File picture: Shannon Stapleton / Reuters.
File picture: Shannon Stapleton / Reuters.

Dark day for German car companies

By Andreas Cremer and Edward Taylor Time of article published Apr 25, 2016

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Frankfurt - Volkswagen said on Friday that it would take a 16.2-billion-euro (R264bn) hit to its 2015 results and slash its dividend to help pay for its emissions-test cheating scandal.

The news came amid growing signs of a regulatory clampdown in the wake of VW's cheating is affecting the broader industry, with Germany-based carmakers including Mercedes-Benz, and Opel - as well as VW - agreeing to recall a total of 630 000 cars to fix diesel engine technology blamed for high pollution.

On Thursday, VW agreed a framework settlement with US authorities to buy back or potentially fix about half a million cars fitted with illegal test-fixing software, and set up environmental and consumer compensation funds.

Analysts said the deal was crucial for VW to give a cost for the scandal in its 2015 results, which have been delayed since February, and provide a starting point for Europe's biggest carmaker to try to rebuild trust with investors and customers.

However, analysts said VW could still face further costs, including potential US Department of Justice (DoJ) fines as part of an expected civil settlement, and a DoJ investigation that could lead to criminal charges.

There are also questions over whether it will offer compensation to the much larger number of diesel drivers affected outside the United States, as well as who will be blamed for the scandal in several ongoing investigations.

Chief Executive Matthias Mueller also said he could not put a figure on the total cost of the scandal - which some analysts have estimated at about $30 billion (R489bn) - but there was no reason to believe the 2015 loss would lead to job cuts.

Legal loophole

Engine management systems and software have come under increased scrutiny since the VW scandal broke.

Though no other carmaker has been found using the “defeat device” software employed by VW, regulators and environmental groups have criticised the wide use of engine management systems which switch off treatments for reducing emissions in order to improve performance and increase the interval between services.

European tests have found several carmakers using a legal loophole allowing them to throttle back emissions treatments under certain circumstances, ostensibly to protect engines.

Following extensive testing, the Germany's motor transport authority questioned whether the use of this loophole was always justified and necessary, a German official said a Friday.

Other German carmakers in recall

The official said Opel and Mercedes-Benz, as well as VW brands Audi, VW and Porsche, had agreed to recall a total of 630 000 vehicles to tweak emissions management systems.

BMW, which invested in fuel saving technologies earlier than most rivals, was not part of the recall, the official said.

The carmakers said they will cooperate with authorities.

Separately, Mercedes-Benz said late on Thursday that the US justice department had asked it to investigate its emissions certification process for vehicles.

Finance chief Bodo Uebber declined to elaborate on what prompted the investigation when Daimler published earnings for the first three months of the year on Friday.

“We cannot go into details,” he told reporters as Daimler said first-quarter operating profit fell 9 percent, hit by launch costs for its new E-Class and currency swings.

Daimler said on Thursday it was cooperating with US authorities and would “investigate possible indications of irregularities and of course take all necessary actions.”

In a further sign of widening scrutiny, facilities run by France's Peugeot Citroen and Japan's Mitsubishi Motors Corp were searched on Thursday by local officials investigating fuel efficiency and pollution levels.

Reuters

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