Here’s our updated story on the new chief executive and the latest developments:
Volkswagen has blamed the emissions scandal at the car maker on a “small group” of people and suspended staff as it unveiled Matthias Müller as its new chief executive.
Müller pledged to leave “no stone unturned” in an investigation, but did not reveal how many staff have been suspended and who they are.
Müller was speaking as he was unveiled as the new boss of the troubled German car maker.
“My most urgent task is to win back trust for the Volkswagen Group – by leaving no stone unturned and with maximum transparency, as well as drawing the right conclusions from the current situation,” he said.
Müller has worked at Volkswagen for more than 30 years. He joined the company’s Audi subsidiary in 1971, training as a toolmaker and then studying computer science. He was group head of product planning from 2007 and has headed the Porsche sports car division since 2010.
The 62-year-old was chosen by Volkswagen’s board at a meeting on Friday to replace Martin Winterkorn, who resigned on Wednesday following revelations in the US that Volkswagen installed software on diesel cars to disguise emission levels in tests.
The full story is here:
On that note, it’s time to close up for the evening. Thanks for all your comments, and we’ll be back next week.
US Justice Department confirms VW investigation
The US Justice Department has confirmed it has launched an investigation into VW over the emissions scandal, saying it takes the allegations very seriously, Reuters is reporting.
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There is however a complicated restructuring, including combining the US, Mexico and Canada into one region. Winfried Vahland will take charge of this region, but Horn remains president and CEO of VW US.
The company says it is making various moves to streamline its business and strengthen its brands and regions, which is presumable a way of achieving this aim of “more open communication.”
One departure was announced, but not linked to “recent events” the company said, with sales and marketing boss Christian Klingler leaving with immediate effect.
Here’s the link to the full restructuring announcement.
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There seems to be no more news on other changes or resignations, despite the marathon board meeting.
And despite the scandal, Michael Horn is holding on to his job as head of VW US.
And that's it ... no more from VW today. A rather glum-looking Mueller took two quick questions from journalists but not much more to add
— Richard Edgar (@ITVRichard) September 25, 2015
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Here’s the full statement from Müller on his appointment:
My most urgent task is to win back trust for the Volkswagen Group – by leaving no stone unturned and with maximum transparency, as well as drawing the right conclusions from the current situation. Under my leadership, Volkswagen will do everything it can to develop and implement the most stringent compliance and governance standards in our industry. If we manage to achieve that then the Volkswagen Group with its innovative strength, its strong brands and above all its competent and highly motivated team has the opportunity to emerge from this crisis stronger than before.
He will remain chairman of Porsche until a successor is found.
The full VW announcement is here:
Matthias Müller appointed CEO of the Volkswagen Group
There was a lot of talk from the VW executives about the company’s staff:
#VW bosses speaking a lot about staff, more so than about customers
— Poppy Trowbridge (@POPPY_SKYTV) September 25, 2015
Müller is now speaking:
He says this must not happen again, and his target is for people to enjoy driving our safe vehicle.
I am confident we will overcome this crisis and turn VW into an even stronger business.
He wants to rebuild trust with customers.
Matthias Müller said: “My most urgent task is to win back trust for the Volkswagen Group"
— Graham Ruddick (@GrahamtRuddick) September 25, 2015
He ends by praising Winterkorn...
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The press conference is underway, and VW has admitted it was shocked by the emissions scandal.
It admits it needs a different business culture, one where things are communicated openly.
VW acting Chair Berthold HUBER: Some staff have been suspended. We will do everything to recapture the confidence of public
— Joe Lynam BBC Biz (@BBC_Joe_Lynam) September 25, 2015
Osterloh (VW works council): "A small group has done damage to our company ... we need a climate where mistakes are not hidden"
— Richard Edgar (@ITVRichard) September 25, 2015
#VW still insisting that scandal in US was due to a "small group" of people. VW's Bernd Osterloh says change of culture needed
— Kamal Ahmed (@bbckamal) September 25, 2015
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Porsche boss Müller appointed new VW chief executive
It’s official: Porsche chief executive Matthias Müller is the new boss of scandal ridden VW, replacing Martin Winterkorn.
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More on who knew what and when in the VW scandal:
The EU was warned on software at centre of VW scandal two years ago http://t.co/lOpnPjR5fj pic.twitter.com/E11qgMH9Yp
— Financial Times (@FT) September 25, 2015
We may have been a bit premature earlier but now:
Handelsblatt reports Mueller has been elected VW CEO; supervisory board meeting has ended
— Live Squawk (@livesquawk) September 25, 2015
Here’s the link (in German).
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A class action has been filed in the US on behalf of an institutional investor against Volkswagen, says Reuters.
