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German reliability in tatters as autos scandal grows

After a relatively quiet few week for European auto manufacturers, the scandal involving Volkswagen has come back with a vengeance this week, sending investors to the sidelines.

Germany's Volkswagen tanked 10 percent in morning trade on Wednesday with its Porsche brand also seeing heavy losses, down 8 percent. Daimler, Peugeot, Renault and BMW were also trading lower by around 2 percent, despite the latter posting a surprise increase in third-quarter operating profit on Tuesday.

In September, Volkswagen admitted rigging emissions tests, saying some 11 million vehicles worldwide were affected. It set aside 6.5 billion euros (£4.7 billion) to cover costs of the scandal. However, further revelations have added to what is easily the biggest crisis in VW's 78-year history.

The original investigation centered on "defeat devices" that altered the emissions of noxious nitrogen oxide (NOx) in diesel engines. However, it announced late Tuesday that it had found irregularities in CO2 levels that also included petrol-powered cars.

Around 800,000 vehicles could be affected and it has warned of a 2 billion euro hit to its finances. Rather than a "defeat device," this new revelation was simply a discrepancy in the level of emissions reported.

"The more you dig, the trickier and more complicated it becomes," Ipek Ozkardeskaya, a market analyst at London Capital Group, said in a note on Wednesday morning. "The image of German precision, strength, security and reliance are equally damaged. At this stage, it is very difficult to value the goodwill of Volkswagen."

On Monday, the U.S. Environmental Protection Agency (EPA) issued a second notice of violation to VW regarding larger 3.0 liter engines used in its SUVs (sport utility vehicles). It also included vehicles from Porsche and Audi - both owned by VW. The company has since denied the allegations.

Credit specialist Timothy Rea at BNP Paribas noted that VW CEO Matthias Mueller is "under pressure" given that the fresh EPA allegations include cars from Porsche, where he was previously CEO.


"The fact that VW is also unable to give a reliable assessment on the scale of the irregularities fails to draw a line underneath the matter while it also seems that this new issue is not just related to diesel engines either. Ultimately it will raise further questions about just how widespread and deep rooted VW's problems are, what else will its investigations discover?," he said in a note.

The bad news flow doesn't stop there. Volkswagen has also issued a recall for certain vehicles in the U.S. and Canada due to an issue involving camshafts. Earlier in the week, scientists at Harvard University and the Massachusetts Institute of Technology issued new research that said the rigging of its diesel cars could cause around 60 deaths in the U.S. by the end of next year.

Last week, the German automaker also saw its first quarterly loss in 15 years and factored in a 6.7 billion-euro writedown for the scandal.

A potential fine of $200 million for Japan's Takata, due to faulty airbag inflators, added to the gloomy outlook surrounding the sector on Wednesday. However, there has been one ray of light this week. On Tuesday, the U.S. auto industry reported another month of promising sales for October. According to the Autodata report, total industry unit deliveries increased 13.6 percent compared to last October. Even Volkswagen managed to grow sales, albeit by just 0.2 percent (year-on-year).