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OPINION: VW could pass auto peers in payout hall of shame

Volkswagen's cheating on US clean air rules has driven investors into a deep funk. The German carmaker's market capitalisation shrank by €16.6 billion ($18.6 billion) in just over a day, after it was caught falsifying emissions on certain cars sold in the United States. The eventual cost could be higher. While other carmakers have paid less for misdeeds, the better analogy might be oil: BP's 2010 Deepwater Horizon fiasco.

Rival carmakers got off relatively lightly for recent US transgressions with more disastrous immediate consequences. General Motors paid $900 million to settle a lawsuit over faulty ignition switches linked to 124 deaths. Toyota shelled out $1.2 billion last year for malfunctioning accelerators tied to fewer fatalities.

No death can be directly pinpointed to Volkswagen fiddling checks on emissions - though the 'defeat devices' installed in some vehicles hid levels of harmful nitrogen oxide up to 40 times above permitted levels.

The environmental twist perhaps makes BP's disastrous Gulf of Mexico oil spill a better comparison. Initial total cost estimates by analysts were as low as $3.5 billion. The final bill under the Clean Water Act was $5.5 billion, less than half the maximum fine. But BP's other costs, including damages, ballooned. All in, BP ended up setting aside almost $55 billion in fines, compensation and cleanup costs.

The Clean Air Act allows the Environmental Protection Agency to charge up to $37,500 per vehicle for any breaches. With 482,000 affected cars, that's $18 billion. The EPA could be kinder than that, but the company run by Martin Winterkorn cheated government tests for six years, dissembled when confronted and meanwhile lauded Volkswagen's status as an environmentally sustainable carmaker.

Volkswagen can pay $18 billion, over time, and retain its credit rating. It has €21 billion in net cash, with more coming from planned divestments.

That, though, doesn't factor in other costs, from recalls to refits to vehicle buybacks to class-action lawsuits - or the possibility that Volkswagen's emissions shenanigans were more pervasive. Diesel cars account for more than half its sales in Europe, its largest market, though with more lenient nitrogen oxide standards. If the scandal undermines the business case for Volkswagen's diesel engines, a €16.6 billion drop in value will look like a country jaunt.

Antony Currie has more than a decade of experience as a financial journalist, having worked with Euromoney since 1996, most recently as a US editor. He has worked on assignments in the major financial centres of Europe and the US and written stories on capital markets, global economies and the investment banking industry.

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