Robbins Geller Rudman & Down says the complaint is on behalf of buyers of VW ordinary and preferred ADR shares, and charges VW and certain directors with violations of the Securities Exchange Act.
So lawsuits on the horizon not just from owners of VW vehicles, but owners of VW shares.
Switzerland’s Federal Roads Office says it is highly likely that VW sold diesel cars with the manipulated engines in the country. Diesel cars were also imported from the US, Reuters is reporting, and the office is still compiling the numbers of potentially affected vehicles.
Meanwhile Volkswagen shares have closed down 4.32% after Germany said 2.8m cars could be affected, and the US environmental protection agency said it was stepping up emission tests in the wake of the scandal.
BMW, however, has risen 4.24%, and Germany’s Dax as a whole has closed up 2.7%.
This is how VW’s week unfolded on the stock market:
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Getting ready for the big moment:
It appears the VW board meeting has finished and the press conference is imminent...
VW should pull out of diesel cars in the US and motorsport - analyst
While we wait for the white smoke from VW headquarters signalling the appointment of a new chief executive, a new name has thrown his hat into the ring.
Analyst Max Warburton at Bernstein Research says in his latest note that Porsche chief executive Matthias Müller may be the favourite for the job but passenger brand boss Herbert Diess would be the preferred choice:
Diess would be our first choice: he’s the best candidate if VW wants to show everyone – internally and externally – that the regime has changed. Diess would also be the best choice for shareholders who would like other changes (cost/capital allocation etc.) after the EPA scandal has been dealt with.
Warburton has also put himself forward:
It’s not obvious that VW has the ideal candidate, so I’ve dropped my name in to the hat by sending my CV over to Wolfsburg. I’m waiting for the call, but I have to accept that they’ll probably choose someone internally.
So he has laid out a plan for the new chief executive, whoever it may be:
VW needs to think big and bold. There are five steps that I would recommend:
(1) offer to buy back and scrap every 2.0 diesel sold in the US – all 482,000 of them (cost: around $6bn)
(2) announce that VW will henceforth abandon all efforts to sell diesel engines in the US, but will embrace gasoline and PHEV (plug-in hybrid electric vehicles)
(3) send the new chief executive to the US on Monday to meet government officials, the EPA and media
(4) announce the immediate suspension of the 100 engineers mostly closely linked with the engine and software development
(5) announce the cessation of all motorsport activities immediately, turning all the funding over to electric vehicles, PHEV and environmental research – in a new research facility located in the US, employing US engineers. That will begin to stabilize the US situation. VW can then turn its attention to addressing European concerns.
While this scandal is hugely damaging we believe the financial impact on VW will ultimately be lower than some of the headline numbers. We do not expect VW to face fines in Europe. We believe the long-run earnings power will recover. The whole industry will now face new compliance costs, not just VW. There is value here for the brave, long-term minded investor.
Global markets continue to recover strongly following the comments from US Federal Reserve chair Janet Yellen on Thursday hinting that interest rates could yet rise before the end of the year.
As a reminder, markets took fright last week when the Fed kept rates on hold, on the basis there must be real concern at the central bank about the outlook for the global economy.
But Yellen’s remarks have given some reassurance, helping push the Dow Jones Industrial Average up 1.2%. The FTSE 100 is 2.5% better while Germany’s Dax is up 3% - despite the VW scandal - and France’s Cac has climbed 3.5%.
Julian Jessop Chief Global Economist at Capital Economics explains why he thinks the Yellen comments have soothed investor fears:
Fed Chair Janet Yellen used a speech last night to send a pretty clear signal that US interest rates are still likely to be raised later this year, despite the hesitancy last week. This shouldn’t be a surprise, given that 13 of the 17 Federal Open Market Committee officials are already on record as expecting to hike no later than December. What’s more, the positive tone in equity and commodity markets today in the wake of Yellen’s comments supports our view that the gradual lifting of US rates from emergency lows might actually reassure investors about the global economic outlook.
At first sight, any tightening in US monetary policy would be bad news for global asset markets. However, this takes no account of the context in which the Fed would be raising rates. A number of points are worth repeating. First, the Fed’s failure to raise rates at the September FOMC meeting, rather than being reassuring, simply reinforced investors’ concerns about the health of the world economy. The corollary is that a December rate hike would be a welcome vote of confidence.
Second, even our relatively hawkish forecasts would still leave US rates at low levels by past standards (perhaps 2% at end-2016 and 3.5% at end-2017). There can also be little doubt that the Fed would go back on hold much sooner if either the economy or the financial markets reacted very badly. What’s more, interest rates are still likely to be on hold for the foreseeable future in the euro-zone and Japan, and both the ECB and the Bank of Japan will probably expand their asset purchases under QE.
