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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.

How the Volkswagen cheating probe developed

Fallout from Volkswagen's revelation that it engaged in cheating on emissions testing continued Monday, with the company's stock falling more than 15 percent and a Congressional subcommittee announcing an investigation into the German auto giant's conduct. Both the Environmental Protection Agency and California Air Resources Board served Volkswagen with a Notice of Violation on Friday, saying the company intentionally circumvented emissions standards by using "defeat devices." Here's a look back at the agencies' emissions enforcement history and how the charges involving Volkswagen developed. August 1998 – Honda spends $267 million to settle charges it violated the Clean Air Act by disabling "misfire monitoring devices" installed on more than 1.6 million vehicles. Ford spends $7.8 million to settle a charge it violated the Clean Air Act by installing defeat devices on 60,000 Ford Econoline vans. May 2014 – Working with the International Council on Clean Transportation, researchers at West Virginia University find significantly higher in-use emissions from a 2012 Jetta and 2013 Passat and alert the EPA to their findings. November 3, 2014 – Korean automakers Hyundai and Kia agree to pay a $100 million fine for overstating the fuel economy on several of their models by as much as six miles per gallon. In announcing the fine, government officials sought to make an example of the two companies to deter further cheating. VW officials admit the vehicles were designed with a defeat device to "bypass, defeat and render inoperative elements of the vehicle emissions control systems." "This type of conduct quite simply will not be tolerated," said then-Attorney General Eric Holder. "And the Justice Department will never rest or waver in our determination to take action against any company that engages in such activities – whenever and wherever they are uncovered." December 2, 2014 – Following discussions that stemmed from West Virginia University's findings, Volkswagen agrees to initiate a recall of 500,000 cars. The company says a software update will fix the nitrous oxide trap technology and selective catalytic reduction technology causing the cars to miss emissions thresholds. May 6, 2015 – CARB wanted to see whether the software fix implemented by Volkswagen worked. Using portable emissions measurement systems, the regulatory officials found NOx emissions were still significantly higher than expected.

BMW, Ferrari, VW cars use tungsten mined by terrorists

Bloomberg Markets is reporting that BMW, Volkswagen and Ferrari have been using tungsten ore sourced from Columbia's FARC rebel terrorists. The extensive story focuses on Columbia's illegal mining trade and calls into question the provenance of the rare ore that is used not only in crankshaft parts production, but is also found in the world's computing and telecommunications industry for use in screens.
The ore is mined by the FARC (Fuerzas Armadas Revolucionarias de Colombia, or Revolutionary Armed Forces of Colombia - People's Army), and exported to Pennsylvania, where it is refined. The refined ore is then sent over to Austria, where a company called Plansee turns it into a finished product. Now, it's important to note that we aren't talking about the world's supply of tungsten here. In 2012, Plansee's American refinery purchased 93.2 metric tons of tungsten, valued at $1.8 million. That's peanuts, with the entire Colombian tungsten mining industry producing just one percent of the world's supplies.
That doesn't make indirectly supporting FARC any more acceptable, though. BMW, VW and Ferrari are all committed to not accepting mineral supplies from the Democratic Republic of Congo, which is also in the grips of a guerrilla insurrection funded, in part, by illegal mining. The same commitment would figure to extend to Colombian mining, but as BMW points out, it's difficult for a multi-national manufacturer to know where every item in its supply chain comes from. A company spokesperson says as much, telling Bloomberg, "These few grams out of the billions of tons of raw materials passing through the BMW supply chain are of no practical relevance."