German Economy In Peril As Volkswagen Sets Aside Six And A Half Billion Euros, Audi And Others Also Responsible

According to the head of the European Parliament, Germany as a whole could be severely affected by the crises affecting Volkswagen and the discovery of its software, which purposely lied to emissions testers, about the polluting emissions for the cars on which the software was installed. Many people believe the €6.5 billion is not enough to cover the tens of thousands of cars affected and all fines and possible class action suits against the company. Germany, the home of VW, is the largest economy of Europe. BMW, Daimler and Volkswagen, which are all potentially involved in the scandal, employ over 750,000 people.

Hans Dieter Poetsch, the new Chairman of VW, believes that the company’s troubles are “surmountable.”

Others are not so conservative in their outlook on the effects of the scandal on the company and across Germany. Economists are warning that the crises in Germany could be worse for the Eurozone and, ultimately, the world than the Greek crises. ING chief economist Carsten Brzeski told Reuters of his views on the potential economic disaster the diesel scandal could bring Germany.

“All of a sudden, Volkswagen has become a bigger downside risk for the German economy than the Greek debt crises.”

America alone bought nearly 600,000 cars from VW last year, accounting for six percent of its total sales. This six percent of sales could come at a hefty premium as VW could face up to $18 billion in penalties alone from the U.S. Environmental Protection Agency, not to mention class action lawsuits.

Automobiles and car parts are Germany’s biggest export, selling $225 billion worldwide, which is a hefty fifth of all German exports. VW has set aside €6.5bn (£4.8bn) to help cover the cost of the scandal, but some analysts think the final bill could be much higher. VW has said it will have to refit up to 11m cars and vans containing illegal software. Reuters reports that the U.S. EPA has extended its investigation into other car manufacturers who might also be using the same “emissions defeating” software.

After the finding that VW was falsifying the emissions of its cars, the EPA has cracked down on all car manufacturers. In the initial testing phase, only one car will be tested from suspected car manufacturers and if anything alerts them, they will test more. Particularly under scrutiny are diesel vehicles, including BMW’s X3, Chrysler’s Grand Cherokee, GM’s Chevrolet Colorado, the Range Rover TDV6 and the Mercedes-Benz E250 Blue Tec.

EVANSTON, IL - SEPTEMBER 22: A 2015 Volkswagen Passat with the TDI Clean Diesel motor is offered for sale at a dealership on September 22, 2015 in Evanston, Illinois. The Environmental Protection Agency (EPA) has accused Volkswagen of installing software on nearly 500,000 diesel cars in the U.S. to evade federal emission regulations. The cars in question are 2009-14 Jetta, Beetle, and Golf, the 2014-15 Passat and the 2009-15 Audi A3. As many as 11 million cars worldwide could be affected by the deception. (Photo by Scott Olson/Getty Images)
SONNEFELD, GERMANY - SEPTEMBER 23: The dual exhaust pipes on a Volkswagen turbodiesel passenger car are visible below the vehicle on September 23, 2015 in Sonnefeld, Germany. The inner circle of the Volkswagen governing board is meeting today to discuss the current diesel emissions scandal that has already caused the company's stock market value to plummet approximately 30% since Monday. Volkswagen CEO Martin Winterkorn has admitted the company installed software into 11 million of its diesel-powered passenger cars that manipulates emissions results under testing circumstances. The U.S. Environmental Protection Agency (EPA) first announced the discovery of the software and is planning to fine Volkswagen up to USD 18 billion.(Photo by Sean Gallup/Getty Images)

Audi and Skoda have already admitted that 3.3 million of their cars have installed the ‘cheat’ emissions software. While Audi is also a German company, Skoda, a popular car in Europe, is a Czech company who says that 1.2 million of their cars could be affected.

BBC News reports that former VW Chief Executive Martin Winterkorn will be investigated over “allegations of fraud,” as the fitting of the devices and their programming to beat emissions, reflecting fictional numbers of emissions, would have had to be a system-wide policy.

Volkswagen shares are falling, closing down in near double digit percentages daily as more details emerge and the extent of the financial costs become greater.

For some, the whole scandal might be confusing, so what follows is an explanation of what has happened with VW and its diesel cars and why. Some cars in America were found to have devices that could automatically detect if they were being tested and would then compensate the vehicle performance to meet environmental standards. Once on the road, however, the real emissions of nitrogen oxide pollution were as much as 40 times higher than regulations allow.

The EPA reported what details it has learned so far.

“The device appears to have put the vehicle into a sort of safety mode in which the engine ran below normal power and performance. Once on the road, the engines switched from this test mode.”

VW is already recalling 500,000 cars in the US and the $18 billion price tag does not include consumer and shareholder action.

It makes it worse for the company,as there does not seem to be any escape from responsibility. In 2014, the EPA was suspicious, but VW “willfully” misled officials when executives made up excuses at the time for a software system they knew was outputting the wrong data.

How does diesel pollute?

It is reported by the Respiratory Health Association that diesel is a dangerous pollutant responsible for 20,000 asthma attacks, 680 heart attacks and 570 premature deaths in Illinois alone. While the technology exists to capture the emissions from diesel fumes, the tech is expensive and difficult to regulate, as seen with the VW scandal. With cleaner fuels and pollution controls, which are truthfully implemented by car manufacturers, the RHA says there could be as much of a 90% reduction in emissions.

[Photos by Scott Olson, Sean Gallup, Alexander Koerner/Getty Images]