VW Diesel Scandal Now 6 Months Old; What Have We Learned?
The actual six-month anniversary of the Volkswagen diesel-cheating scandal came 10 days ago, and news has continued to bubble up since then.
Most recently, all three parties who must agree on a regulatory settlement (the EPA, the powerful California Air Resources Board, and VW itself) were granted a further delay in a court-mandated deadline to release plans for updates to 580,000 affected vehicles.
Owners know almost nothing more today than they did last September about what will happen to their cars. So it seemed time to step back and take a long look at what we’ve learned thus far from what promises to be a very long and drawn-out crisis for Germany’s largest automaker.
1. It takes a long, long time to figure out modifications
This shouldn’t be a great surprise. Across almost 600,000 vehicles, there are more than a dozen models and four entirely different combinations of engine and emission system.
As one regulator said months ago, before any update program gets a green light, the authorities will want to be very, very sure they understand absolutely everything about how the revised powertrains will function under all circumstances.
The current deadline for details of a fix is April 21, but despite the statement by Judge Robert Breyer that “six months is enough” to get agreement on updates, it may take considerably longer.
All parties to any regulatory agreement — which is to say the EPA, CARB, and VW — agree that good progress is being made, but that agreement hasn’t yet been reached.
And that’s all we know.
2. This will cost VW Group far more than it’s budgeted so far
One reason Volkswagen stock has been hammered since the scandal broke in mid-September is that analysts feared the costs of the scandal would be astounding.
While VW Group set aside 6.5 billion euros ($7.3 billion) in September to cover the costs of addressing the scandal, that is now viewed by many as a fraction of the total cost.
The updates to the millions of TDI diesel cars sold in Europe are minor, consisting of software reflashes and in one case, a new airflow tube.
But if Volkswagen has to buy back any significant number of the 325,000 North American cars fitted with 2.0-liter TDI engines without Selective Catalytic Reduction (aka “urea injection”) systems, that alone could eat up a major portion of the budget.
The biggest fear is the cost of fines and compensation (not to mention legal costs) to settle the hundreds of lawsuits and investigations by individuals, state and national governments that have been filed over the last six months.
Some estimates of total cost now run as high as 30 billion euros, or a multiple of a VW Group’s entire 2014 global profit.
3. There’s a known crisis management playbook; VW has ignored it
We have some sympathy for North American enterprises that are offshore units of foreign companies, as is VW Group of America.
It’s clear that between directives from the company’s headquarters in Wolfsburg, Germany, and both U.S. and German lawyers advising the company, many VW executives can’t say everything they’d like to.
But the missteps in Volkswagen’s PR and communications tactics during the crisis may go down as a case study in crisis communications that equals the 1989 Exxon Valdez oil spill in wrong-footedness.
Denials by executives that the company did anything wrong or illegal — after its own engineers had admitted to the EPA that VW deliberately lied and deceived regulators and the public for eight years — haven’t helped.
Nor has the paucity of customer and public outreach, which contrasts with that demonstrated by Johnson & Johnson during the 1982 Tylenol poisoning scare, considered a model of crisis response and communications.
4. Diesel will survive in the States, but maybe not for passenger cars
Despite various “diesel is dead” headlines and pronouncements by executives, diesel engines are likely to continue to sell decently in pickup trucks and sport-utility vehicles.
Scandal or not, rules demanding higher fuel economy and lower carbon emissions are staying put in North America, Europe, China, and other markets.
Diesels are one way to meet those rules, and they are well-received among truck buyers and, increasingly, owners of large or luxury crossover SUVs.
Passenger cars, however — where Volkswagen was essentially the only seller of mass-priced diesels — may be another story.
The group’s diesel vehicles were a majority of the diesel passenger vehicles on the market (separate from SUVs), with only Chevrolet in that game as well.
Audi has already decided to cancel its A4 TDI diesel sport sedan for the U.S. market, though it claimed the decision had more to do with buyer preferences than the scandal.
The Chevy Cruze Diesel is presently on hiatus during a Cruze redesign, though an updated version is scheduled to appear for 2017. We’ll see if that happens.
5. Volkswagen’s attempts at a U.S. comeback have been deeply damaged
It’s not at all clear that any VW, Audi, or Porsche diesel vehicles will be certified for sale in time for the 2016 model year, and that takes out 25% of Volkswagen brand sales right there.
But the impact on public trust will take years to measure fully, although diesel advocates cite statistics suggesting that when the public is aware of the issue, it’s viewed more as a Volkswagen problem than an indictment of diesel cars in general.
Not since the 1970s has the company been a major vehicle brand in the U.S. market, and a series of executives have churned through the North American market in recent years. With the opening of a U.S. assembly plant in Tennessee to build the new Passat — and a much-delayed mid-size crossover SUV too — things were supposed to have been different.
But VW has struggled in recent years, with essentially no new products scheduled between the 2012 Passat mid-size sedan and the upcoming redesign of the Tiguan compact crossover. It’s woefully behind Toyota and other makers in hybrids, and Nissan in electric cars.
The TDI diesels were its one “unique selling proposition,” as marketers would say, along with an image of European engineering and quality delivered by some (but not all) of its models. Now diesels are gone. VW is heavily incentivizing, its dealers are furious, and it remains unclear how long it may take even to get agreement on a plan to move forward on the 580,000 affected vehicles. Subaru now outsells Volkswagen by a handy margin in the U.S. And that seems unlikely to change any time soon.
To read all our stories on the VW diesel issue since it broke in September, see our Volkswagen diesel scandal news page.