The EPA has now wrapped up its media call, reports Dominic Rushe.
The officials seemed to be a little defensive about the fact that they didn’t spot this issue first. They were keen to point out that most emissions come from heavy diesel vehicles and that is where they have concentrated their - limited - resources to date.
But VW just changed that. All manufacturers of smaller vehicles can now expect more stringent monitoring, the officials said.
(As a reminder it was two clean air campaigners and West Virginia University who alerted the EPA to discrepencies in the emissions testing)
In the US drivers who thought they were doing their bit for the environment by buying diesel cars are understandably angry after the VW scandal erupted. Here are some of their stories:
VW could face "massive fines" - EPA
The scale of the fines is massive. VW can be fined under the clean air act, the same act used to fine BP after the Deepwater Horizon disaster.
Grundler reiterates that the EPA can fine VW up to $37,500 per violation.
We are now at the Q&A, reports Dominic:
Other manufacturers had been skeptical of VW’s diesel claims, why had the EPA missed this, asks one reporter.
Grundler said the EPA was “not naive” and did not assume that all new technology worked and had tested VW vehicles. “As you know buried deep within 100m line of software code this company had a sophisticated algorithm to defeat those tests.”
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The EPA says it is adding additional test to look for defeat devices but carmakers “don’t need to know” what these tests will entail.
America's EPA to step up testing - "we're upping our game"
America’s Environmental Protection Agency, which unveiled the VW scandal last week, is acting to avoid similar cheating in the future, and admitted it needed to change which vehicles it focused on.
Acting assistant administrator Janet McCabe has just said in a news conference that the EPA has written to all auto manufacturers today saying that it is stepping up its testing for everyone in the wake of the VW scandal.
Christopher Grundler, director of EPA office of transportation and air quality said light diesel vehicles account for less than 1% of diesel vehicles on the road and their focus had been on heavier diesel vehicles which are responsible for the most emissions.That had now changed. “We are upping our game,” he said. “We have put manufacturers on notice.”
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After better than expected US GDP figures, consumer confidence has come in broadly in line with expectations.
The final University of Michigan consumer sentiment for September was revised up from the preliminary reading of 85.7 to 87.2. This compares to analysts forecasts of 87.1, but is down on August’s 91.9.
On Wall Street, markets have joined in the global recovery, with the Dow Jones Industrial Average currently 157 points or nearly 1% higher. Investor sentiment improved after US Federal Reserve chair Janet Yellen hinted that interest rates could be raised this year, despite being kept on hold last week. This eased fears about slowing global growth which had helped put markets under pressure.
Bloomberg says:
“The criteria, outcomes and engineering of cars that missed emissions targets were overseen by managers at Volkswagen’s base in Wolfsburg.”
It added that it had no engineers in the US who were able to create mechanism which cheated on the tests.
Bloomberg is reporting that Volkswagen executives in Germany controlled key aspects of the emissions tests, whose results the carmaker now admits were faked. VW shares are now down 4%.
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Volkswagen shares continue to fall, tumbling 3.8%. Its Porsche brand is down 1.7%, while its Audi subsidiary is 2.9% ahead. Other German carmakers have managed to hold on to their gains: BMW shares have risen 4.1% while Daimler is trading 3.4% higher.
Volkswagen’s German rival Daimler has issued a statement today saying that its engines comply with emissions standards. It stressed that it does not have software that manipulates emissions tests, like Volkswagen’s diesel cars.
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Christian Bäumler, of the Christlich-Demokratische Arbeitnehmerschaft (CDA), which describes itself as the social wing of the conservative CDU party, has spoken out against giving former VW CEO Martin Winterkorn a multi-million-euro payoff. This “would be a kick in the teeth for all employees who work hard for their company,” he told Handelsblatt.
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Hans-Werner Sinn, president of Munich’s Ifo institute, believes the criticism of Volkswagen is overdone. He argues that the Americans have for decades tried to keep smaller and more efficient diesel engines out of the US market because they did not have the technology themselves, he told German newspaper Handelsblatt.
Alexander Traill, partner at risk and insurance law firm BLM, discusses how the new CEO of Volkswagen could be held personally liable for a drop in share price if he doesn’t act quickly to sort out the mess the carmaker is in.
Assuming he is appointed, Matthias Müller may be walking into a liability minefield. First of all, Martin Winterkorn may be held personally liable for the failures that occurred when he was in charge. The fact that he openly accepted responsibility for the irregularities found in the engines won’t help his case, and the prospects of class actions by disgruntled shareholders are significant, particularly if the share price of VW is negatively impacted in the longer term. Mr Winterkorn also faces the matter of assisting and potentially being a subject of any regulatory prosecution both in the US and the UK.
