Volkswagen CEO steps down; US may slap $18B penalty

By MoneyTimes

Sep 24, 2015 09:31 PM EDT

Volkswagen's manipulation in emission norms is rocking Germany following the latest resignation of CEO Martin Winterkorn. Analysts forecast that the recent developments at Volkswagen will have an impact on business and politics in Europe's largest economy.

The US Environmental Protection Agency said that Volkswagen could face a penalty of up to $18billion for manipulating emission test results. Volkswagen is Germany's biggest car market and one of the largest employers in the country.

The headcount at Volkswagen stands at 270,000 in Germany alone and more numbers at suppliers and support services. It's estimated to be 11million cars have been equipped with software that manipulates regular auto pollution test results. All eyes on Volkswagen whether it'll recall all of them? 

Volkswagen has been facing a tough time over its rigged emission tests. The car maker's Chief Executive Martin Winterkorn has already paid the price by resigning from the position. The emission norms scandal is poised to be a major threat to Germany's economy. 

If Volkswagen suffers from sales drop in the US market, then it'll have a severe impact not only on the company but also on Germany's economy, predict economists. The North American market accounts for six percent of 9.5million global sales units of Volkswagen. The German car maker sold about 600,000 cars in the US in 2014. 

The US government is seriously considering the rigging of emission tests. If these are proved to be manipulation on the part of Volkswagen, then the German automaker may get punishment up to $18 billion, which is higher than Volkswagen's operating profit in 2014.

Volkswagen's cash in hand stands at a healthy $24bn, but there's increasing concerns about the possible job loss owing to the scam. 

Volkswagen seems to have taken up the damage control operations. The first step witnessed the resignation of CEO Martin Winterkorn.

The German automaker is also pledging to prosecute the officials involved in rigging the auto pollution tests. Whoever succeeds Martin will have to render huge responsibility of cleaning up the scandal image on the company.

US Environmental Protection Agency disclosed that Volkswagen installed software on Volkswagen and Audi diesel cars to rig the regular emission test results. This will have a negative impact on Volkswagen's 29 plants across Germany. 

The German government is upset over the scandal as it'll damage the image of the country and credibility of 'Made in Germany' tag. "We're facing a blatant abuse of consumer trust and a degradation of the environment," said Jochen Flasbarth, German state secretary in charge of pollution enforcement.

The Volkswagen's manipulation in emission test results will also spoil the image of other automobile giants from Germany. Recently all the Germany auto majors held a combined campaign promoting diesel usage. Audi, Mercedes, BMW, Volkswagen, Bosch had taken up a massive campaign in the US saying that diesel is no longer dirty and can meet tougher US emission standards. 

Germany is known for its technology in clean diesel. Volkswagen's scandal will have a negative impact on Audi, Mercedes, BMW, Bosch, etc, caution analysts. 

The German automaker said that it's still not clear who all involved in the emission norms scandal and yet to identify how many were behind this manipulation. Volkswagen has already issued a profit warning euro6.5bn (47.27bn) charge to earnings to take care of the costs in resolving the major problem.

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