Volkswagen's scandal is 'worse than Enron' and reports say the company was warned

VW’s offices in Wolfsburg, Germany. Photo: Getty Images

Over a week after news of Volkswagen’s emissions scandal broke, the struggles of the world’s largest automaker is still occupying headlines.

The US Environmental Protection Agency revealed on September 18 that the company had used prohibited “cheat” devices which registered lower emissions of the deadly air pollutant NOx during tests.

The company’s share price plunged by more than a third on Monday and Tuesday last week and CEO Martin Winterkorn was dropped by the board.

But further damaging reports over the weekend suggest the VW scandal still has much further to run.

New CEO Matthias Muller has a nightmarish gauntlet to run. He’s dealing with a company which had already recently been hit by China’s slowdown, and now faces severe reputational damage even after the fines and additional regulatory costs are accounted for.

German media over the weekend made Muller’s new job even more of a nightmare, with reports that the company had been warned as far back as 2007 about the use of the “cheat” devices that registered lower emissions.

A piece in the Financial Times argues that the scandal is worse than Enron, the American energy giant whose colossal accounting fraud was revealed in 2001:

There are reasons to believe that the fallout from this scandal will be as big as Enron, or even bigger. Most corporate scandals stem from negligence or the failure to come clean about corporate wrongdoing. Far fewer involve deliberate deception on this scale.

They offer 7 reasons:

  • Higher air pollution can cost lives.
  • VW has been at the head of a Europe-wide push for diesel, prodding governments to favour it through policy.
  • The fines and lawsuits looming for VW will likely be larger than for Enron.
  • Enron’s fraud hid massive losses, whereas “Volkswagen could get wiped out even though the company is financially healthy.”
  • The scandal damages Germany’s image more broadly, and the image of other German automakers.
  • Other firms that have invested in the rise of diesel will be damaged even if they have not cheated in any way.
  • The scandal could taint the idea of using cleaner technology to mitigate against.

It’s a pretty brutal list.

When the news first broke about the scandal, all eyes were on the massive potential $US18 billion (£11.85 billion) fine. Now, attention is shifting away from specific fines and towards the less quantifiable damage to the company and industry more widely.

The BBC reports a Brussels-based group called Transport & Environment which says carbon dioxide standards are “widely manipulated.”

Likewise, Emissions Analytics founder Nick Molden told The Independent “If widespread illegality is found among car manufacturers in Europe, then all bets are off. There will be such carnage.”

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