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Volkswagen China
Image: picture-alliance/dpa


Jennifer Collins
September 22, 2015

Volkswagen's troubles have spread to Asia as South Korea announces probe and European countries signal concern.


Volkswagen's troubles went global Tuesday as South Korea announced it would investigate three of the automaker's diesel car models and European countries signaled their alarm following admissions the German group had cheated on vehicle emissions tests in the United States.

The beleaguered auto giant's shares plunged by 19 percent on Monday after U.S. environmental regulators said it had used sophisticated software to circumvent emissions guidelines. The U.S. Department of Justice has now launched a criminal probe, meaning Volkswagen could face fines of up to $18 billion (16 billion euros).

The South Korean probe will involve around 4,000 to 5,000 Jetta, Golf and Audi A3 vehicles produced in 2014 and 2015 and could lead to vehicle recalls, ParkPan-kyu, a deputy director at South Korea's environment ministry, told Reuters.

"If South Korean authorities find problems in the VW diesel cars, the probe could be expanded to all German diesel cars," he said.

Two thirds of all car imports to South Korea in the first half of 2015 were diesel and German car sales have soared there since a 2011 free-trade deal eliminated duties on European vehicle imports. Volkswagen and Audi accounted for 28.2 percent of all foreign cars sold in the first eight months, according to Korea Automobile Importers and Distributors Association.

Suh Sung-moon, analyst at Korea Investment & Securities, said the scandal could hit German car sales hard.

"South Korean consumers are very sensitive to news, and this emission news will have an impact on the import market," he said.

Volkswagen plant in China
Image: picture-alliance/dpa

European Woes

The European Commission has said it is in contact with VW and U.S. regulators but it was too early to tell whether cars in Europe were also affected. Still, Great Britain's transport ministry called for action and said all cars that violated European Union regulations would be pulled from the market, according to British daily newspaper, the Telegraph.

Authorities in Switzerland also signalled their alarm and said the results of the country's own investigation would be presented in a few days, according to reports in Spiegel.

The scandal threatens to seriously damage VW in Europe where diesel cars are immensely popular. VW and other carmakers have been touting diesel as an efficient and relatively clean fuel following improvements in quality over the past few years.

In 2013, 53 percent of all newly registered cars in the EU had diesel-powered engines, while the diesel VW Golf has been the most popular car model in Europe for a number of years, according to the International Council on Clean Transportation (ICCT).

And while other German carmakers such as Daimler and BMW say the VW accusations do not apply to them, the scandal could do untold damage to Germany's reputation as a leading car-making economy, say analysts.

"This has to be taken exceptionally seriously," Ferdinand Dudenhoeffer, a professor at Duisburg-Essen University, said. "This impacts the entire German automotive sector."

Could China be next?

The VW revelations could be a major blow for the group in the "extremely important" Chinese market, says Sven-Michael Werner, an attorney specializing in the automotive sector at law firm Bird & Bird's Shanghai office.

"I'm sure the Chinese regulators are looking into the matter in the US very closely and at whether similar instances would have occurred here," Werner told DW.

"That's the typical pattern with overseas compliance issues. They will probably look at it unofficially at first and if they find anything there would be a formal investigation," said Werner, although, he added diesel cars are much less popular in China compared to other markets.

VW in Wolfsburg
Image: DW/E. Schuhmann

Volkswagen already lowered its yearly sales forecast in July following weakened demand in China, where the German automaker delivers more than 40 percent of its vehicles.

US: Further struggles

In the first half of 2015, Volkswagen surpassed Toyota as the world's largest automaker. Despite reaching that long-standing goal, the group has struggled in the US market where its strategy has been to promote its "clean diesel technology" as being better for the environment.

In 2013, the VW America launched its "newest, most fuel efficient, TDI Clean Diesel engine" to power the 2015 Golf, Beetle, Passat and Jetta - all of which have been part of the U.S. recall of nearly 500,000 cars - underlining its diesel strategy there.

VW car sales have slipped in the North American market over the past few years, with diesel vehicles making up around a quarter of sales in the US.

(dpa, reuters, afp)

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