International auto-maker Volkswagen (VW) has found itself in hot water this week, after it came to light that a sizeable portion of their diesel-operated cars on the road were recording and transmitting false emissions data, vastly under-representing the emissions produced by VW vehicles. It was revealed that the vehicles were specifically manufactured to operate at a lower-emitting mode during official testing procedures than once they were out on the road.
The problem was originally reported to affect about 500,000 vehicles on the road; while serious, VW could weather the ensuing cost, and immediately issued a recall for the affected vehicles. However, on Tuesday Volkswagen grimly announced to their shareholders that the problem was quite larger than previously thought: the “defect” was present in approximately 11 million cars on the road worldwide.
The US Environmental Protection Agency has authority under the Clean Air Act to impose a fine of $37,500 for each vehicle affected. Given the roughly 500,000 diesel-operated Volkswagen vehicles sold in the US since 2008 (the earliest model year affected by the problem), the US EPA has legal standing to impose a fine of nearly 20 billion dollars upon the auto manufacturer. Volkswagen vehicles, specifically diesel-operated vehicles, are far more popular in European countries, which all have their own comparable (and frequently more stringent) air quality standards and penalties. Should there be a widespread backlash, Volkswagen could be facing an existential crisis.
The market has already responded to the news, bringing Volkswagen stocks down by nearly a quarter of their value since yesterday. Class-action lawsuits are being planned in the United States, and may yet be filed by citizens of other countries around the world. The Governments of the United States, France, Germany, Italy, and South Korea have all inquired as to the extent of the infraction in their countries, and have expressed a desire for complete transparency from Volkswagen.
The potential downfall of the manufacturer could have dramatic economic repercussions for Volkswagen’s native Germany: hundreds of thousands are employed by Volkswagen in Germany, and the German State of Lower Saxony owns a 20% share of Volkswagen stock. Given the immense impact of Volkswagen’s success on Germany’s economy, and the current dependence on Germany by many members of the European Union, this scandal could have wide and devastating implications.