The Real Test

Volkswagen Scandal endangers Trustworthiness

The German Government is at the centre of the Volkswagen Scandal, after admitting it had been aware in July for the car - manufacturing fraud.  The software has been installed in nearly 500,000 cars that made them appear to run cleaner in the emissions tests, against the actual performance in the road.  The giant car manufacturer will face harsh fines, reaching more than $18 billion.  Merkel's administration has set up an official commission of inquiry into the VW affair, headed by Michael Odenwald and aims for an immediate settlement.

US regulator:

It all started three years ago, when the Federal officials realized that some VW cars were passing emissions tests in labs but polluting more on the road, causing VW to be under close scrutiny from U.S regulators. The Environmental Protection Agency revealed on the 18^th of September, that VW programmed the device software to run the engine with the maximum anti - pollution controls only when the emissions tests were taking place.  However, during normal driving conditions, the controls were relaxed and emissions of nitrogen dioxide were up to 40 times more than the permitted level.

What does this mean to the global economy?

The scandal has led to numerous economic effects, which can be dreadful for diesel vehicles market and VW group.  To start with, the share price for the biggest EU car manufacturer has dropped by 35 percent after the first 3 days.  However it rebounded by approximately 2 percent following the resignation of the chief Executive of VW, Martin Winterkorn. The successor of Mr. Winterkorn will be Matthias Muller, which served as the Director of Porsche for many years.

The aftermath of the scandal jeopardize the future of diesel car technology.  Max Burton, an auto analyst at Sanford Bernstein, was questioned on whether 'Does this signal the end of diesel' and admitted by responding; 'yes it does'.   The Scandal heightens the fears of direct action for banning diesel in EU cities, due to air pollution concerns.  An indirect action is also possible, by levying heavier taxation on diesel cars and signalling the demise of diesel cars.  For European car companies, a lot is at stake from any retreat of diesel.  Europe's auto makers have invested billions of Euros into developing a 'clean diesel technology'.  Accomplishing 'clean technology' was based on the idea to reduce the amount of particular matter and nitrous oxide discharged in the air, which appears to have failed.  Renault SA and Peugeot Citroen also rely on diesel car sales, as half of their total new car sales fuelled by diesel.  Companies' officials have announced the ultimate compliance with the laws and regulations in the markets they operate, eliminating the contagion effect against them.

VW scandal and predictions for the death of diesel car engines have spread out on the commodities markets as well.  The scandal has hit the price of platinum to a six-and-a-half year low of $925.3 a troy ounce.  The market for the precious metal, which is used to make diesel catalysts (makes up 40 percent of its total demand), is surrounded by pessimism from investors.  This is in contrast with the palladium metal, which is used to make catalysts for gasoline cars, as it has only fallen by 0.8 percent, showing clearly on how the investors speculate the future of diesel cars.

All in all, Diesel car market holds on a tight string, as the European Union commission has not shown any signs on how it will treat diesel car technology.  VW scandal is described by critics as a result of a political play, in which the environmental and consumer protection is not a priority while every cheating is accepted with a wink.