Volkswagen Emissions Scandal Erupts

It has been an interesting week for Volkswagen. Following revelations by company insiders that the car manufacturer had been using defeat devices to turn off pollution controls systems during emission tests, the company closed down nearly 30% with nearly 20 billion euros wiped off of its market cap. US authorities have launched a new investigation against the company, which now potentially faces up to $18 billion in fines – not including litigation and penalties it will likely face in other countries. The countries investigating the scandal include the US, Germany, the UK, Switzerland, Italy, France, South Korea, Canada, Norway, and India.

CEO Martin Winterkorn resigned on Wednesday amid allegations and was replaced by Porsche chief Matthias Mueller. Other companies affected include BMW and Daimler who saw their stocks retreat on fears that they also had tried to circumvent environmental regulations.

Perhaps more than the monetary damage the firm will have to bear, it will suffer from reputational damage. One of the most important assets that car manufacturers have is their brand – it defining and shaping the future of the company, its perception, and ultimately its sales number. This one event has the potential to permanently cripple and impair Volkswagen. However, it will be interesting to see how Mueller, a very capable man who knows the company and its brands, responds to the crisis.

-Aditya Garg