OREANDA-NEWS. The Volkswagen emissions test scandal could prove a turning point for the auto industry worldwide, Fitch Ratings says. It could prompt profound and lasting repercussions far beyond the group's own credit profile.

It is too early to assess the full implications for automotive manufacturers, suppliers and other industry constituents, but we expect the whole sector to be affected to various degrees. Regulators will reassess the timeline to reach planned more stringent emission limit targets and could review the targets themselves. Test protocols will undoubtedly also be toughened and the move towards real driving emission testing cycles will accelerate.

The scandal could accelerate the underlying growth of vehicles with alternative powertrains, including fuel cells, electric and hybrid engines. It could also lead to a shift back towards petrol engines in Europe, where diesel engines now account for more than half of sales. A shift away from diesel would have a bigger impact on European manufacturers than on their US or Asian rivals. In particular, it may hit manufacturers of small diesel-engine cars harder than premium manufacturers, which have greater price elasticity to absorb higher costs.

R&D investments are likely to rise as manufacturers face more stringent rules and new test regimes. There is also the potential for business plan reassessment and material investment write-downs if manufacturers have to reassess product pipelines, particularly upcoming engines. Specialist suppliers of emission control technology could initially be hurt by a shift away from diesel, while those with expertise in turbocharging and downsized petrol engines could be at an advantage.

More broadly, the whole transportation sector could be affected if this emission test crisis fundamentally affects consumers and regulators' attitude towards cars, driving and pollution. Volkswagen and regulators' current and future measures in reaction to the crisis will be crucial to mitigating or, conversely, accelerating the impact of this scandal on the group's own credit profile and broader industry transformations.

Our full report, "Volkswagen Crisis Likely to Affect Entire Auto Sector", is available to subscribers at www.fitchratings.com.