The new CEO is now under a huge amount of pressure to rectify the problem. If this is not done quickly enough to avoid a further fall in share price, he could also face the wrath of shareholders as well as becoming embroiled in prolonged regulatory investigations himself. However it is worth remembering that there will be other members of the VW board who may have failed in their responsibilities, so it would not be surprising if we were to see others called out and held accountable for the situation as well.”
The news has pushed shares in Volkswagen lower. They are now 3.1% down.
German government: 2.8m cars in Germany affected by scandal
The German transport minister, Alexander Dobrindt, has just announced that 2.8m Volkswagen diesel cars in Germany are affected by the emissions scandal. He said 1.2 litre cars could also be affected. Earlier, he said that light trucks too have been manipulated to cheat emissions tests. The scandal first came to light in the US.
He stressed that the manipulation by the German carmaker is “unacceptable” and “illegal”.
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Greenpeace demands clarity from UK ministers, publishes lobbying figures
In the UK, Greenpeace has written to the government to ask if ministers knew before this month that VW was fixing emissions tests. The environmental group has written to transport secretary Patrick McLoughlin and environment secretary Liz Truss, asking four questions:
- Did the government know before this month about the existence of so-called ‘defeat devices’?
- If it did, what did it do to combat efforts by car manufacturers to fix emissions tests?
- If the government was aware of the existence of ‘defeat devices’, did it discuss the issue with manufacturers of diesel cars? If so, how many meetings took place, who attended and what was the outcome?
- What action did the government take to investigate the reported discrepancies between NOx [nitrogen oxides] measurements registered in testing, and so-called ‘on the road’ performance, in which NOx emissions were substantially higher?
Greenpeace has also published figures showing the extent of lobbying in Brussels by manufacturers of so-called low-emission diesel cars. It said:
Publicly available industry data shows that in 2014, manufacturers of diesel vehicles built to comply with the European Union’s new emissions standards, known as Euro 6, spent up to €18.5m lobbying the EU and employed 184 lobbyists. This included 51 lobbyists who were granted passes giving them access to European Parliament premises.
Volkswagen alone employed 43 lobbyists and spent €3.3m lobbying in Brussels, making it one of the biggest spenders on lobbying in the EU. The figures, drawn from the EU’s voluntary transparency register, are likely to be a conservative estimate of actual lobbying spend as they are provided by the companies themselves and are not independently reviewed.”
The US Environmental Protection Agency will give an update on its Volkswagen findings during a media call at 10am EDT (3pm London time).
More on earlier news that Norway too is investigating Volkswagen.
Its economic and environmental crimes unit Okokrim has launched an investigation into whether the German carmaker, the biggest in the world, has used software in its diesel vehicles for cheating emissions tests in the Nordic country.
In light of the revelation of the so-called Volkswagen affair in the United States and Europe, with [the company’s] acknowledgement of extensive cheating, Okokrim will investigate whether there has been a criminal offence in Norway and whether the fraud has had any effect on the cars imported to the country.”
VW shares are now down 1.9%, while the company’s supervisory board meeting continues.
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Analysts at Capital Economics have looked at the impact of the VW scandal on the German economy.
Will the VW scandal put the brakes on German growth? ask Roger Bootle and Jonathan Loynes at the UK consultancy.
The news last week that Volkswagen had cheated emissions tests prompted speculation that “Made in Germany” branding had been dealt a blow that could seriously jeopardize the economy’s prospects. Given the importance of the car industry to German output and employment, fears about the effects of this on the German economy are understandable.
For now, we are inclined to believe that the scandal will pass without any major long-term economic effects. However, short-term damage to business and consumer confidence could offset the boost from recall-related activity. We still see German GDP rising by 1.5% this year and next. But downside risks are mounting.”
Volkswagen shares are back in negative territory, dipping 0.5% – reversing earlier gains of more than 3%. Other German carmakers are still up, though. BMW, hit on Thursday by suggestions that its cars also exceeded emissions standards, has risen 4.7%. The carmaker rejected the claims and the trade magazine behind the report, Auto Bild, admitted that it had no evidence of data manipulation at BMW.
European stock markets are still powering ahead.
- FTSE 100 index in London up 2.5%
- Dax in Frankfurt up 3.3%
- CAC in Paris up 3.6%
US economic growth revised up to 3.9%
Meanwhile, US economic growth has been revised higher - to an annual rate of 3.9% in the second quarter, from 3.7% estimated previously. Wall Street economists had not expected a revision.
