Shares of German auto conglomerate Volkswagen AG (ETR:VOW3) were down more than 20% in trading in Europe on Monday after the firm admitted rigging U.S. air pollution tests for the last six years.
Volkswagen stock was down by as much as 23% to 125.40 euros in trading in Frankfurt on Monday. The German carmaker’s stock is now off more than 30% since the beginning of the year. Monday’s decline saw $17.6 billion of market cap wiped away.
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VW announced on Sunday that it was halting all sales of the impacted models, and noted it was cooperating fully with the investigation. The firm also said it was setting up an external investigation. Volkswagen CEO Martin Winterkorn commented that he was “deeply sorry” for breaching the trust of the public and the iconic carmaker would do“everything necessary in order to reverse the damage this has caused.”
German car manufacturers BMW and Daimler said on Monday they were not aware of a related U.S. probe into their vehicles. However, the stock price of both firms was off notably.
More on Volkswagen cheating on EPA emissions tests
Analysts point out that Winterkorn’s contract renewal is scheduled for a supervisory board vote on Friday, and may now face a serious challenge to his continued leadership of the company.
The charges from the U.S. EPA are “grave” and must be fully explained, noted Stephan Weil, the prime minister of the German state of Lower Saxony, which is the owner of one-fifth of the firm’s voting shares. “Possible consequences can be decided after that,” he continued.
The European Commission also announced it has been in contact with U.S. regulators and VW management regarding developments in the case.
VW’s reputation for German engineering and its high-performance diesel technology were the keys to CEO Winterkorn’s plan to become a player in the U.S. auto market.
Almost half a million vehicles could result in as much as $18 billion in fines, calculated on the cost per violation and the number of vehicles involved. Criminal prosecution is also possible.
“If this ends up having been structural fraud, the top management in Wolfsburg may have to bear the consequences,” noted Sascha Gommel, an analyst for Commerzbank AG, who is reviewing its rating of VW.
The Wolfsburg, Germany-headquartered firm admitted it had rigged its U.S. diesel vehicles with software designed to only turn on the full pollution controls when the car is being tested for emissions, the U.S. EPA announced last Friday.