• Staff Report, Bloomberg

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A diesel emissions scandal that hit German auto titan Volkswagen may not pose a direct threat to its Japanese operation, which does not sell diesel cars, but the company is bracing for a hit to its reputation, a spokeswoman said Thursday.

A spokesperson for Volkswagen Japan said the firm currently does not sell any diesel cars in Japan, but acknowledged the possibility that the issue may hurt its brand image and eventually affect sales there.

She said the firm will do its best to inform Japanese customers and allay concerns.

Although Volkswagen Japan plans to launch its first diesel car in the country, the Passat, in the first quarter of next year, the spokeswoman said she cannot comment at this point on whether the firm will reconsider the timing.

The scandal’s impact was felt in the Tokyo stock market Thursday, as automaker stocks declined, led by Mazda Motor Corp., after the market opened for trading for the first time since Friday, when the U.S. environment regulator accused Volkswagen AG for cheating on pollution tests.

Volkswagen has tumbled 31 percent since admitting it used “defeat device” software to pass diesel emissions tests, leading to declines on the 30-member Bloomberg World Auto Manufacturers Index.

“We expect the market to consider the situation to be a risk factor for Japanese carmakers as well,” said Heo Pil-seok of Midas International Asset Management Ltd. in Seoul. “Still, shares of carmakers and parts-makers that are more focused on other engines, such as hybrids and electric vehicles, are expected to recover and become beneficiaries.”

Japan’s carmakers have been investing in diesel technology to compete with their European rivals, with Mazda offering diesel engine options in the CX-5 sport utility vehicle and Mazda2, Mazda3 and Mazda6 cars. Honda also sells Civic compacts and CR-V SUVs using diesel in Europe, and Nissan is preparing to begin deliveries of its redesigned Titan pickup in the U.S. with a diesel engine supplied by Cummins Inc.

Even Toyota Motor Corp., which has long emphasized its hybrid technology over diesel, earlier this year introduced new turbo diesel engines for models including the Hilux pickup and Land Cruiser Prado SUV. Toyota fell 1.9 percent in Tokyo on Thursday.

In Japan, Volkswagen is reconsidering its plan to introduce diesel engines in the country for the first time early next year because of the scandal in the U.S., according to the local subsidiary. The Volkswagen brand has been the most popular foreign marque in Japan for the past 15 years, though it lags Mercedes-Benz this year.

Volkswagen’s cheating on diesel emissions tests hurts the auto industry’s reputation, Mark Rosekind, head of the U.S. National Highway Traffic Safety Administration, told an industry group this week. The carmaker’s foiling of U.S. clean-air rules puts the entire industry under scrutiny for similar violations, Rosekind said.

“If they did it, anyone else can do it,” he told reporters following a speech in Michigan. “You’re not just going to worry about one person, unfortunately that now is extended to the entire industry.”

Regulators from Germany, France, South Korea and Italy have vowed to scrutinize Volkswagen’s vehicles, and several U.S. states, including New York, have begun investigating its diesel engine emissions. This may lead to higher compliance costs.

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