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The PPM Blog

Volkswagen stock plummets after emissions scandal

A federal criminal investigation has been launched following charges from the Environmental Protection Agency (EPA) that German automaker Volkswagen designed special software to let its diesel cars detect when they were undergoing emissions testing.

The EPA's allegations led to the company's stock plunging on on September 21, losing almost an entire fifth of its value. Since then, a class action lawsuit has already been filed, and the German government has announced its plans to launch its own investigation into the matter.

According to the EPA, whenever Volkswagen cars were tested in the lab, they easily met the agency's emission standards. On the road, however, they emitted as much as 40 times the federal limit. The software, they say, which the agency refers to as a "defeat device," was installed in almost half a million vehicles between the years 2009 and 2015.

In light of the accusations, the German automaker has halted US sales of several of its vehicle lines and has agreed to cooperate with regulators. 

On Sunday, September 20, Martin Winterkorn, the CEO of Volkswagen claimed that "Volkswagen will do everything that must be done in order to re-establish the trust that so many people have placed in us, and we will do everything necessary in order to reverse the damage this has caused."

The EPA, working alongside California regulators first began investigating Volkswagen cars back in May 2014, following the release of a West Virginia University study claiming that lab results for several of the company's vehicles didn't match with road tests.

During the investigation, Volkswagen told the EPA and other regulators that these differences were caused by "various technical issues and unexpected in-use conditions." It admitted to its deceitful practices, however, following a threat from regulators to not approve its 2016 line of diesel cars.

In the face of these claims, Volkswagen could be fined as much as $37,500 for each car it sold with a defeat device: a fine that could reach as much as $18 billion. For context, its 2014 profits were $12.4 billion.

As far as drivers are concerned, the EPA says that those who already own the cars don't have to worry: they're still legal to drive and sell secondhand. Volkswagen also says it's working on a fix for the problem. In the meantime, it's halted the sale of diesel cars in the States.

Whether the automaker used this technology in the European market as well remains to be seen, although if it's discovered to be the case, it could be disastrous for its long term prospects. In the meantime, they're already facing a class action suit.

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