether vehicles sold by Volkswagen in Europe are also affected.
"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 industry scrupulously respects emissions limits."
While defeat devices are forbidden in the EU under Article 5 of the Euro 6 Regulation, VW maintained that new vehicles in the EU were compliant with the regulation: "New vehicles from the Volkswagen Group with EU 6 diesel engines currently available in the European Union comply with legal requirements and environmental standards. The software in question does not affect handling, consumption or emissions. This gives clarity to customers and dealers."
In Germany, meanwhile, the Guardian quoted German economy minister Sigmar Gabriel as saying: "You will understand that we are worried that the justifiably excellent reputation of the German car industry and in particular that of Volkswagen suffers."
Since Friday, VW AG shares have fallen from 162.20 per share to 104.75, at the time of writing.