Volkswagen Scandal: What Needs to Be Done to Fix It

Source: Collin Woodard/The Cheat Sheet

Source: Collin Woodard/The Cheat Sheet

Nearly 30 years ago, Volkswagen Auto Group found itself embroiled in a scandal that shook the company to its core. On November 23, 1986, CBS News’ 60 Minutes ran an exposé on Audi’s flagship 5000 sedan, accusing the automaker of a defect that caused the car to accelerate suddenly, which led to the death of a child. A panic ensued, and while Volkswagen and Audi were eventually exonerated, by 1991, Audi was selling at less than 20% of its pre-scandal numbers, and Volkswagen was considering pulling out of the U.S. market altogether.

But that scandal was almost entirely invented by the media. This time, Volkswagen isn’t as lucky.

Last year, during independent testing on diesel-powered cars, a small European-American research group began to notice wild discrepancies between testing diesel Jettas and Passats on the road, and in a laboratory. In the lab, it seemed, the cars conformed to the numbers Volkswagen quoted for its “TDI Clean Diesel” cars. On the road, however, the cars were spewing up to 40 times the amount of nitrogen oxides legally allowed by the EPA.

Ironically, the tests were being conducted to support how clean diesel engines can be.

FREDERIC J. BROWN/AFP/Getty Images

FREDERIC J. BROWN/AFP/Getty Images

Since this story broke late last week, it’s created a domino effect that has all but brought the world’s current largest automaker to its knees. For 2009 to 2015 model years, Volkswagen’s cars equipped with the 2.0 liter turbodiesel four cylinder have come equipped with an engine management software cheat that keeps emissions low while the car is being tested, but shuts off during regular driving. So far, the affected cars are the TDI Passat, Golf, Beetle, Jetta, and Audi A3. 

2015_jetta_tdi_4220

Source: Volkswagen

It was originally thought that 482,000 cars sold in the U.S. may be the only ones affected, with the cheat installed to skirt EPA and CARB pollution tests, known as some of the strictest emissions tests in the world. But in a statement issued Tuesday, it turns out that this is just the tip of the iceberg. From Volkswagen:

Discrepancies relate to vehicles with Type EA 189 engines, involving some eleven million vehicles worldwide [emphasis added]. A noticeable deviation between bench test results and actual road use was established solely for this type of engine. Volkswagen is working intensely to eliminate these deviations through technical measures. The company is therefore in contact with the relevant authorities and the German Federal Motor Transport Authority.

Within hours of the statement being issued, German media began to report that Volkswagen CEO Martin Winterkorn is being forced out and replaced to Porsche CEO Matthias Mueller, adding yet another layer of drama to the Game of Thrones-like atmosphere that has hampered the company since longtime CEO Ferdinand Piëch was ousted in a failed power play in April.

Source: Yahoo

Source: Yahoo

Now, the company has 11 million cars on its hands that were sold fraudulently, its stock has plunged 20% in five days, its management is in chaos, the U.S. government is launching a criminal probe, and Volkswagen owners are furious over buying green cars that turned out to be far, far dirtier than most cars on the road. Again, Volkswagen:

To cover the necessary service measures and other efforts to win back the trust of our customers, Volkswagen plans to set aside a provision of some 6.5 billion EUR [$7.2 billion]  recognized in the profit and loss statement in the third quarter of the current fiscal year. Due to the ongoing investigations the amounts estimated may be subject to revaluation.

It may need to revaluate that figure pretty quick. For worming its way around the EPA’s Clean Air Act, the agency could fine the company up to $37,500 per car sold in the U.S. alone – totaling more than $18 billion. And while this is devastating for Volkswagen, it’s even worse for diesel-powered passenger cars, which have been under fire worldwide for some time now.

So as this scandal continues to get bigger, we have a suggestion for Volkswagen that could make this as painless as possible, at least in the U.S.: Start a buyback program, and make as many of these cars disappear as possible.

Source: Volkswagen

Source: Volkswagen

It has long been a mystery how Volkswagen, unlike every other major automaker to offer diesels, managed to get the performance it did out of its 2.0 liter TDI without using the common AdBlue exhaust system to keep emissions down. While diesels are famous for their torque, they’re also notoriously sluggish compared to gasoline engines. But the Volkswagen engines were thought to be a gem. Torquey and quick, the 2.0 liter flew in the face of the old stereotype and proved that a diesel could be fun, clean and economical (the 2015 Golf TDI is rated at combined 36 miles per gallon) alternative to hybrids like the Toyota Prius.

But this scandal will likely cast yet another pall over diesel engines, a technology that has been seen as suspect in the U.S. since the 1970s. Most automakers (even Volkswagen for its 2016 models) have a separate tank for the AdBlue solution, which feeds an injector that sprays the urea-water solution into the exhaust stream to neutralize much of the nitrogen oxides. While some have called for Volkswagen to engineer a retrofit kit for its 2.0 liter cars, adding complex emissions technology to cars that weren’t designed for it is easier said than done, and on top of parts and labor, the cars would likely become significantly more sluggish.

2015 Volkswagen Golf GTD Wagon; Source: VW Germany

Source: Volkswagen

So rather than spend hundreds of millions developing a quick-fix to effectively neuter the existing TDI cars (remember, these aren’t sports cars, a significant drop in performance would effect virtually all aspects of daily driving), choking Volkswagen service centers with recall work, and causing TDI owners further headaches, we think Volkswagen should fall on the sword and buy them all back. It would likely be cheaper than if the EPA hits them with the full $37,500 per car fine for U.S. models, and this act of good faith might be enough to keep some of its customer base loyal.

And as Volkswagen continues to go down in flames, other automakers that offer diesels (Mercedes-Benz, Jaguar, BMW, Chevrolet, among others) should test their cars and publish the results to show good faith and transparency as soon as possible. Because if this type of cheating is a widespread issue throughout the industry, it could effectively mean the end of diesel-powered passenger cars. The revenue from millions of diesel cars sold each year (in Europe especially) would all but vanish, replaced by tens of billions of dollars in fines, potentially putting the industry in worse shape than it was during the darkest days of the financial crisis. Unless drastic measures are taken now, this scandal could get a lot worse before it gets any better.

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