Das Auto, Der Schwindel? German has eight words to describe fraud, swindles and their practitioners. Der Schwindel sounds about right for what is quickly emerging as one of the biggest corporate frauds/deceits of all time -- the way Volkswagen avoided accurate emission readings on diesel cars sold in the US. The news broke at the weekend as a mid-level story, especially with the pie-in-the sky US$18 billion maximum American fine mentioned in many reports. Surely a ballpark figure? Even after VW management confirmed the story by apologising on Sunday night in Germany, markets and investors were not too fussed -- until trading started last night on European markets and VW shares fell out of bed, down 22% at one stage, and ending off more than 17%. That translates to a loss of 13 billion euros in market value, or just under $20 billion. And why the big fall? Because investors have finally realised the potential cost may not be limited to America and in fact could be worldwide. Countries through Europe have started checking to see if the rort was pulled on VW diesel cars sold in the eurozone, the UK and beyond.  -- Glenn Dyer How wide is der Schwindel? Investors fear that it is more than just VW and are asking if other big global and regional car companies in Europe are involved. Shares in other big European car groups such as BMW, Daimler (Mercedes), Renault Nissan, Peugeot also fell in fear that they had been doing the same thing. America’s Environmental Protection Agency last Friday ordered the recall of nearly 500,000 VW vehicles, saying diesel variants of several VW and Audi models sold in the US over six years -- including the VW Passat, Beetle and Audi A3 -- had been fitted with sophisticated algorithms in the engine management system designed to deceive the laboratory testing regime by giving lower toxic emissions, when in fact the cars are high emitters. The EPA said that the cars' engine management systems “contained software that turns off emissions controls when driving normally and turns them on when the car is undergoing an emissions test”. The big question is China, whose government has shown itself increasingly inclined to hit foreign companies it feels are flouting the law with big fines -- French dairy company Danone, Mercedes-Benz and Microsoft come quickly to mind as prominent examples in recent years. -- Glenn Dyer And this is big. The EPA estimates that VW could be up for around US$37,000 in fines for every diesel vehicle sold in the US. The recall of 500,000 vehicles is just the start. The final cost could be US$18 billion. But there are also potential criminal charges, warranty costs and class action costs that could add to the figure. VW will no doubt sack people, offer to make good, offer a huge fine to make it go away. But the US EPA and California’s Air Resources Board have now started getting their hands on diesel-powered vehicles made by other companies (BMW, Mercs, etc) to check them, while the German government has ordered an emergency testing program for diesel cars from other car makers. What is unknown is how VW managed to avoid detection for at least six years, what level of checks were done/are done on the engine management systems, and whether they will now be done retrospectively on all cars, diesel and petrol powered? Analysts say that depending how widespread this fraud is, US car emission data could be wrong, meaning pollution levels have been higher than reported. And other analysts have pointed out in stories in various outlets that the most worrying thing is that this is no accident -- people do not accidentally or unintentionally design software to turn car emission systems off and on to fool regulators. The Financial Times points out that a third of Britain’s cars are now diesel powered, compared with 7% 21 years ago. That’s due to governments giving tax advantages for diesel powered cars. Europe, in fact, accounts for three-quarters of the world’s diesel car sales, according to the FT. Drivers have adopted it because of these perceived environmental advantages. Now diesel seems to be as dirty and nasty as petrol power. In fact while der Schwindel sounds accurate, another German word, der Betrug is more accurate because it means not only fraud, but deceit and deception. Now the how, the when, the why and the cost. -- Glenn Dyer Is that a loss I see before me? Since late July, Zurich Insurance, the Swiss giant, has been stalking its smaller UK rival, RSA, offering more money (a total of 5.6 billion pounds, or over A$12 billion) to win over its target. Analysts and shareholders reckoned the wedding bells were about to sound -- RSA shares rose more than 16% since the idea was floated in late July, but Zurich shares were down more than 13% as its investors voted with their feet by selling out. But then, yesterday, a surprise, it's off (a day before the deadline under UK takeover rules). And Zurich is owning up to a preliminary third-quarter trading update of a loss of around US$200 million (well over $280 million). And Zurich says it will have an in-depth review of its general insurance business, given recent deterioration in its profitability. (In other words, how come we didn’t see that?) Part of the reason for the shock was a US$275 million loss related to those explosions in the Chinese port of Tianjin last month. More details are due on November 5, but the fact is that Zurich already knows it will lose money this quarter (and there are eight days to go to September 30). But Zurich still reckons it will it will achieve its its full-year targets. -- Glenn Dyer