BERLIN – Volkswagen AG is setting aside around $9.6 billion to cover fallout from VW’s admission that about 11 million of its diesel vehicles worldwide were fitted with software at the centre of a U.S. emissions scandal.
There was no mention of any fines or penalties Tuesday in the German automaker’s announcement, which said it would set aside about 6.5 billion euros to deal with the scandal.
In the wake of its statement, VW’s share price was down another 17.6 per cent Tuesday at 110.20 euros and near a four-year low. The fall comes on top of Monday’s hefty 17 per cent decline and means the company has lost an eye-watering 25 billion euros or so in just two days of frenzied trading.
The trigger to the company’s market woes was last Friday’s revelation from the U.S.’s Environmental Protection Agency that VW rigged nearly half a million cars to defeat U.S. smog tests.
The company then admitted that it intentionally installed software programmed to switch engines to a cleaner mode during official emissions testing. The software then switches off again, enabling cars to drive more powerfully on the road while emitting as much as 40 times the legal pollution limit.
MORE: Complete coverage of the VW emissions scandal
In its statement Tuesday, Volkswagen gave more details, admitting that “discrepancies” related to vehicles with Type EA 189 engines and involved some 11 million vehicles worldwide.
“A noticeable deviation between bench test results and actual road use was established solely for this type of engine,” it said. “Volkswagen is working intensely to eliminate these deviations through technical measures.”
To cover the necessary service measures and what it says are “other efforts to win back the trust of our customers,” VW said is setting aside some 6.5 billion euros in the current quarter.
That figure, it conceded, may be subject to revaluation in the light of ongoing investigations. As a result, it said 2015 earnings targets will be adjusted but it didn’t specify by how much.
It added that the software is also installed in other vehicles with diesel engines but that that for the “majority of these engines the software does not have any effect.”
Volkswagen said that new vehicles with EU 6 diesel engines currently on sale in the European Union comply with legal requirements and environmental standards.
CEO Martin Winterkorn issued an apology on Sunday for the U.S. scandal, promised an internal investigation and acknowledged that his company had “broken the trust of our customers and the public.”
VW’s troubles already are not confined to the U.S., though.
Volkswagen Canada told dealers on Monday to stop selling diesel-powered vehicles involved in the emissions-testing scandal, including the Jetta, the Golf and the Beetle. No mention was made of what is to happen with cars already on the road.
Environment Canada has said its air pollution standards are in line with those of the EPA and that it collaborates with the American agency on emissions testing. However, it did not say whether the company would face any sanctions in Canada.
Merchant Law Group LLP, with 10 offices in Canada, announced it’s filing a national class action over the emissions scandal.
“VW had marketed its diesel-powered cars as being better for the environment,” the law firm said in a statement.
South Korea said Tuesday it would investigate emission levels of Volkswagen diesel vehicles in the wake of the rigging scandal in the U.S. that has heaped pressure on Winterkorn. The German government is to also conduct new emissions tests in VW’s diesel cars, while France called for a wider Europe-wide investigation into Volkswagen’s practices — and into those of French carmakers.
Even before Tuesday’s statement, a member of Volkswagen’s supervisory board suggested that heads will roll in the wake of the scandal, though he said it was too soon to start assigning blame.
Speaking on Germany’s Deutschlandfunk radio, Olaf Lies cautioned against “over-hasty calls for resignations.”
Lies, who is also the economy minister of the German state of Lower Saxony, which holds a 20 per cent stake in Volkswagen, said he was sure there would be “personal consequences” once the investigation is complete.
The shockwaves from the scandal enveloping Volkswagen were being felt far and wide across the sector as traders wondered who else may get embroiled. Germany’s Daimler AG, the maker of Mercedes-Benz cars, was down 6 per cent, while BMW AG fell 5.3 per cent. France’s Renault SA was 5.5 per cent lower.
“It’s an auto-sector shaking incident,” said Connor Campbell, a financial analyst at Spreadex.
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