托福阅读材料:大众丑闻A mucky business

　　Nothing seems right

　　The scandal broke on September 18th, when America’s Environmental Protection Agency (EPA) revealed that several diesel-engined VWs and Audis had software which switched NOx-controlling technology on only when faced with the highly predictable sort of demands seen under test conditions. The NOx-emission limit for a fleet of cars is 0.07 grams per mile (0.04g/km); under normal conditions the cars were 40 times over the limit. The EPA ordered VW to recall around half a million cars in America to fix the software. On September 22nd the company admitted that in 11m vehicles worldwide there was a “noticeable deviation” between the NOx emissions seen in official testing and those found in real-world use.

　　On the basis of 482,000 cars sold and a maximum fine of $37,500 per vehicle under the Clean Air Act, the Department of Justice could in theory fine VW $18 billion. In practice the punishment may be a lot less severe. General Motors, which for years ignored problems with ignition switches that directly claimed 124 lives, was fined just $900m earlier in September. In 2014 Toyota paid $1.2 billion when it settled a criminal investigation into its handling of unintended acceleration problems that led to 8.1m recalls.

　　But fines are not the only losses involved. Class-action lawsuits from aggrieved motorists will arrive at the speed of a turbocharged Porsche. On September 22nd VW announced a €6.5 billion ($7.3 billion) provision to cover the costs of the scandal but that is likely to prove too little. By that stage the company’s value had fallen €26 billion.

　　The financial damage could go further. Hidden within the German firm is a big finance operation that makes loans to car buyers and dealers and also takes deposits, acting as a bank. Its assets have more than doubled in the past decade and make up 44% of the firm’s total. And it may be vulnerable to a run. In previous crises “captive-finance” arms of industrial firms have proven fragile. After the Deepwater Horizon disaster BP’s oil-derivative trading arm was cut off from long-term contracts by some counterparties. General Motors’ former finance arm, GMAC, had to be bailed out in 2009.

　　With €164 billion of assets in June, VW’s finance operation is as big as GMAC was six years ago, and it appears to be more dependent on short-term debts and deposits to fund itself. Together, VW’s car and finance businesses had €67 billion of bonds, deposits and debt classified as “current” in June. This means—roughly speaking—that lenders can demand repayment of that sum over the next 12 months. The group also has a big book of derivatives which it uses to hedge currency and interest-rate risk and which represented over €200 billion of notional exposure at the end of 2014. It is impossible to know if these derivatives pose a further risk, but if counterparties begin to think VW could be done for they might try to wind down their exposure to the car firm or demand higher margin payments from it.

　　If depositors, lenders and counterparties were to refuse to roll over funds to VW, the company could hang on for a bit. It has €33 billion of cash and marketable securities on hand, as well as unused bank lines and the cashflow from the car business. The German government would lean on German banks to prop up their tarnished national champion, 20% of which is owned by the state of Lower Saxony. So far the cost of insuring VW’s debt has risen, but not to distressed levels. Still, unless the company convinces the world that it can contain the cost of its dishonesty, it could yet face a debt and liquidity crisis.

　　Doubts about NOx emissions from VW’s four-cylinder TDI series of diesels (which can also be found in Seats and Skodas) first surfaced after testing by the International Council on Clean Transportation, a small NGO, two years ago. The tests—intended, ironically, to demonstrate the engines’ cleanliness—revealed that the cars’ emissions far exceeded what the company had previously stated. The ICCT brought the results to the attention of the California Air Resources Board (CARB), which badgered VW into a voluntary recall to fix what the company insisted were “technical issues”. When the recall failed to resolve things VW offered excuse after excuse before eventually confessing—it was still dithering when the EPA, with which CARB had shared its results, finally acted.