Volkswagen emissions scandal could cost $86 billion, report says

German automaker set aside $7.3 billion to deal with fallout from emissions cheating software in its diesel cars. That won't be enough, according to financial services company Credit Suisse.

Chris Paukert Former executive editor / Cars
Following stints in TV news production and as a record company publicist, Chris spent most of his career in automotive publishing. Mentored by Automobile Magazine founder David E. Davis Jr., Paukert succeeded Davis as editor-in-chief of Winding Road, a pioneering e-mag, before serving as Autoblog's executive editor from 2008 to 2015. Chris is a Webby and Telly award-winning video producer and has served on the jury of the North American Car and Truck of the Year awards. He joined the CNET team in 2015, bringing a small cache of odd, underappreciated cars with him.
Chris Paukert
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The US EPA claimed that roughly 500,000 VW diesels (including this 2014 Jetta TDI) cheated on their emissions tests. Antuan Goodwin/CNET

If a major financial services company's estimate is accurate, Volkswagen's TDI diesel emissions scandal could cost the automaker up to $86 billion.

Credit Suisse has advised investors that other estimates aren't adequately taking into consideration secondary costs and cascading fallout from the scandal, according to CNNMoney. "The market does not appear to be discounting negative knock-on effects," wrote Credit Suisse analysts in a report sent to clients, according to CNNMoney.

Credit Suisse confirmed the numbers in CNNMoney's report but declined to furnish the investor note to CNET. "We are restricting this to clients for now," said spokesperson Sofia Rehman.

That $86 billion figure is exponentially more than previous cost estimates. If Credit Suisse is right, the $7.3 billion in funds VW set aside to cover costs relating to the crisis will be woefully inadequate.

Volkswagen, the world's largest automaker by volume, has been in a tailspin since the US Environmental Protection Agency last month accused it of deliberately programming nearly 500,000 diesel cars to circumvent emissions standards. A so-called "defeat device" allows vehicles to pass the EPA's test cycle procedures but spew up to 40 times the emissions in real-world use. Subsequently, it was revealed that the cheater software is installed in 11 million cars globally.

Volkswagen will reportedly refit up to 11 million diesel vehicles affected by its emissions-cheating scandal with new software. Antuan Goodwin/CNET

VW on Monday reported that North American sales were up 0.56 percent year over year in September. However, industry watchers believe the scandal happened too late in the buying month for the impact to be fully reflected in the automaker's sales figures. In the meantime, existing owners of affected Volkswagen and Audi TDI models are in a holding pattern, watching the resale value of their cars take a beating.

Credit Suisse's "worst case scenario" argues VW's tab could skyrocket because of uncertain costs associated with the recall of these polluting TDI diesel models, which could suffer reduced performance after a fix brings them into emissions compliance. The financial company believes that the German automaker may have to reimburse customers for related damages to the tune of $33 billion.

"We don't have a remedy yet," said VW spokesperson John Schilling. "It's still too early to give an estimate."

Credit Suisse's best-case-scenario number of about $26 billion is still well over triple what VW put aside to deal with the problem -- in fact, that's more cash than the automaker has on hand altogether, noted CNNMoney.

Credit Suisse also warned in the investors note, according to CNNMoney, that Volkswagen shares need to fall about 20 percent to about $92.60 a share to reflect their true value. That's on top of the 35 percent hit its stock has already taken since the scandal first came to light in September.

As of this writing, VW's stock has dropped to $92.16.

If Credit Suisse's high-end estimate is accurate, VW's total cost could easily eclipse the clean-up cost of an altogether different petrochemical emissions nightmare: BP's Deepwater Horizon oil spill. In July, The Economist noted BP had rung up $53.8 billion in pre-tax charges related to fallout from the 2010 Gulf of Mexico disaster.