International / 3 November 2015, 1:07pm / Jeff Plungis, Dana Hull and Christoph Rauwald
Wolfsburg - Volkswagen rejected US Environmental Protection Agency allegations that its cheating on diesel-emissions tests included Porsche and other larger vehicles, setting up a fight with US regulators as it seeks to repair its battered image.
While software in 3-litre diesel engines had “not been adequately described” to regulators, the technology was not installed “in a forbidden manner,” the Wolfsburg, Germany-based company said in a statement. VW’s shares fell the most in a month.
The new investigation centres on the Porsche Cayenne and VW Touareg sport utility vehicles and as well as larger sedans and the Q5 SUV from Audi. Volkswagen had previously admitted to installing a so-called defeat device in smaller Volkswagen group autos from the 2009 to 2015 model years. The company said Monday that it’s cooperating with the EPA to “clarify” the new questions.
“VW stresses that no software has been installed in the 3-litre V6 diesel engines to change emission results in an inadmissible way,” the company said in an e-mail.
The conflict could have implications for Matthias Mueller, the head of the Porsche brand who was installed in September as Volkswagen chief executive officer to help lead the company out of the emissions scandal. Mueller has professed no knowledge of the emissions cheating before it was uncovered by regulators.
“Expansions of sales sanctions on affected models is now likely to be increased, and the possibility of leniency from the EPA is now reduced,” Alexander Haissl, an analyst at Credit Suisse, said in a note to clients. “This could impact the company’s credibility.”
Volkswagen dropped as much as 5.1 percent, the steepest intraday decline since October 5, and was trading down 3.3 percent at 109 euros as of 9:48 a.m. on Frankfurt. The shares have fallen 33 percent since the scandal was revealed on September 18, valuing the carmaker at 56.3 billion euros ($62 billion).
Porsche said in a statement that it was “surprised” by the EPA announcement as, “until this notice, all of our information was that the Porsche Cayenne diesel is fully compliant.”
The EPA and the California Air Resources Board announced Sept. 18 that they were investigating Volkswagen after the carmaker admitted to rigging the emissions systems of diesel vehicles so they would pass pollution tests. That announcement affected almost 500 000 cars in the US, and 11 million worldwide.
10 000 cars
The expanded probe adds only about 10 000 more cars now on the road, as well as an undetermined number of 2016 models, but draws in the prestigious Porsche brand that had been untouched by the scandal so far.
“VW has once again failed in its obligation to comply with the law that protects clean air for all Americans,” Cynthia Giles, assistant administrator of EPA’s Office of Enforcement and Compliance Assurance, said in a statement on the agency’s website.
The cheating scandal has shattered Europe’s largest automaker, leading to the resignation of Mueller’s immediate predecessor as CEO, Martin Winterkorn. VW set aside 6.7 billion euros in the third quarter for recall repair costs and has repeatedly acknowledged this won’t be enough. Under the US Clean Air Act, Volkswagen may be liable for fines as high as $18 billion, based on maximum penalties per car involved, and it faces further costs from lawsuits filed in that country and Europe.
During stepped up testing of diesel models on the road, regulators discovered software in VW, Audi and Porsche models with 3.0-litre diesel engines that turns pollution-control equipment on only when the cars are in “temperature conditioning” mode that mirrors federal test conditions, the EPA said. In real-world driving, the controls are turned off, making the vehicles far more polluting than EPA standards.
The affected models are the 2014 Touareg, the 2015 Cayenne and the 2016 Audi A6 Quattro, A7 Quattro, A8, A8L and Q5. The vehicles’ emissions systems were rigged to turn off “one second” after government testing was complete, improving performance but causing nitrogen oxide emissions up to nine times the legal limit, Giles said.
VW “knew or should have known” that the vehicles had software installed that “bypasses, defeats or renders inoperative” emissions controls, the EPA said.
“It seems extraordinary that this was not flagged within the company, investigated and declared in light of the challenges which the company has faced in the last 2 months,” Arndt Ellinghorst, a London-based analyst at Evercore ISI, said in a note.
The second EPA notice could trigger a recall of an additional 1 million cars, Jose Asumendi, an analyst at JPMorgan Chase & Co., said in a note to clients. "Worst case scenario, we estimate VW would have to top up the 6.7 billion euros provision by another 1 billion euros by year-end."
-With assistance from Alan Katz in Washington and Mark Clothier in Southfield, Michigan.