This will cement expectations that the Fed will raise interest rates towards the end of the year, as suggested by the central bank’s chief Janet Yellen last night.
German transport minister: light trucks also hit by scandal
Volkswagen’s crisis deepens: German transport minister Alexander Dobrindt says that light trucks are also affected by the emissions scandal, according to Reuters.
Flash on Reuters: Volkswagen’s supervisory board meeting is taking longer than expected, as its 20 directors are discussing a new corporate structure, as well as choosing a new CEO and dismissing other senior executives.
Indeed, at least in Germany there are no signs that the Volkswagen scandal has harmed sales of diesel cars. Sebastian Lorenz from car website AutoScout24 has told Reuters that there has not been an impact on demand for new or used VW diesels in Germany, nor has there been an effect on prices.
How much will the VW scandal affect sales? According to one retail analyst, not that much.
John Stevenson, a retail analyst at Peel Hunt, says:
Historically, consumers have proved fairly resistant to corporate scandals that do not hit them financially…. The key question is whether the VW scandal is sufficiently damaging for consumers to question the trust and desirability of the brand, or indeed, any other marques that are subsequently implicated. We feel as though this is unlikely.”
Stevenson adds:
Indeed, if sales were hit, an increase in manufacturer deposit contributions and price reductions is likely to recover demand faster than a PR campaign.”
He thinks it may revive a consumer preference for petrol engines, but says car dealerships will prosper either way if VWs are recalled in the UK.
As a rule, recalls are great for business, funded by the manufacturers and also bringing all customers back into the garage services business as a catalyst for other incremental work.”
UK Department for Transport responds to claims of cover-up
Our transport correspondent Gwyn Topham writes:
The government has responded to claims of inaction and cover-up after reports that it was informed about the problem a year ago by the ICCT - the body that prompted the VW scandal to erupt in the US.
The Department for Transport said it was taking “robust action” but said the report did not provide enough detailed information to act, nor suggest manufacturers were rigging tests through “defeat devices”.
A spokesperson said: “The Department is already taking forward the key recommendation of the ICCT report – actively pushing for the introduction of a real-driving emission test in Europe.
Volkswagen USA tweeted an apology to customers last night
Update from Volkswagen regarding the EPA investigation: pic.twitter.com/fcmMcFWt3G
— Volkswagen USA (@VW) September 24, 2015
The ramifications of the Volkswagen emissions scandal may extend far beyond diesel cars. UBS analyst Julie Hudson reckons it could be a step towards the end of the internal combustion engine.
Should transport emissions become too difficult to regulate because of the difficulty of amassing accurate data, we think this might go way beyond the diesel engine, to accelerate the demise of the combustion engine.”
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Greek PM Alexis Tsipras holds first cabinet meeting
Over in Athens, Greek prime minister Alexis Tsipras is holding his first cabinet meeting following his triumphant return to power on Sunday, reports Helena Smith.
Addressing his 26-member cabinet, the leftist leader said the new government’s motto would be “hard work” and its most pressing priority successfully completing a first review of the economy by Greece’s creditors for the way to be opened for talks on debt relief to begin. “We must be worthy of the choice of Greeks [at the ballot box] in governance by bringing the changes and reforms to the country that the people need to breath again,” he told his ministers.
“Our first step will be conducting the first review so that discussion of debt reduction and recapitalisation of banks can begin as soon as possible. A lot will depend on how the economy fares in the future on these two things.”
The cabinet, Tsipras said, had a “huge responsibility” to create a new Greece over the space of the next four years, it’s mandate in power - a Greece that would no longer be under international tutelage. “If, in the first phase of our government we had [to focus on] negotiations [of the latest EU bailout accord for Greece] now we have the difficult job of creating a productive model that will reverse what has happened in recent years and especially the last five years in which the neo-liberal model ghas plunged society into desperation.”
Hybrid and electric cars winners of VW scandal
Plummeting consumer confidence in diesel cars will benefit hybrid and electric vehicle sales, according to an expert in energy technology at the University of East Anglia.
Konstantinos Chalvatzis, a senior lecturer in business and climate change at UEA’s Norwich Business School, said the fallout from the Volkswagen emissions testing scandal will cause a lack of faith in diesel engines, “which has been earned over the past decade in Europe.”
He argued:
While in the past diesel engines were valued for their dependability and modest consumption, during the last decade they have grown to be very powerful and at the same time very efficient. This claim is now in doubt and this will be a huge advantage for manufacturers that have invested in hybrid and electric vehicles.
The timing is also quite crucial at a time when numerous European cities, including many in the UK, have started looking into ways to discourage diesel vehicles. The VW scandal will only give them new arguments.
