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Industryweek 13736 Vw Spiral

VW's Diesel Woes Deepen with Korean Ban

Aug. 2, 2016
South Korea said on August 2 that it would block sales of 80 VW models and fine the company $16 million because the carmaker fabricated documents related to emissions and noise-level tests. 

Volkswagen AG faced two new fronts in the diesel crisis after South Korea all but banned sales of the automaker’s models and the state of Bavaria threatened to sue over the cheating scandal.

South Korea said on August 2 that it would block sales of 80 VW models and fine the company 17.8 billion won (US$16 million) because the carmaker fabricated documents related to emissions and noise-level tests. The German state of Bavaria, where VW’s Audi brand is based, a few hours later announced plans to sue for as much as 700,000 euros (US$783,000) over losses at a state pension fund that owns the automaker’s stock.

The announcements come just a week after VW appeared to be getting its hands around the crisis, reaching a settlement with U.S. federal and state authorities to pay $15.3 billion to cover the cost of getting 482,000 rigged vehicles off the country’s roads. Approval of the agreement advanced Volkswagen’s push to resolve more than 1,000 U.S. lawsuits springing from the diesel-cheating scandal.

“The lion’s share of legal woes for Volkswagen, as well as fines, have been dealt with in the settlement in the U.S.,” said Frank Biller, a Stuttgart, Germany-based analyst with LBBW. “But there’s still the potential for further headwinds, as the latest news shows.”

Shares Drop

Volkswagen fell 5% to 118.85 euros in Frankfurt. The stock has plunged 27% since the cheating came to light.

The company’s U.S. unit said Tuesday that July U.S. sales for the Volkswagen brand fell 8.1% from a year earlier to 28,758. That was narrower than the average estimate of a 20% drop in a Bloomberg survey of analysts. The brand’s U.S. deliveries have declined for nine consecutive months. In July, sales surged 40% for the Tiguan small sport utility vehicle while the Jetta line, the brand’s best-selling models, was down just 1%.

The potential lawsuit in Bavaria stems from VW’s disclosure obligations, which the state believes the automaker did not meet when providing information on the scandal, Tina Dangl, a Bavarian Finance Ministry spokeswoman, said by phone. As a result, the pension fund lost money on its VW holdings, she said. The state plans to file the suit next month. VW declined to comment because the company has not yet received any filing.

In South Korea, the new restrictions affect 83,000 vehicles, the Environment Ministry said. The 32 certification types for 80 VW, Audi and Bentley models sold in the country have had their approvals withdrawn, it said.

Drastic Measures

The actions in South Korea are among the most drastic against VW since the revelation by U.S. regulators in September that the carmaker had rigged its diesel models to cheat on emissions tests. The company has set aside about 18 billion euros to cover worldwide costs related to the scandal. While regaining certification in South Korea typically takes three months, the ministry said it may take longer to carry out thorough inspections and visit Volkswagen’s headquarters in Wolfsburg, Germany, if necessary.

The Audi Volkswagen Korea Ltd. division is working with South Korean authorities on a quick resolution and a full accounting of any irregularities, said Leslie Bothge, a spokeswoman at the German carmaker. All vehicles that have already been registered can continue to be used without restriction, while the goal of the talks will be to resume offering a complete model lineup to customers as soon as possible, she said.

The automaker is also still facing a number of other challenges. In the U.S., VW said on August 2 that it’s seeking dismissal of a federal lawsuit by some shareholders. In the European Union, officials want the 8.5 million owners of VW diesels to get similar compensation pledged to American customers.

By Sohee Kim, Patrick Donahue and Karin Matussek

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