Around $16.9 billion was wiped off the market value of Volkswagen AG today following revelations that the German carmaker rigged US emissions tests for about 500,000 diesel cars. By mid-afternoon trading in Frankfurt, Volkswagen's share price was down a stunning 18.1%. Its dramatic fall weighed heavily on the DAX, which underperformed its peers in Europe. Volkswagen's market woes followed a weekend that saw the company's reputation for probity seriously damaged by revelations that it had skirted clean air rules. The EPA says VW used a device programmed to detect when the cars are undergoing official emissions testing. The software device then turns off the emissions controls during normal driving situations, allowing the cars to emit more than the legal limit of pollutants. VW faces fines of up to $18 billion, and possibly more.
Volkswagen marketed the diesel-powered cars, which account for about 25% of sales, as being better for the environment. The cars, built in the last seven years, include the Audi A3, VW Jetta, Beetle, Golf, and Passat models. "The company will have to recall nearly 500,000 affected cars, which will cost it millions of dollars, and that's even before the damage to its brand and potential fines," a market analyst says. The agency has ordered VW to fix the cars at its own expense but says car owners do not need to take any immediate action. The EPA insists that the violations do not pose any safety hazard and says the cars remain legal to drive while Volkswagen comes up with a plan to recall and repair them. However, it says the cars pose a threat to public health. (Read more Volkswagen stories.)