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Was Volkswagen Staff Aware of the Emission Test Fraud?

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Volkswagen AG (VLKAY - Free Report) was aware of the software issue long before it came to the limelight, according to sources. In 2011, technicians at the company had warned about the illegal emission practices. However, no action was taken. In addition, through internal investigations, Volkswagen found a letter from parts supplier Bosch which mentioned the illegal software use.

Volkswagen is probing the issue and trying to identify the executives aware of the problem. The automaker is also trying to develop a solution to fix the software issue which is the biggest scandal in the company’s 78-year old history.

Recently, the Environmental Protection Agency (EPA) had revealed that Volkswagen had developed a software algorithm which allowed it to deceive U.S emission tests. The company has admitted to the malpractice and revealed that its diesel vehicles are installed with the software which makes the engines appear to have low emissions levels during tests. According to the EPA, Volkswagen vehicles emit nitrogen oxides, or NOx, at almost 40 times the standard amount. Although these cars do not pose safety risks, public health is at stake.

Consequently, Volkswagen has been ordered to halt the sale of its diesel vehicles in the U.S. Almost 11 million vehicles around the world – including Jetta, Beetle, Audi A3 and Golf from model years 2009-2015 and Passat of model years 2014 and 2015 – are fitted with this software. Meanwhile, the company has also stopped the production of 2015 and 2016 Volkswagen and Audi models powered with four-cylinder turbo diesel engines. Sale of used vehicles with these engines will also be closed soon.

Further, the Italian unit of Volkswagen has stopped selling vehicles which feature Euro 5, EA 189 motor. This will result in an inventory backlog of 40,000 vehicles.

Among the 11 million affected Volkswagen diesel cars which are currently on road, 2.8 million vehicles are in Germany. The German government supervisory body KBA has set Oct 7 as the deadline by which the automaker needs to put forward a plan for dealing with the situation.

Meanwhile, Volkswagen may face a fine of $37,500 per vehicle for the violation. The automaker will also have to fix the problem free of cost as soon as it develops a solution. In addition, Volkswagen expects to record a $7.3 billion charge for the fraud which has severely tarnished its reputation, clearly reflected by its declining share price. It is also expected to affect the company’s global sales.

Moreover, the news has captured global attention, launching a series of investigations around the world.
Volkswagen currently carries a Zacks Rank #3 (Hold). Better-ranked stocks in the same industry include Pep Boys - Manny, Moe & Jack , Daimler AG (DDAIF - Free Report) and Superior Industries International, Inc. (SUP - Free Report) . All the stocks sport a Zacks Rank #1 (Strong Buy).

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