Why the Volkswagen Stock Price Is Down 20% Today (OTC: VLKAY)

StocksThe Volkswagen stock price plunged roughly 20% today (Monday) after company officials admitted the company had cheated on some U.S. emission tests. Amid investigations, VW halted American sales of popular new and used 4-cylinder diesel-powered vehicles.

At one point Monday, Volkswagen AG (ETR: VOW) tumbled more than 23% to 129.40 euros in overseas trading. Volkswagen AG (OTCMKTS ADR: VLKAY) shares, meanwhile, sank 18.3% to $29.60 shortly after the opening bell.

But VW's troubles didn't just emerge this morning. There were actually warning signs last week.

After Friday's closing bell, the Environmental Protection Agency (EPA) and California state regulators accused Volkswagen of installing a "defeat device" on its vehicles to dodge emissions requirements.

The German automaker's diesel cars, according to regulators, are spewing nitrogen oxide at up to 40 times the acceptable level. Nitrogen oxide can aggravate respiratory conditions such as asthma, bronchitis, and lung disorders.

Volkswagen was the world's largest vehicle manufacturer through the first six months of 2015. Part of that success was tied to the perceived fact that its clean-diesel engines produce low emissions.

"I personally am deeply sorry that we have broken the trust of our customers and the public," Volkswagen CEO Martin Winterkorn said in a statement Sunday. "We will cooperate fully with the responsible agencies, with transparency and urgency, to clearly, openly, and completely establish all of the facts of this case."

Winterkorn ordered an external investigation and vowed to regain the public's trust again.

But that won't be easy. The German automaker is looking at long and bumpy road. And Winterkorn's fate is uncertain.

In the meantime, the Volkswagen stock price is getting crushed...

Recalls, Fines, and Lawsuits Crush the Volkswagen Stock Price

This is not the first of Winterkorn's problems in 2015. Earlier this year, he barely survived efforts by a major shareholder to oust him. Just this month, he was passed over for the company's top post as chairman.

"This latest saga may help catalyze further management changes at VW," Evercore ISI analyst Arndt Ellinghorst wrote in a note Monday.

Amid VW's admission of cheating, the European Commission also said it is in contact with U.S. regulators and the company for details.

The effects are wide-reaching.

[mmpazkzone name="in-story" network="9794" site="307044" id="137008" type="4"]

Diesel vehicles represents roughly 20% of Volkswagen's U.S. sales, according to AutoPacific.

Some 482,000 cars could be at risk. That could force Volkswagen and its Audi arm to issue massive recalls. The vehicles involved include: 2009-2015 Jettas, Beetles, and Golfs; 2014-2015 Passats; and the 2009-2015 Audi A3.

The impact on the Volkswagen stock price could be enormous.

The EPA has the authority to fine Volkswagen up to $37,500 per vehicle. That means Volkswagen may be looking at a whopping $18 billion fine. Volkswagen could also face accusations of false marketing and consumer lawsuits of its promotion of the vehicles under the "Clean Diesel" label.

The scandal comes as Volkswagen deals with declining U.S. car sales. Sales of VW-branded cars in the states slipped 10% in 2014. Still, the company set a lofty goal of almost doubling annual Audi and VW brand sales to 1 million vehicles by 2018.

That goal now looks completely unattainable.

Stay informed on what's going on in the markets by following us on Twitter @moneymorning.

Protect Yourself from a Total Market Collapse: According to CIA Asymmetric Threat Advisor Jim Rickards, there are five "flashpoints" that signal the death of the U.S. dollar and a complete economic collapse in the United States. Here's how you can protect yourself, and your money, before it's too late...

Related Articles: