21 September 2015 by lberuti
After admitting they cheated on U.S. air pollution for years, VW ( Volkswagen AG ) risk as much as $18bln in fines. The company equipped some diesel cars with “defeat devices” software which turn on pollution controls only when cars are undergoing emissions testing. However, during normal operations, some emissions (particularly nitrogen oxide emisssions – Nox) are way above the standard allowed under US regulations (40 times in the case of NOx). The issue affects 482k cars sold since 2009, but also unsold 2015 models and the Environmental Protection Agency has refused to certify some 2016 models. The depth and breadth of the situation is currently unclear as one cannot rule out that VW has undertaken similar practises in other geographies with other environmental regulations. So no one was stepping in to buy risk in VW today and the mood was very cautious towards automakers as a whole. VW’s chief executive Martin Winterkorn said he was “deeply sorry” to have broken customers’ trust. Investors were sorry too! While the company’s stock lost 17% today, VW’s 5 year risk premium jumped 60bps at 135.5bps.