When news spread that Volkswagen (Ger:VOW3) installed software designed to cheat car emission tests, investors reacted by dumping shares in the entire auto sector. Whereas it was once a marketing man's dream to be associated with a brand synonymous with engineering excellence, suddenly any affiliation with the automaker became toxic. As the group's valuation contracted over the following days, those industry anxieties spread to other iconic marques, such as BMW (Ger:BMW) and Mercedes-owner Daimler (Ger:DAIX.N). Eventually, market anxieties extended to cover just about any company reliant on remits from the under-fire auto industry - so much for 'Made in Germany'.
Wolfsburg in sheep's clothing
The revelation that so-called 'defeat devices' appeared in as many as 11m VW, Skoda and Seat cars had a particularly deleterious effect on companies in the supply chain, despite all evidence suggesting that the software algorithm was created internally. Given the German giant's exemplary reputation before this scandal, markets appeared to price in the possibility that other carmakers must surely have cheated tests and that new technology-driven electric vehicles may be the only way to curtail pollution concerns.