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VW sets aside $7.3B war chest for diesel scandal fallout

The crisis enveloping Volkswagen AG, the world's top-selling carmaker, escalated Tuesday as the company issued a profit warning following a stunning admission that some 11 million of its diesel vehicles worldwide were fitted with software at the center of a US emissions scandal. The German company said it was setting aside around 6.5 billion euros ($7.3 billion) to cover the fallout from the scandal that has tarnished VW's reputation, raised questions over the future of CEO Martin Winterkorn and battered its share price. The reputational damage to Volkswagen is implicit in the market's response. Volkswagen's share price slid a further 16.2 percent Tuesday to a near four-year low of 112 euros. The fall comes on top of Monday's 17 percent decline. The shockwaves from the scandal enveloping Volkswagen were being felt far and wide across the sector as traders wondered who else may get embroiled. Germany's Daimler AG, the maker of Mercedes-Benz cars, was down 6.5 percent, while BMW AG fell 5.4 percent. France's Renault SA was seven percent lower. The scandal is hugely damaging to a business that relies heavily on a hard-won reputation for quality and trustworthiness. "Brands are all about trust and it takes years and years to develop. But in the space of 24 hours, Volkswagen has gone from one people could trust to one people don't know what to think of," said Nigel Currie, an independent UK-based sponsorship and branding consultant. The trigger to the company's market woes was last Friday's revelation from the US's Environmental Protection Agency that VW rigged nearly half a million cars to defeat US smog tests. The company then admitted that it intentionally installed software programmed to switch engines to a cleaner mode during official emissions testing. The software then switches off again, enabling cars to drive more powerfully on the road while emitting as much as 40 times the legal pollution limit. "We have totally screwed up." - Michael Horn "In my German words: we have totally screwed up," the head of Volkswagen's US division, Michael Horn, told an audience in New York on Monday. In its statement Tuesday, Volkswagen gave more details, admitting that there were "discrepancies" related to vehicles with Type EA 189 engines and involving some 11 million vehicles worldwide. The number of vehicles involved is more than the 10 million or so cars it sold in 2014.

Felicity Ace sinks with thousands of VWs, Porsches, Lamborghinis

The stricken ship Felicity Ace sank overnight after a week of salvage efforts ultimately proved unsuccessful. The ship, which was carrying up to 4,000 VW Group cars, went to the bottom unexpectedly while a salvage team was attempting to tow it to shore, Bloomberg reports.  "Initial reports from the local salvage team state that the vessel had sunk at around 9AM local time having suffered a list to starboard," Mitsui O.S.K. Lines transportation company (MOL), which owns the Felicity Ace, said in a statement released early Tuesday.    "The last vessel position was around 220nm off the Azores," MOL said. "The salvage crafts will remain around the area to monitor the situation. Further information will be provided as it becomes available." The ship sank after being battered by waves and listing 45 degrees to starboard, the ship’s operator said. “The weather was pretty rough out there,” Pat Adamson, a spokesperson for MOL Ship Management (Singapore), a unit of Mitsui OSK Lines Ltd., said by phone. “And then she sank, which was a surprise.” VW, Porsche, Audi, Bentley and Lamborghini-branded models were aboard the ship, which was headed to Rhode Island from GermanyÂ’s Emden port when the fire broke out on Feb. 16.  Rough seas and ongoing fires fueled by the lithium-ion batteries of EVs onboard delayed the ship's salvage and recovery operations for the better part of a week. While the likelihood of salvaging the smoke and potentially fire- and water-damaged vehicles from Felicity Ace's hold was slim to none, some had held out hope that their special-ordered vehicles might survive the mishap.  The Panama-flagged Felicity Ace was safely evacuated of its 22 crew members by the Portuguese navy after a fire started in its hold more than a week ago. The ship can carry up to 4,000 cars. European carmakers declined to discuss how many vehicles and what models were on board, but it appears to have been transporting approximately 2,500 cars, including roughly 1,100 Porsches and an undetermined number of Volkswagens.  The cars aboard were on order. Porsche customers in the United States were being contacted by their dealers, the company said. “We are already working to replace every car affected by this incident and the first new cars will be built soon,” Angus Fitton, vice president of PR at Porsche Cars North America, Inc., told The Associated Press in an email. The ship sank in water nearly 10,000 feet deep, the Portuguese Navy said.

VW diesel scandal: South Korea could be next

To no one's surprise, there are constant new developments in the VW diesel scandal. We hit the main points in a number of posts recently, but there were other, smaller developments that we didn't put into their own post. Instead, we've collected them here. For our complete coverage of this issue, click here. There's a lot to digest, so here goes. To try and keep dealers happy, VW announced that it guarantee bonus payments to its US dealers this month worth $300 for every new car sold ($600 for each Passat). The automaker is also going to guarantee payments from the company's customer experience bonus program. A memo from VW's US chief Michael Horn said, "We understand the pressure these recent events have put your business under and we are committed to providing you support," according to Automotive News. You can see Horn speaking at an event Monday night above. There will be at least one more official investigation into just how widespread this issue. South Korea has now said it will look into the emissions numbers for around 4,000-5,000 cars there. The affected TDI engines can be found in two VW and one Audi models (Jetta, Golf and A3) in South Korea. In the US, there could be another investigation as well, since Senator John Thune, (R-SD), the chairman of the Commerce, Science and Transportation Committee, has asked the Federal Trade Commission to take a closer look. A scandal this big is not only going to affect VW. To get ahead of any possible criticism, Bosch has issued a statement saying that yes, it does make parts for the 2-liter, 4-cylinder TDI engine that is at the heart of the problem. But, in a statement emailed to Reuters, said, "We produce the components after specification of Volkswagen. The responsibility for application and integration of the components lies with Volkswagen." Looking ahead, VW said in a new statement (available below) that its new EU 6 diesel engines do, " comply with legal requirements and environmental standards." That means that, supposedly, there's no "defeat device" needed to make these engines clean enough to pass strict environmental regulations. That'll be important if VW wants to keep marketing diesel as a clean fuel. For now, the tide seems to be turning against the automaker. Volkswagen AG has issued the following information: Volkswagen is working at full speed to clarify irregularities concerning a particular software used in diesel engines.