Volkswagen admits that its cheating software is in 11 million cars worldwide

Gathering clouds.
Gathering clouds.
Image: EPA/Julian Stratenschulte
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“We have totally screwed up.” That was the frank assessment of a Volkswagen executive in the US, coming clean about the German carmaker’s burgeoning emissions-cheating scandal at a public appearance in New York yesterday (Sept. 21).

It is an understatement.

Today, the company revealed that “discrepancies” in the software that controls emissions in some diesel-engine models affects some 11 million vehicles around the world. The group said it will set aside €6.5 billion ($7.3 billion) in the current quarter to “cover the necessary service measures and other efforts to win back the trust of our customers.”

Last week, the US Environmental Protection Agency said that nearly 500,000 Volkswagen cars sold in the country between 2009 and 2015 had “defeat device” software installed, which is designed to detect when a car is being tested for emissions and lower them accordingly. Meanwhile, out on the road, these cars released up to 40 times more pollution than allowed by the rules.

In theory, American authorities could hit Volkswagen with a fine of $18 billion, although that is likely to be reduced due to co-operation and actions to fix the problem. But it will still be plenty costly for the carmaker. On top of the recalls and fines, there are also potential criminal charges, class-action lawsuits, and forgone sales to deal with. Today, South Korea has opened investigations into certain Volkswagen models, and a Europe-wide probe could be in the works.

As a result, it is unlikely that Volkswagen’s €6.5-billion provision will be enough to cover the ultimate bill. Given the environmental nature of the offense, some think that the blockbuster penalties levied on BP for its Gulf of Mexico oil spill are a better guide for the scale and scope of the costs facing Volkswagen than the typical vehicle recall.

The German carmaker’s investors are certainly preparing for the worst. The company’s shares have lost nearly a third of their value since the start of the week, so far destroying a whopping €25 billion in market cap in less than two days.