If your aim was to pen a statement likely to put the fear of God into investors in the automotive industry, it would probably read something like the one Volvo AB published on Tuesday.
“Nitrogen oxide,” “North America,” and “material” financial impact are phrases no shareholder wants to read in the wake of Volkswagen AG’s diesel-emissions scandal.
Until now, truckmakers had largely escaped the scrutiny that put car manufacturers on the defensive since the scandal: indeed studies showed that modern trucks are surprisingly clean. That may be about to change.
Fortunately, Volvo trucks’ emission problems aren’t due to deliberate manipulation, but are down to an emissions-control component that degrades more quickly than the company anticipated.
Even so, the end result is the same: some of Volvo’s vehicles have been emitting higher than permitted levels of dangerous nitrogen oxides when driven on the roads compared to when they were tested by regulators in the laboratory. Politicians, who have started banning highly-polluting diesel cars from Europe’s city centers, will be watching closely.
Problems with a faulty emissions component forced Cummins Inc. to recall about half a million trucks earlier this year. The company ended up booking a $400 million charge to cover repairs.
At this stage, though, Volvo can’t quantify how many vehicles are affected, or how much they will cost to fix. The company says the largest volumes of potentially affected vehicles were sold in Europe and North America – but this doesn’t tell you much because, together, the two markets account for two-thirds of the company’s revenue.
The good news is Volvo’s technical problem hasn’t affected the performance of its vehicles, which means truckers can’t sue the company for inflated fuel bills. But litigious environmental lawyers may still spy a meal ticket here.
Absent further information, investors have concluded this could end up costing Volvo a chunk of money – Tuesday’s initial 5 percent slump in the shares erased more than $1.5 billion of market value. Clearly, Volvo has a lot more explaining to do.
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Chris Bryant is a Bloomberg Opinion columnist covering industrial companies. He previously worked for the Financial Times.
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