The Volkswagen AG emission scandal’s latest turn could spell disaster for the auto industry, as the probe broadens from diesel to gas powered vehicles.
Volkswagen shares got shredded Wednesday morning as news broke that 800,000 vehicles may face a recall for failing carbon-dioxide emission standards. The company estimates they could face an additional $2 billion in costs, although experts speculate that number could rise, reports USA Today.
The admission is the first time CO2 emissions, a regular target of environmental groups, has been under scrutiny since the scandal first broke in September. The news has spread fear across the auto industry that other automakers and gas powered cars in general will come under more intense scrutiny from the Environmental Protection Agency and other regulatory bodies.
“One doesn’t believe any more that this is a mere Volkswagen problem, but the perception is that this will become a burden for all car manufacturers,” said one trader in Frankfurt, according to The Wall Street Journal.
This could push a conversation that began with a focus on diesel, to one that questions the environmental viability of gas-powered cars, reports The Wall Street Journal. Governments across the world, including the U.S., have already been pushing for investment in hybrid and electric technologies, despite their costly production. VW even pivoted toward electric cars after the scandal tainted its future diesel lines, meaning the same may hold true as the scandal shifts towards CO2 emissions.
Sascha Gommel, an analyst at Commerzbank said, “A negative sector reaction is likely as a discussion will start if other original equipment manufacturers have also had irregularities in their CO2 classifications.”
The EPA revealed Monday that further testing found additional VW vehicles that employed defeat devices, including models from their luxury Porsche line. This has created more controversy for the company, as current CEO Matthias Muller was formerly head of Porsche until Martin Winterkorn stepped down after the scandal came to light. According to The Wall Street Journal, questions have been raised regarding what he knew as head of Porsche, and whether it is wise to have a VW insider at the helm of the worst crisis in company history.
Muller has promised that Volkswagen will tackle the crisis head on and be open and honest with the public. The new error in emission reporting was the result of an investigation conducted by the company.
“From the very beginning I set out to ensure that we mercilessly and completely clear up this situation,” said Muller. “This is a painful process but there is no alternative.”
Volkswagen shares were down 8 percent on the day as the news spread throughout the industry. In addition to the $2 billion in new costs VW faces, the scandal could cost upwards of $34 billion. Volkswagen is still working on the logistics of the diesel recall and repairs, which promise to be even more complex with the addition of 800,000 vehicles.
Arndt Ellinghorst, an automotive analyst at Evercore ISI said simply, “VW is leaving us speechless.”
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