VW crisis set to cost £26bn
THE Volkswagen diesel emissions crisis – which yesterday claimed the scalp of the German car- maker’s chief executive – could cost the firm £26bn.
Analysts said the scale of the bill facing VW puts it among the costliest corporate scandals in history with potentially devastating consequences for the marque.
BP’s Gulf of Mexico oil disaster in 2010 looks set to cost it around £40bn in total, while Brazilian oil giant Petrobas is in the middle of a sprawling corruption scandal that has so far seen it write down £11bn.
The collapse of Enron in 2001 saw the US energy company pay out £4.6bn after it dodged a giant £26bn class action law suit. Closer to home, Lloyds Banking Group’s total bill to cover its PPI mis-selling scandal comes in at around £13bn.
Analysts at JP Morgan estimated the cost to VW over the emissions rigging outrage could eventually top £26bn. Deutsche Bank slashed its price target on VW to 130 euros a share from 260 euros and described the situation as ‘ an investor’s nightmare’, adding that the full magnitude of the scandal was ‘likely to remain uncertain for much longer’.
As he resigned in disgrace yesterday, chief executive Martin Winterkorn (pictured) conceded that the company needed a ‘fresh start’.
Since the crisis erupted on Friday some £18bn has been wiped from the value of VW’s shares. VW, the world’s largest car maker, has admitted rigging the emissions from its diesel cars to pass US clean air rules and said it will have to recall 11mil- lion vehicles and set aside £4.7bn in its third quarter accounts to help cover costs. An investigation by the US Environmental Protection Agency (EPA) revealed that Volkswagen had used a software device on its diesel VW and Audi cars in the US that disguised how much pollution it emitted. The fines to be levied by EPA-could reach more than £11bn. The fallout also dented the stocks of other car makers across Europe and the US on Tuesday as well as catalytic converter maker Johnson Matthey whose diesel catalytic converters make up half its sales.
But Winterkorn’s resignation prompted VW’s share price to rise 7pc and other car companies also recovered some of their losses.
Winterkorn denied he had any knowledge of the deception and said: ‘I am clearing the way for this fresh start with my resignation… even though I am not aware of any wrongdoing on my part.’
As well as the potential £11bn fine from the EPA it faces wide ranging investigations in the US, Asia and Europe, court cases and its executives could even face prison. Winterkorn received £11m in annual pay and benefits last year after he almost doubled sales at the group.
Yesterday he said his departure was ‘the only way to win back trust’, adding: ‘I am convinced that the Volkswagen Group and its team will overcome this grave crisis.’
VW shares are down 30pc since the scandal emerged on Friday and although some investors have decided it is time to buy the shares, others will be reminded of what followed BP’s oil spill. Its stock has roughly halved in value since 2010.