Who doesn't know Volkswagen? The second largest automotive producer recently found itself on a hot seat due to its cheating practice on US emission test. Considering the huge presence and the long history of this company, it's not a wonder that such scandal was capable of creating massive and destructive impacts

Who doesn't know Volkswagen? Even a non-automotive lover would recognize a VW Beetle or VW Combi. Porsche, Audi, Bentley, who doesn't know them? Along with the likes of Bugatti, Lamborghini, Ducati motors, and a bunch of other brands, those three brands are products of Volkswagen Group (VW AG), a well-established company based in Germany.

However, the second largest automotive producer recently found itself on a hot seat due to its cheating practice on US emission test. Considering the huge presence and the long history of this company, it's not a wonder that such scandal was capable of creating massive and destructive impacts, not only on the company's stock, but also European and Asian automotive equities. The negative effect then continued to spread over and inflicted the reputation of other car brands from Germany, which have been long known for their high qualities.

volkswagen emission scandal

 

It's Payback Time For Volkswagen

On September 18th, 2015, US regulator revealed that VW had rigged the results of emission test for 500,000 cars in the USA. Facing the accusation, VW admitted on September 22nd, 2015 that they have installed some kind of modified software on 11 million cars they produced around the world, just to dodge emission tests. The software allowed cars, which would have failed the emission test, to be marketed around the US and Europe with the label of superior brands like Volkswagen and Audi. Even worse, the resulting numbers from emission test which was previously rigged enabled the company to obtain subsidies for eco-friendly cars and tax reduction from US government.

Previously, VW attempted to avoid the accusation by stating that it was just a technical mistake. But just like what other people say: the truth will always come to light. Along with the revelation, VW warned its shareholders that it has to set aside 7.3 billion USD to cover the damages. With other punishments that kept coming from lawsuits, recall orders, and stock collapse to half its value, VW definitely needs to pay a big price.


VW

This scandalaous incident is not the first, and certainly won't be the last one. Sadly, there will always be companies willing to do what it takes, even by cheating, just to increase their profits.


Chain Reaction

Volkswagen emission scandal undoubtly revealed the horrible flaws hidden in the automotive industry, and created a chain reaction to other companies. In a matter of hours, BMW, another automotive corporation from Germany, as well as Nissan, Honda, Mitsubishi, Mazda, and Toyota also suffered the consequences. Those companies' stocks took a tumble not long after the scandal erupted.

We can't play down the effects created by Volkswagen sins, as damages didn't only come from financial aspect, but also enviromental side. The Guardian predicted that the loose emissions resulted from VW's rig is responsible for almost one million Nitrogen Oxides (NOx) per year, or about 10-40 times bigger than the US emission standard. The number can also be linked with 1,450-5,803 premature death cases.

Automotive industry is actually quite familiar with scandals. For instance, General Motors (GM) and Toyota frequently recall their defective products. But the problem here is, Volkswagen looked like they deliberately marketed flawed products.


Quality And Reputation Are Priceless

Expectedly, Volkswagen emission scandal has been called out as the thing that threatens other Germany brands' reputation. When we hear a Made in Germany product, we will directly associate it with durable engines and reliable quality that can last for a long time. However, VW's recent act spread doubts among American and European consumers (and market analysts). Then, the ultimate question comes: IS European products quality in decline along with the area's economy?

In consequence, Economist Carsten Brzeski from ING group tweeted that, All of a sudden, Volkswagen has become a bigger downside risk for the German economy than the Greek debt crisis. He added with If Volkswagen's sales were to plunge in North America in the coming months, this would not only have an impact on the company, but on the German economy as a whole.

The tumbling stock price will eventually gain its hold, but reputation is surely irreplaceable. The situation before was already bad, as Germany's top product couldn't compete with Japanese brand (Toyota) since 2012 and is currently fighting for market share with American brand (GM). As a result, Germany now hits the panic button. Berlin news media Der Taggespiegel wrote that when the whole automotive industry is put on the table, then most of the overall Germany's economy may as well be at stake.