The biggest crisis in Volkwagen’s 78-year history that has loped 1/3rd off its market value so far, forced out long-time CEO Winterkorn and rocked the key German employer and exporter–just got worse. Turns out it’s not just emissions that were fudged but also fuel consumption, and it’s not just diesel but gas too and not just in VW’s but several other luxury brands. See: Volkswagen says fuel usage understated on some models’; Porsche warns
“U.S. environmental regulators said on Monday that similar “defeat devices” were installed on larger 3.0 litre engines used in luxury sport utility vehicles from Porsche and Audi, although VW has denied those allegations.
Porsche’s North American unit said it was discontinuing sales of Porsche Cayenne diesel sport utility vehicles until further notice, citing the allegations.
The latest findings that VW understated fuel consumption and carbon dioxide emissions, areas which U.S. regulators have yet to address, were disclosed as VW continues a broad review of its handling of all pollution-related issues. While the findings mostly apply to smaller diesel engines, one gasoline-powered engine is also affected.”
All of which reminds us of John Mauldin’s comments back in September when the story first broke:
This is not a small company. It is the largest company in Germany, and Germany is the largest economy in Europe. Volkswagen has 600,000 employees and accounts for a big chunk of the country’s exports. Those exports are what make Germany the continent’s de facto leader.
Not to mention that 40% of Volkswagen’s asset base is in its financing arm, which lends money to finance its automobiles; but the company borrows that money in the short-term markets. This short-term borrowing is what got GMAC and other financing companies in trouble during the last credit crisis. Attention must be paid.
If the worst happens to Volkswagen, the impact on Germany, Europe, and the euro will be noticeable. I see media speculation that other German manufacturers could have taken similar shortcuts. If that’s the case, then all bets are off.