Tuesday, September 22, 2015

AN ARGUMENT FOR BIG GOVERNMENT AND REGULATIONS

Those that advocate that "big government" is bad need to look at what happens when government is weak and regulations flimsy.

Volkswagen scandal widens: $7.3 billion cost, 11 million cars


Volkswagen is being engulfed by a growing crisis over its attempt to make millions of diesel cars appear cleaner than they are.

The scandal broke Friday, when U.S. regulators said the German company had programmed some 500,000 vehicles to emit lower levels of harmful emissions in official tests than on the roads.

Volkswagen stunned investors Tuesday by admitting that the problem was much bigger than that: internal investigations had found significant discrepancies in 11 million vehicles worldwide.

"Millions of people all over the world trust our brands, our cars and our technology. I am deeply sorry we have broken this trust," said CEO Martin Winterkorn. "I would like to make a formal apology to our customers, to the authorities, and to the general public for this misconduct."

The company set aside 6.5 billion euros ($7.3 billion) to cover the cost of recalls and other efforts to limit the damage, trashing its profit forecast for the year in the process.

Shares in Volkswagen (VLKAY) plunged 17% Tuesday, after suffering a similar crash Monday. About a third of the value of the group has been wiped out in two days, causing big losses for major shareholders such as Qatar.

A global problem

"Now it looks like it's becoming a very global issue. It really will be bad for the reputation of the company for a couple of years, it will take time to rebuild the trust of the customers," said Klaus Breitenbach, automotive analyst at Baader Bank. "It's really worrying for the company and also for the whole industry."

It's hard to overstate the significance of the crisis in Germany, where making quality cars is central to the country's reputation as a manufacturing and export powerhouse. The auto industry accounts for about 20% of exports, and employs 775,000 people directly.

Volkswagen, which also owns the Audi and Porsche brands, overtook Toyota (TM) earlier this year to become the world's biggest automaker by vehicle sales.

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