“VW has secured sales in a very aggressive market by providing false emissions and consumption data and putting its vehicles at an unfair advantage over those of competitor manufacturers. It is safe to say that other manufacturers will be looking into their legal options on this issue, including requesting compensation for lost profits.
Photograph: Julian Stratenschulte/EPA
Norwegian police are on the case: they will investigate whether Volkswagen has broken any laws in Norway, Reuters reports.
Meanwhile, two Chinese joint ventures of Volkswagen have said they are are unaffected by the emissions scandal.
Bloomberg News has looked at how “How VW’s Plan to Win America Backfired”. The news agency writes:
Something was different last January when Volkswagen AG Chief Executive Officer Martin Winterkorn took the stage for his annual speech at the Detroit auto show: He addressed the industry’s most important confab in English.
His speech at Fishbone’s, a Cajun restaurant a short walk from both the Chrysler Freeway and the riverfront GM headquarters, was halting, uneven, and read from a script. But at least it wasn’t relayed through a translator, as Winterkorn had typically done in the past.
For the 68-year-old executive, the switch was a symbol of his commitment to reversing years of underperformance in the world’s most competitive auto market. The VW brand had just over 2% of US car sales -- a fraction of what Nissan and Toyota have, let alone Ford or GM.
“We are -- and I am -- fully committed to the United States,” Winterkorn said at the show. “We are putting the Volkswagen brand on track.”
... The scale of the diesel scandal, which has now claimed Winterkorn’s job and wiped about 21 billion euros ($24 billion) off of Volkswagen’s market value, has stunned industry veterans, lawyers, and regulators. How could the German powerhouse do something so wrong, for so long, at such risk?
The answer has a lot to do with Winterkorn’s goal of overtaking Toyota Motor Corp. -- producer of the Prius hybrid -- as the world’s No. 1 carmaker.
European stock markets are showing no signs of slowing down, boosted by Fed chief Janet Yellen’s comments last night.
Connor Campbell, financial analyst at Spreadex, looks ahead to this afternoon’s US GDP figures, the final estimate for the second quarter. Analysts are expecting the 3.7% annual growth rate to be confirmed.
In an interesting turn of events, Yellen’s vaguely hawkish comments last night appear to have boosted a previously rate-hike fearing market, causing the abrupt switch from the harsh intra-day losses seen on Thursday to the gung-ho gains of Friday morning. The Dow futures are currently pointing to a near 250 point jump at the US open, the sustainability of which will likely be dictated by this afternoon’s final US second quarter GDP figure.
Analysts are expecting the confirmation of the previously provided 3.7%, a healthy number that likely enhances the chances of an October or December lift-off [in rates] (even if August’s China-chaos could cause a starkly different picture for the Q3 figure). How the Dow Jones reacts to this number should be enlightening; for the majority of 2015 any positive piece of US data has been a price-eroding factor for investors fearing the effects of a rate-hike. Yet today seems like the markets view of an increase in interest rates might be changing. The Dow will likely also be lifted by a stellar start to the day from Nike, with the company’s shares rising 8% after hours on Thursday following its superb, China-boosted, first quarter report.”
According to German reports, Rupert Stadler - one of the contenders for the top job at Volkswagen - will remain in his post as head of the group’s Audi subsidiary. Meanwhile, Jürgen Stackmann, who runs the Seat subsidiary in Spain, is to be appointed to VW’s management board as its new sales chief, trade magazine Auto Motor und Sport reported.
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“Yeah right” – independent City analyst Louise Cooper’s reaction to the claims from carmakers (e.g. BMW) that they don’t cheat on their emissions testing.
The German transport minister is as sceptical promising at a press conference Thursday that his department will be carrying out random tests on other cars, not just VW ones.
Three things have struck me since this story began. Firstly quite how much the software cheated – emissions were up to forty times higher when the device was turned off. VW official diesel emissions data was not that different to other car makers, so either they’ve been cheating too or their engines are way more advanced than VWs (and is that likely?).”
Companies don’t admit fraud. VW didn’t freely admit mea cupla – the regulator forced the information out of it. As it will be with the other car makers.
Of course, as an owner of a Ford Focus with a diesel engine, I would like to be proved wrong. I’d like to think better of human nature.”
A group of Greenpeace activists are demonstrating outside Volkswagen’s headquarters in Wolfsburg in central Germany, holding up signs saying “No more lies!”.
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German media are reporting that VW’s former chief executive Martin Winterkorn, who stood down on Wednesday, wants to keep his job as boss of Porsche Automobil Holding – the holding company that controls 50.7% of the shares in the Volkswagen group.
