Afterthoughts: Answering the Unknowns In the Volkswagen Diesel Scandal

[William Maley]

The past week has been miserable at Volkswagen as allegations arose from the EPA that a number of models equipped with the 2.0L TDI four-cylinder were found to emit more emissions than were legally allowed in the U.S. thanks to software. Since the announcement came out last Friday, there has been a fair amount of news.

• Volkswagen admitted that 11 million diesel vehicles sold around the world had the software
• The company has set aside $7.3 billion for possible penalties and fixes
• EPA is looking into the 3.0L TDI V6 used in a number of Audi vehicles, Porsche Cayenne, and Volkswagen Touraeg
• A number of European countries, along with South Korea announce their own investigations into Volkswagen TDIs to see if they violate emission standards
• U.S. Department of Justice begins an investigation into Volkswagen over the emission violations
• Dealers will be getting some financial assistance
• Volkswagen CEO Martin Winterkorn resigns
• The German Transport Minister announces 1.6L and 2.0 TDI Engines in Volkswagen vehicles have the illegal software
  

There are still a number of questions up in the air as to what will happen to Volkswagen, the vehicles in questions, and other items. That's where I come in as I'll be looking into the crystal ball and try to figure out what happens next.

 

What will Volkswagen do with the TDI vehicles in question?

 

Most likely Volkswagen will implement a software update that will allow the TDI vehicles to meet the strict EPA emissions. This might also cause the TDI vehicles to lose some power.

 

What is unlikely is Volkswagen retrofitting the affected TDI vehicles with to clean up the emissions. The Truth About Cars has an excellent article talking about the possible parts and price tag if Volkswagen decides to go this route.

 

There could also be a buyback program if the EPA and/or Volkswagen deems it necessary.

 

Will the EPA fine Volkswagen the $18 Billion that has been reported?

 

No.

 

The reasons for this are two-fold. Consider the previous penalties the EPA has levied against automakers:

 

1995: General Motors was fined $11.5 Million for installing illegal devices in 470,000 Cadillacs
1998: Honda was fined $12.8 Million for not reporting to EPA they had disabled part of the onboard diagnostic computer that detected engine misfires.
1998: Ford was fined $7.8 Million for installing a defeat device in 60,000 Econoline vans

 

These amounts are somewhat a drop in the bucket for automakers.

 

Also, take into consideration that Volkswagen has put aside $7.3 Billion for penalties and fixes. The automaker believes they'll get a hefty fine, but nowhere near the $18 billion.

 

A possible guess as to how much Volkswagen will be fined? Somewhere under the $500 Million mark.

 

Will there be a mass exodus of owners from their Volkswagen diesels?

 

Not likely. A small number people will likely sell or trade in their Volkswagen diesel models, only to suffer a loss in resale value. Many will likely keep their vehicles.

 

What will do to Volkswagen's U.S. Sales?

 

Sales will drop even further, which isn't good news for the German brand as sales have been on a downward trend again. August sales in 2015 were down 8.1 percent when compared to same time last year. Sales for the year are down 2.1 percent. This compounds a problem that has been part of Volkswagen for the past few years for not quite understanding the U.S. market and its odd quirks.

 

One model that could take a big hit is the Golf. The model has been one the bright spots for Volkswagen as it has posted a 151 percent in year to date sales in August.

 

What about Volkswagen's reputation?

 

It will likely take a dive. But if the past scandals with other automakers such as GM, Ford, etc are indication, Volkswagen will be back to good down the line.

 

Are any other auto companies taking part in something similar?

 

Signs seem to point to yes. Earlier this week, Automotive News reported that a European environmental group that suggests a number of other manufacturers are using software or some sort of technology to skirt emission laws.

Transport & Environment says ICCT tests show clear discrepancies between laboratory emissions and real-world performance for several automakers including BMW, Mercedes-Benz and General Motors’ Opel unit. It argued that these manufacturers might also employ similar kinds of software in Europe that VW has allegedly admitted to using in the U.S.

 

Emissions-reducing technologies “are optimized for the tested conditions and there is substantial anecdotal evidence that the cars detect when they are tested and deploy ‘cycle-beating’ techniques to reduce emissions,” Transport & Environment said in its report.

