Is this the end of Volkswagen?

Volkswagen is being engulfed by a growing crisis over its attempt to make millions of diesel cars appear cleaner than they are.

This story just keeps getting worse and worse for VW. The initial hit to their stock wiped out $17 billion dollars and they've lost another similar-sized chunk for a total of a third of their value in two days.

They have to set aside yet another $7.3 billion for the recall cost as well.

Add on the $18 billion in potential fines from the US (let alone the EU who no doubt will have similar or higher fines) and it could wipe out the company just from the financial itself. Plus the hit to their reputation and they might never recover and it's also impacted other makers who had nothing to with VW.

All told this is roughly $60 billion dollars (taking into account the second day's stock plunge) of money down the drain due to the scandal... that is only on day two. After all is said and done, this company might be on the hook for several hundred billion dollars.

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The scandal broke Friday, when U.S. regulators said the German company had programmed some 500,000 vehicles to emit lower levels of harmful emissions in official tests than on the roads. Volkswagen stunned investors Tuesday by admitting that the problem was much bigger than that: internal investigations had found significant discrepancies in 11 million vehicles worldwide. It set aside 6.5 billion euros ($7.3 billion) to cover the cost of recalls and "efforts to win back the trust of our customers," trashing its profit forecast for the year in the process. Shares in Volkswagen (VLKAY) plunged 18% Tuesday, after crashing 17% Monday. That means about a third of the value of the group has been wiped out in two days. A global problem "Now it looks like it's becoming a very global issue. It really will be bad for the reputation of the company for a couple of years, it will take time to rebuild the trust of the customers," said Klaus Breitenbach, automotive analyst at Baader Bank. "It's really worrying for the company and also for the whole industry." It's hard to overstate the significance of the crisis in Germany, where making quality cars is central to the country's reputation as a manufacturing and export powerhouse. The auto industry accounts for about 20% of exports, and employs 775,000 people directly. Volkswagen, which also owns the Audi and Porsche brands, overtook Toyota (TM) earlier this year to become the world's biggest automaker by vehicle sales. Authorities in Germany have ordered the country's car makers to come clean on the scale of emissions manipulation. Britain and France have called for a Europe-wide investigation, and Italy wants to know whether it has been affected. "It is premature to comment on whether any specific immediate surveillance measures are also necessary in Europe and [on] the implications for vehicles sold by Volkswagen in Europe," said a spokesperson for the European Commission. "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 the industry scrupulously respects emissions limits." South Korea said it would investigate whether four VW models were meeting emissions standards. Can Volkswagen CEO survive? Apart from the financial damage -- Volkswagen could in theory face fines of up to $18 billion in the U.S. alone -- the company could lose its chief executive over the affair. CEO Martin Winterkorn, who survived an attempt to remove him earlier this year, apologized to customers on Sunday for breaking their trust. Some analysts say his position at the top of Volkswagen is threatened by the scandal. The company was forced to deny German media reports on Tuesday that Winterkorn would be replaced on Friday by Porsche CEO Matthias Mueller. Michael Horn, the head of Volkswagen in the U.S., admitted late Monday that the company had "totally screwed up." "Let's be clear about this, our company was dishonest with the [Environmental Protection Agency], and the California air resources board, and with all of you," Horn said. "In my German words, we have totally screwed up." Regulators in the U.S. said Volkswagen (VLKAF) cheated on environmental standards by programming engine management software in some diesel cars to turn on emission controls only when being tested. Cars equipped with the device would run up to 40 times more emissions when on the road, the EPA said. Volkswagen has been ordered to recall the vehicles, and the company is halting sales of some cars in the U.S. The models affected include the VW Jetta, Beetle and Golf from 2009 through 2015, the Passat from 2014-2015 as well as the Audi A3, model years 2009-2015. Owners of the "CleanDiesel" automobiles have filed a class action lawsuit against Volkswagen. "We must fix those cars and prevent this from ever happening again and we have to make things right with the government, the public, our customers, our employees and also very important, our dealers," Horn said. The scandal dragged down shares in other carmakers on fear the fallout could affect the wider industry. Daimler (DDAIF), the maker of Mercedes-Benz, was down 6% on Tuesday, while BMW (BAMXY) lost 5%. Both companies said the issue is not affecting their cars.

Money

This article is on the beginning of the scandal, which is only going to get uglier as the facts come out.

Volkswagen Group must recall 500,000 diesel cars for cheating on smog tests

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On Friday, the US Environmental Protection Agency (EPA) accused Volkswagen Group of purposely installing software on some of its cars to cheat on emissions tests. According to the New York Times, Volkswagen Group will have to recall 500,000 Volkswagens and Audis on which so-called “defeat devices” were installed. In a Notice of Violation (PDF) sent to the automaker, the EPA said that the defeat devices on Volkswagen Group's cars “render inoperative elements of the vehicle's emission control system.” If the car senses that it's operating normally, the defeat device reduces the effectiveness of some or all of the car's emission control components. However, if the car is undergoing an emission test, the emission control systems will be allowed to function normally. According to the EPA's letter, the software on Volkswagens and Audis was installed on the cars' electronic control module and determined whether the car was driving normally or undergoing testing “based on various inputs including the position of the steering wheel, vehicle speed, the duration of the engine's operation, and barometric pressure.” If the car was driving under normal conditions, the car's nitrogen oxide (NOx) emissions were increased by 10 to 40 times above the level of NOx emissions permitted by the EPA. NOx contributes to climate change and the destruction of ozone. Excessive NOx in the atmosphere can cause respiratory health problems. In a statement to Ars, a Volkswagen Group spokesperson said that the company has received the letter and is cooperating with the EPA's investigation. The New York Times notes that California regulators have sent a separate notice of violation to Volkswagen Group. The EPA's letter to the company says that it learned of the violation thanks to a 2014 study published by West Virginia University's Center for Alternative Fuels, Engines, and Emissions. The University found that two Volkswagen diesel vehicles—a 2012 Jetta and a 2013 Passat—gave off significantly higher in-use emissions. Volkswagen denied that there was anything wrong with its models' emissions control systems and asserted that there were technical issues with the individual test cars that contributed to the University's results. Still, the California Air Resources Board (CARB) and the EPA launched investigations. VW issued a voluntary recall of affected models at the end of 2014, but CARB and the EPA were not able to find noticeably different results in recalled cars. “It became clear that CARB and the EPA would not approve certificates of conformity for VW's 2016 model year diesel vehicles until VW could adequately explain the anomalous issues and ensure the agencies that the 2016 model year vehicles would not have similar issues,” the EPA wrote. “Only then did VW admit it had designed and installed a defeat device in these vehicles in the form of a sophisticated software algorithm that detected when a vehicle was undergoing emissions testing.” The cars that must be recalled include diesel Jettas after 2009, diesel Golfs after 2010, diesel Audi A3s after 2010, diesel Beetle Convertibles after 2012, and diesel Passats after 2012.

Ars Technica