Managers have warned the Volkswagen (VW) emissions scandal could be as damaging as the Deepwater Horizon oil spill was for BP, effectively rendering the company uninvestable in the short term.
The scandal, which centres on VW deliberately circumventing US emissions tests, resulted in VW’s share price suffering sharp falls last week.
The stock dived 18.6 per cent on Monday and 19.8 per cent on Tuesday, before rebounding at the end of the week.
Chief executive Martin Winterkorn resigned and VW revealed it had set aside €6.5bn (£4.8bn) to cover related liabilities.
Managers have drawn comparisons with the 2010 oil spill that sparked investigations and heavy fines related to BP’s involvement.
Hugh Cuthbert, manager of the SVM Continental Europe fund, said: “BP is a fair analogy in terms [of] big fines, [but] I think it’s very different in terms of the forward implications.
“If you are driving down the road and want petrol, you will go into a petrol station. BP had a reputational impact, but I don’t think that stopped people buying its product to any degree.
“But buying a car’s a different issue. It could be an absolute killer if the [VW] brand is tarnished.
“It’s not about balance sheets, but profit and loss. It’s potentially more serious [than BP.]”
Mr Cuthbert said that if bad practice in this area proved to be systemic among carmakers, the impact would be more limited for VW – but in that case a scandal was likely to damage the “German psyche” because of the country’s focus on technology and industry.
Other managers fear the problems could be more widespread, creating problems not just for the sector but for a country that has proven to be the powerhouse of the European economy in recent years.
These concerns are in part based on Chancellor Angela Merkel’s past assertion that one in every seven German jobs is “directly or indirectly” related to the car industry. Official statistics indicate the number directly employed by the sector is just under 800,000.
Eric Moore, of the £186m Miton Income fund, warned: “There probably isn’t just one cockroach in the kitchen – what have others been up to elsewhere?
“There will be tests and inspections and there may be some slowdown in demand.”
Steve Davies, who manages the £1.7bn Jupiter UK Growth fund, said: “This is a similar scenario to what happened with BP. VW is tarnished and could share the pain throughout the industry.
“I have been selling out of Bat [British American Tobacco] recently and reinvesting in BMW, although this week the investment requires a pause for thought.
“BMW is guilty until proven innocent. It could gain market share, but investors are going to fret first. It’s tempting to buy more as I don’t think BMW has done anything wrong.”
BMW Group issued a statement last week insisting it “does not manipulate or rig any emissions tests”.