 

You can check the group's report here.

 

Meanwhile, German publication Auto Bild alleges a number of vehicles violate the Euro 6 emission standards. One vehicle singled out in their piece was the BMW X3 xDrive 20d that was eleven times greater than the standard. Now BMW has denied they do any manipulation on emission tests.

 

“We observe the legal requirements in each country and adhere to all local testing requirements. When it comes to our vehicles, there is no difference in the treatment of exhaust emissions whether they are on rollers or on the road," BMW said in a statement to USA Today.

 

Don't be surprised if more automakers are found to be manipulating or finding a loophole to pass these tests.

 

What about reputation of diesel?

 

This is possibly the biggest unknown at this time for the U.S. For a time, diesel was seemingly making a comeback with a number of automakers announcing diesel options for their passenger vehicles. Now with Volkswagen taking a bit of heat on their diesels, this could cause a number of automakers to reconsider the idea of offering a diesel.

 

There is also the question if the EPA could make further restrictions or changes to the requirements for the diesel models. If so, this could mean diesels are only for luxury models or just become non-existent.

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[Drew Dowdell]

With the EPA refusing to certify the 2016 TDIs, that is an immediate 25% - 30% hit on VW's sales. 

[smk4565]

That Audi A3 E-Tron got here just in time.  They can try to shift the fuel economy seeking buyers there.

[El Kabong]

They could never build enough e-trons to offset that loss.

Edited September 26, 2015 by El Kabong

[Suaviloquent]

VW's biggest problem is their marketing and distribution, after this debacle.

 

Every VW dealer I've been to has had high pressure sales staff, terrible inventory. Their marketing of their core vehicles is non-existent; and it's because the VW Group does not want VW to poach Audi sales. 

 

And, they are incompetent when it comes to growing through their existing base. VW thinks people give a damn about German engineering. Except the customer demographic that buys Camries, Cruzes; Equinoxs, Edges, the staple products of all the mass-market brands; NONE of the buyers want German engineering. None. They want : reliability, quality, safety and value. All of those being weighted equally high, and 'value' includes F/E and upfront costs. 

 

And I don't think VW hits any of those marks really that well. 

 

Besides, their terrible infotainment systems; and decontenting of models has left them is a space where they can attract no one expect the most die-hard of fans.

 

Don't get me wrong, the Golf and Touareg are the best vehicles they make; but they are not vehicles that can sell well. A Golf does everything an A3 does really well. So really, they split sales of the SAME pie.

 

VW has to bring their product prices into the realm of buyers that could make their sales go up. Now if those same consumers think VW already skimps on reliability; then where else could they think VW may have cut corners to build a product at a price, not to a standard. Their Jetta is a turd. Their Passat, while nice; it just makes you salivate when you see the overseas version. Sure, when they lauched the 2012 model, sales spiked. But now there's no steam left. The product was just left to sit, the updates no the least being meaningful; and their cost reduction efforts still could not afford parity in standard features relative to other makes.

 

For example: In the midsize space Ford and Mazda, did quite the opposite to what VW did, respective to the 2012 Passat and 2013 Fusion, and 2014 6. Both the Fusion and 6 answer the question of 'premium styled conventional mass-market sedan' better than VW. How could they have let that happen? The last Passat was a premium product for the time. They didn't have to lose the style.  

 

VW needs to show some humility, and do what Hyundai had to do to gain traction. Namely, that's price reductions and adding back content to the vehicles. They won't succeed without a market penetration strategy, where they have to operate either cost-recovery or even in the red; (they're probably already in the red) and give people more for less to build their rep. 

 

Now these recent events have forced their hand; but this is a strategy they should have employed long ago.

 

I predict VW sales will tank in the U.S. And if they ever recover; they'll only be in the same failing predicament they were in before this crisis. 

Edited September 26, 2015 by Suaviloquent

[El Kabong]

VW has always had wild sales swings on this side of the pond. When the Gas Crisis hit in the 70s it was the Golf that saved them. In the late 90s/early 2000s it was killer styling and (ironically, in hindsight) the first TDIs that did it for them.

This time, it'll need to be a combination of styling and reliability IMO. And time. Lots and lots of time.