But he faces strong opposition from some board directors at Porsche. One told magazine Der Spiegel: “This is a conflict of interests. Herr Winterkorn has to give up this position.”
Yellen comments set to boost US markets
European stock markets are continuing their rise this morning, after US Fed chief Janet Yellen shed more clarity on the US interest rate outlook, by saying that rates would probably be raised before the end of the year. US markets are also expected to open higher.
- FTSE 100 index in London up 2.4% at 6103.48
- Dax in Frankfurt up 2.8% at 9692.76
- CAC in Paris up 3.3% at 4489.28
Michael Hewson, chief market analyst at CMC Markets UK, says:
By resetting those expectations she appears to have given reassurance to investors about timings, but ultimately she hasn’t really said anything new, and last night’s speech appears to have been nothing more than a sop to the market, which continues to behave like a petulant child that constantly needs parental reassurance.
She went on to play down the risks emanating from a China slowdown in contrast to last week’s statement and the markets appear to have liked the more upbeat tone, but she still left plenty of wiggle room in case events don’t pan out as expected, by stating that any decision would still be data dependant.
While markets appear to have taken comfort from the slightly clearer tone last night a lot can change between now and October and or December, and recent data does suggest that the Fed’s timetable could well be blown off course.
US Q2 GDP is expected to be confirmed at 3.7%, while all eyes will be on speeches by Federal Reserve members James Bullard and Esther George later today. They are avowed hawks so they are likely to reinforce the message given to markets by Janet Yellen last night about a rise in rates this year.
Angus Campbell, senior analyst at FxPro, says:
Once again mixed messages from Janet Yellen have presented investors with a binary situation on interest rates in 2015. The impression the market has taken from her speech at the University of Michigan last night is that it’s more likely than not that the Federal Reserve will start its monetary tightening this year, however they are keeping the door open to maintaining rates at their historical lows in case the global picture worsens . This means that investors need to not only monitor US data very closely, but the situation across the other major economies in particular Asia.”
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A brand consultancy estimates that the VW brand, valued earlier this year at $31bn, has lost $10bn in value since the emissions scandal erupted.
Germany’s national brand has also been tarnished.
David Haigh, CEO of Brand Finance, gives his view on the scandal.
At Brand Finance’s last calculation VW’s brand value stood at just over $31bn, making it the world’s third most valuable auto brand. It appeared to be motoring ahead… The apparent ease with which the company’s activities were uncovered makes it all the more astonishing that VW was willing to endanger its most valuable asset. Rather than ‘Das Auto’, VW’s motto might be more appropriate if changed to ‘Crass Auto’.
That such an iconic German brand, the ‘people’s car’, could behave in this way threatens to undo decades of accumulated goodwill and cast aspersions over the practices of German industry, making the Siemens bribery scandal appear less a one-off than evidence of a broader malaise. With reports that BMW has been implicated too, the damage to Germany’s nation brand could become critical. Germany’s status as the world’s most powerful nation brand is under threat.”
In the UK, Labour has waded into the VW emissions scandal. Lilian Greenwood, Labour’s shadow transport secretary, said:
Ministers must come clean and admit when they were first told about the diesel emissions scandal. The International Council on Clean Transportation, the body which helped to expose the problem, warned a year ago that dangerously high levels of nitrogen oxide emissions were not confined to America. It is unacceptable that the Government waited this long to take action.
Over recent days the Department for Transport has been forced to perform a series of screeching u-turns. After initially saying that only the European Commission could conduct an investigation, Patrick McLoughlin has been forced to backtrack, but after this latest revelation there can be little faith in the Department’s response.
Poor air quality is a growing problem in our towns and cities but the Government is in chaos on this issue, and it is becoming increasingly clear that real leadership was needed on this issue at least a year ago.”
The FTSE 100 index is now trading nearly 2.2% higher at 6091.22, boosted by commodity stocks such as copper and crude oil prices. Mining giant Glencore is one of the top risers, rising as much as 5%, after hitting a fresh record low on Thursday when Goldman Sachs cut its target price for the stock.
Germany’s Dax is 2.6% ahead at 9672.69 while France’s CAC has gained 2.9% to 4473.54.
Dollar rallies on Yellen comments
The euro has lost more than 1% against the dollar, falling to $1.1116, after Fed chief Janet Yellen said it was likely that US interest rates would be raised before the end of the year.
She said in a speech in Amherst, Massachusetts, last night:
I anticipate that it will likely be appropriate to raise the target range for the federal funds rate sometime later this year and to continue boosting short-term rates at a gradual pace thereafter as the labor market improves further and inflation moves back to our 2% objective.”
The dollar is rallying against a number of currencies and is on track for its best week in more than two months. It had hit a three-week low against a basket of major currencies when the Fed failed to raise rates at its September meeting.
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Some say that if Porsche boss Matthias Müller gets the top job at Volkswagen as expected, he may be a temporary CEO until another internal candidate, the company’s brand chief Herbert Diess has proved himself. Diess is a newcomer, having joined from BMW in July, but won praise for the work he did there as a senior executive – including ruthless cost-cutting.
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Volkswagen’s new CEO, to be announced later today, faces the task of steering the company through its worst crisis in its 78-year-history. One of the questions the board will have to consider in choosing a new boss is how he will deal with regulators in the US, for example if he is hauled in front of a committee there.
The scandal deepened on Thursday, as US and European authorities stepped up their investigations. Germany’s transport minister said that Volkswagen had also manipulated emissions tests in Europe.
At least 27 US state attorneys have kicked off a multi-state investigation of the carmaker over the emissions scandal, and will send subpoenas to the company, according to Reuters.
Maryland attorney general Brian Frosh said:
I am furious that the world’s leading car company wilfully took steps that polluted our environment and deceived consumers.
Some 11m diesel cars around the world had software fitted to cheat emissions tests, but it was not activated in most of them, Volkswagen has said. It faces criminal investigations and class-action lawsuits from customers, and possibly shareholders.
Bavarian carmaker BMW has also been dragged into the scandal, with a report – swiftly rejected by the company – that some of its cars also exceeded emission standards sending its shares tumbling on Thursday. They recovered this morning to trade 5% higher. Audi was up 1.4%, Porsche 0.7% and shares in the Volkswagen group gained nearly 3%.
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Credit ratings agency Fitch placed Volkswagen on “negative watch” for a possible downgrade two days ago, which would make it more expensive for the company to borrow money. Emmanuel Bulle, senior director at the rating agency, said this morning that the company could weather a regulatory penalty of $10-20bn. He stressed, however, that the main issue is the long-term impact on Volkswagen’s relationship with customers and regulators.
The world’s biggest carmaker could face an $18bn penalty in the US over cheating government pollution tests. Bulle told Bloomberg TV:
That is something that they could afford. it would be a huge blow but they could survive.
This could lead to a downgrade of one or two notches in VW’s credit rating. But, he said, on top of that there is reputational damage.
If there is a huge loss of faith in the company, that could lead to a further downgrade.
We don’t know for sure what consumers will do, what regulators will do.
Volkswagen admitted to US regulators that some of its diesel cars were equipped with software designed to evade emissions tests. It has said it would set aside €6.5bn (£4.7bn) to cover the costs of the scandal.
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European stock markets open higher
European stock markets have opened higher, but are still on track for a weekly loss after the Volkwagen scandal. VW shares are up 3.6%, and Germany’s Dax has risen 1.8% in early trading.
The FTSE 100 index in London is trading nearly 90 points higher, up 1.47% at 6048.63. France’s CAC and Spain’s Ibex have both gained 1.7% and Italy’s FTSE MiB is up 1.9%.
Michael Hewson, chief market analyst at CMC Markets UK, said:
Last night’s speech by Fed chief Janet Yellen certainly kept the Fed’s options open for a rate rise this year, saying that most participants on the FOMC expected an “initial increase in the federal funds rate later this year” but if the economy surprises them then judgements might change.
Translation, we may raise rates, but then we might not.
Later today we will get the final reading for US second-quarter GDP, which is expected to be confirmed at an annual rate of 3.7%, but these numbers won’t tell us anything new about where the US economy is now, he noted.
Good morning.
The Volkswagen emissions test scandal which has engulfed the global car industry continues to unfold. It is the worst corporate scandal in Germany for years, and could prove to be a bigger threat to chancellor Angela Merkel than the Greece debt crisis.
All eyes are on Volkswagen’s 20-member supervisory board today, which is holding a crisis meeting at the carmaker’s HQ in Wolfsburg to choose a successor to Martin Winterkorn. Winterkorn, who had been chief executive since 2007, quit on Wednesday, but insisted that he was not involved in the scandal.
Matthias Müller, the 62-year-old boss of VW’s Porsche sports car division, has emerged as the favourite to replace Winterkorn. Reuters reported last night that VW’s former head product strategist is backed by a majority of directors on the board.
You can find out more about the runners and riders for the job here.
More heads could roll at the carmaker, with German reports that the research and development chiefs of Audi and Porsche, Ulrich Hackenberg and Wolfgang Hatz, could get their marching orders, along with Volkswagen’s US chief executive Michael Horn and Heinz-Jakob Neußer, head of VW brand development.
We’ll be tracking the latest developments through the day....
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