VW emissions scandal: cheating, recalls and global consequences

Posted on 14 Oct 2015 by Cobey Bartels

The Volkswagen AG (VW) diesel-emissions scandal has raised industry-wide questions surrounding testing and the German automotive manufacturer is set to face more than 11 million vehicle recalls and billions of dollars in fines.

Exactly how much damage the diesel scandal will do to VW is not yet known, with estimated recall numbers and fines continuing to escalate.

Affected vehicles were initially estimated by the US EPA to sit at 480,000, although VW has since reportedly revealed that the device could be contained in up to 11m vehicles globally.

Recalls of the affected vehicles is set to commence at the beginning of 2016, according to new CEO of VW, Matthias Mueller, with the company facing strict deadlines to present recall plans.

Consequences for VW

VW announced that it had earmarked €6.5bn (£4.8bn, $7.27bn) to deal with the associated costs of this scandal, a move which heavily impacted the company’s share price.

In addition to the recalls facing VW, the company could face fines of up to $37,500 per vehicle for the emissions cheating, which could cost up to $18bn in the US alone.

French authorities have also asked VW to refund state subsidies offered as part of the ‘clean-car aid’ for the purchase of diesel vehicles, according to a report from Automotive News Europe.

“If state bonuses were given for the purchase of alleged ‘clean cars,’ these funds will have to be repaid,” Energy and Environment Minister Segolene Royal told BFM Television, according to the report.

Cars deemed as ‘clean’ under the French ‘clean-car aid’ are eligible for government-funded discounts of approximately €1,000.

According to a report from Agence France-Presse, Volkswagen said it sold 946,064 cars in France that contained the ‘defeat device’.

It is not known how many of the cars sold in France will be established as ‘clean’.

The EU is looking to find a solution to the VW emissions scandal following the damage to the influential European company.

The scandal, being referred to as ‘dieselgate’ within the media, has reduced Volkswagen’s value by close to €30bn.

VW hasn’t faced a recall crisis of this magnitude in its 78-year operation, with the issue compounded by growing fines and legal actions.

VW organisational impacts

Executives at the heart of the VW emissions scandal could face criminal charges, with former CEO Martin Winterkorn resigning shortly after the US EPA findings.

Volkswagen Up! low carbon vehicle
The Volkswagen Up!, winner of the 2012 Car of the Year award from What Car? magazine.

Matthias Müller, previously the chairman of Porsche AG and replacing Winterkorn as VW CEO, commented: “My most urgent task is to win back trust for the Volkswagen Group – by leaving no stone unturned and with maximum transparency, as well as drawing the right conclusions from the current situation,” Müller said in a statement.

“Under my leadership, Volkswagen will do everything it can to develop and implement the most stringent compliance and governance standards in our industry.”

Müller is the first change amongst many within VW’s organisational structure, with the company set to offer a new management model by 2016.

According to a report from Automotive News Europe, VW’s 600,000-employee strong global workforce is beginning to feel the pinch as the automotive manufacturer scales back spending and suffers a drop in US sales.

VW has announced it has slowed engine production at one of the company’s largest factories in Germany, as well as freezing hiring at its car loans unit.

According to VW, the factory that is responsible for producing more than 1m engines every year has dropped one extra shift per week following the scandal.

Industry-wide emissions concerns

Inaccurate emissions test results could be more widespread across the automotive industry than once thought.

A report from Transport & Environment (T&E) outlines that new European cars are emitting on average 40 percent more carbon dioxide than test results show, According to Automotive News Europe.

T&E works with the European Commission and outlined that despite its findings, other automotive manufacturers aren’t proven to be using devices similar to VW’s ‘defeat device’.

The report found that Mercedes-Benz, BMW and PSA/Peugot-Citreon vehicles used approximately 50% more fuel than claimed, resulting in higher carbon dioxide emissions.

Clean vehicles manager at T&E Greg Archer said that the carbon dioxide gap could cost a typical driver €450 ($504) every year, according to Automotive News Europe.

“The Volkswagen scandal was just the tip of the iceberg,” Archer said.

The European Commission proposed legislation to narrow the gap and European Parliament members voted through an amendment in the hope of ensuring it is approved on schedule.

Rival European automotive manufacturers to VW such as BMW, Jaguar and Daimler have claimed their diesel vehicles comply with US standards, distancing themselves from the VW emissions scandal.