Germany Orders Recall of 2.4 Million VW Cars

Germany Orders Recall of 2.4 Million VW Cars
 

Volkswagen AG is being forced into a mandatory recall of about 2.4 million diesel cars in Germany, signaling authorities are taking a hard line against the carmaker’s proposal for a voluntary callback.

The Federal Motor Transport Authority, or KBA, demanded the recall after reviewing proposals Volkswagen filed last week to fix cars fitted with software designed to cheat on pollution tests, German Transport Minister Alexander Dobrindt said Thursday in Berlin. A mandatory recall will speed the process, which Volkswagen had originally said would take until the end of next year, and give authorities more control.

Germany may be a framework for what VW will need to do throughout Europe, where the cheating software is installed on some 8 million vehicles. The company has yet to specify exactly how it will fix the cars, though it has said some will require only a software update while others will need new or repaired engine parts.

“It’s an unusual measure to be ordering a mandatory recall,” said Arndt Ellinghorst, a London-based analyst with Evercore ISI. “It shows to me that the KBA is losing patience with VW’s slow response on what to do to fix the engines so far. Customers have been left unsettled.”

The mandatory recall will be more expensive for Volkswagen, because the company will need to fix the cars more quickly, Ellinghorst said.

The carmaker will probably need to exchange or rebuild parts for about 3.6 million engines throughout Europe, Dobrindt has said.

Spokesmen for Volkswagen and the KBA didn’t immediately return calls for comment on Thursday.

The shares were up 0.5% to 107.15 euros at 10:41 a.m. in Frankfurt. The diesel crisis has wiped some 19 billion euros ($21.8 billion) off Volkswagen’s market value.

The Italian finance police also searched the carmaker’s offices in Verona on Thursday, Ansa newswire reported. A spokeswoman for Volkswagen in Italy wasn’t immediately available for comment.

-Bloomberg