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VW’s new CEO under pressure as emissions scandal hits Porsche

New CEO of Volkswagen Matthias Mueller

By Andreas Cremer and Georgina Prodhan

Volkswagen was facing fresh questions on Tuesday after US regulators widened their accusations of emissions- test cheating against the German carmaker to include the luxury Porsche brand previously run by its new CEO.

The US Environmental Protection Authority (EPA) said late on Monday VW used devices to rig air-pollution tests in 3.0-litre diesel engines mostly found in Audis and Porsches – the company’s biggest sources of profit.

Europe’s largest carmaker had previously admitted to installing cheat software on up to 11 million vehicles worldwide with smaller diesel engines.

VW said on Monday “no software had been installed … to alter emissions’ characteristics in a forbidden manner” on the larger engines. It did not immediately respond to questions on Tuesday, saying it would only correspond in writing.

Arndt Ellinghorst, an analyst at banking advisory firm Evercore ISI, said it was worrying the new allegations had surfaced more than six weeks after VW first admitted to cheating US emissions tests and launched an investigation.

“It appears that it is the EPA that has discovered this violation and not VW, raising concerns around reporting, transparency and integrity within VW,” he said in a note to clients.

The biggest business crisis in VW’s 78-year history has wiped as much as a third off its stock market value, forced out long-time CEO Martin Winterkorn and rocked the auto industry – a key employer and source of export income in Germany.

“Volkswagen has done a disservice to German industry,” Ulrich Grillo, the head of the Federation of German industries, told a conference on Tuesday, adding the firm had an obligation to the whole industry to clear up the scandal quickly.

German Chancellor Angela Merkel and the European Commission, the European Union’s executive body, called for clarity and transparency to clean up the scandal.

VW’s supervisory board will hold a special meeting next Monday to discuss the financial implications of the scandal, two sources with knowledge of the matter told Reuters.

The company took a 6.7 billion euro hit in third-quarter results to cover initial costs related to the scandal. Some analysts have said the final bill could reach as much as 35 billion euros in regulatory fines, lawsuits and vehicle refits.

At 1140 GMT, VW shares were down 3.2 per cent at 109.05 euros.

MORE PRESSURE

VW is under huge pressure to identify those responsible for the cheating and fix affected vehicles, and has come under fire from lawmakers, investors and analysts for a slow response.

Bankhaus Metzler analyst Juergen Pieper said the apparent widening of the scandal could put pressure on more VW managers.

“Even Chief Executive Matthias Mueller as a former Porsche CEO may need to ask himself whether he bears some responsibility,” he said, keeping a “hold” rating on VW shares.

Some analysts and investors criticised the appointment of Mueller as group CEO, questioning whether a company veteran was the right man to lead an overhaul of the business.

In its second notice of violation of the Clean Air Act, the EPA said around 10,000 vehicles in the United States for model years 2014 through 2016 were equipped with 3.0 litre diesel engines using an illegal ‘defeat device’ to lower emissions.

Without cheating, it said the emissions of toxic nitrogen oxide from the vehicles were up to nine times EPA’s standard.

The EPA’s first notice of violation against VW on Sept. 18 affected around 500,000 vehicles in the United States.

It was not immediately clear how many of the 3.0 litre diesel engines for the identified years were sold worldwide.

“It would cause the biggest possible shock to VW if those accusations are true,” said Stefan Bratzel, head of the Center of Automotive Management think-tank near Cologne.

“VW keeps touting utmost transparency but they really should have put all the cards on the table. There is a lot of need for explanation, from Audi too.”

Rival German carmaker BMW reiterated on Tuesday it had not manipulated emissions tests, as it posted a surprise rise in third-quarter operating profit.

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