Volkswagen emissions scandal dampens automotive industry credibility

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Volkswagen CEO Martin Winterkorn turned in his resignation on Wednesday in the wake of a growing scandal over falsified emissions tests in the United States. The German carmaker’s emissions cheating affects 11 million vehicles, 482,000 of which were sold in America.

Other carmakers were quick to distance themselves from the scandal plaguing the world’s largest automaker. An auto industry’s largest association issued a statement highlighting the strength of European Union emissions standards. Many of Europe’s major carmakers, including Opel, BMW, Renault, Citroën, and Mercedes-Benz, reacted to the scandal with statements highlighting their compliance with emissions standards. Their eagerness to demonstrate trustworthiness seemed to take on a new urgency as authorities in Europe called for wider investigations.

But the carmakers face an uphill battle in trying to regain the public’s trust. Volkswagen’s woes are just the latest in a string of multibillion-dollar scandals involving cover-ups in the automotive industry.  The most recent was a $1.2 billion fine that Toyota paid last year in a settlement with U.S. prosecutors on charges that it misled the public and regulators about unintended acceleration.

Volkswagen’s 11 million compromised cars surpass the more than 8.1 million vehicles affected in the Toyota scandal. But both of these numbers pale in comparison to the 34 million vehicles in the U.S. alone that were recalled this summer to replace defective airbags made by major parts supplier Takata.

Infographic by Mireia Triguero Roura

Infographic by Mireia Triguero Roura

When it comes to financial penalties, however, Volkswagen may enter the record books. The company says it will set aside 6.5 billion euros ($7.3 billion) for potential costs associated with the emissions scandal, which the U.S. Environmental Protection Agency exposed last week. A fine has not yet been set, but U.S. law allows a penalty of up to $18 billion, and the company will likely be forced to make additional payouts resulting from consumer lawsuits.

Volkswagen stock fell around 30 percent on the heels of the crisis, though it rebounded somewhat after Winterkorn stepped down. Investors seemed to cheer the decision, which the carmaker’s now former top official called a “fresh start” for the company.

As Volkswagen seeks to rehabilitate its image in the eyes of consumers, regulators and investors, more executives and engineers will likely be dismissed. As for the 10.5 million other cars, Volkswagen has not clarified if the software was used to cheat in other countries.

A turnaround will depend as much on the company’s own efforts to reform as it will on revelations from other automakers being uncovered. Judging by the quickening pace of these scandals in recent years, such revelations may be just around the corner.

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Tom Brant

Tom Brant is a graduate student at New York University’s Arthur L. Carter Journalism Institute.

1 Comment

  1. Alan Brown, chairman of the Volkswagen National Dealer Advisory Council, commented on the scandal’s negative impact on US dealers, who were already struggling with overpriced products and a deteriorating relationship between the company and the dealer body.

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