German auto giant Volkswagen revealed today that 11 million diesel cars worldwide are equipped with devices that can cheat pollution tests, a dramatic expansion of a scandal that immediately sent its shares plummeting by another 20 percent.
Authorities from France to South Korea to the United States announced investigations and threatened legal action, prompting Volkswagen to announce that it was setting aside 6.5 billion euros ($7.3 billion) in provisions for the third quarter to cover the potential costs of the scandal.
VW shares, which dived 17 percent on Monday, plunged by another 23 percent to a low of 101.30 euros during trade on the Frankfurt stock exchange as the automaker’s new revelations, including a warning that it will have to lower its profit outlook, sent investors fleeing.
“Further internal investigations have shown that the software concerned is also installed in other diesel vehicles,” VW said in a statement.
“Anomalies have shown up in around 11 million cars worldwide that are equipped with a specific engine type,” the car manufacturer added.
“In order to cover the necessary service and other measures to win back customer confidence, VW plans to set aside 6.5 billion euros in provisions in the third quarter. The group’s earnings targets for 2015 will be adjusted accordingly.”
The spiralling scandal has led to France calling for a Europe-wide probe into the revelations, South Korea summoning Volkswagen officials, and the US Justice Department reportedly launching a criminal investigation.
The scandal went public Friday when US regulators ordered Volkswagen, the world’s largest automaker by sales, to fix the defect and said they were launching a probe.
The German firm halted all diesel vehicle sales in the United States during the US investigation, which could lead to fines of more than $18 billion.
The shockwave immediately hit stock markets, with VW shedding more than a quarter of their value — or more than 20 billion euros — since last week.
Other automobile stocks were also dragged lower with Daimler shares down 7.03 percent and BMW shedding 7.17 percent on Tuesday.
French Finance Minister Michel Sapin has requested a Europe-wide probe, telling French radio that it seemed necessary to check cars manufactured by other European carmakers in order to reassure the public.
“This is not a minor subject, it’s not about speed or the quality of leather,” Sapin told Europe 1 radio station.
“What we are dealing with is making sure people avoid being poisoned by pollution,” the minister said.
South Korean officials has also summoned VW representatives for explanations. “We will start conducting tests no later than next month,” said a senior official at the environment ministry.
In addition to the environmental probe already under way, the US Department of Justice has launched a criminal investigation, US officials told the Bloomberg news agency. The Justice Department and Volkswagen declined to comment on the report.
According to the US authorities, VW has admitted that it had equipped about 482,000 cars in the United States with sophisticated software that covertly turns off pollution controls when the car is being driven and turns them on only when it detects that the vehicle is undergoing an emissions test.
With the so-called “defeat device” deactivated, the car can spew pollutant gases into the air, including nitrogen oxide in amounts as much as 40 times higher than emissions standards, said the US Environmental Protection Agency, which announced the allegations Friday along with California authorities.
“Using a defeat device in cars to evade clean air standards is illegal, and a threat to public health,” said Cynthia Giles, enforcement officer at the EPA.
In Germany, the government has already launched an investigation into whether Volkswagen or other car makers are doing anything similar in Germany or Europe.
The German daily Frankfurter Allgemeine Zeitung reported that the national supervisory authorities had alerted VW to discrepancies in the emissions data in May 2014 and some cars were even recalled.
Transport Minister Alexander Dobrindt told the Bild daily that he had asked Germany’s Federal Motor Transport Authority “to immediately have specific and extensive tests conducted on all Volkswagen diesel models by independent experts.”
Beyond the potential fines and lawsuits, the company faces a potentially crippling blow to its reputation.
So far the scandal has been restricted to Volkswagen.
But the EPA said Monday that it will screen for defeat devices in other manufacturers’ diesel vehicles now on the road, though it declined to identify the automakers whose vehicles will be tested.
Environment protection groups, particularly in Germany, suspect other car makers may be using similar technology.
Industry experts say VW chief executive Martin Winterkorn’s job is on the line.
German media reports have said the car maker’s supervisory board will meet on Wednesday and summon Winterkorn. VW was not immediately available to confirm the information.
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