There have been multiple developments in the VW story I mentioned yesterday. The number of vehicles involved may be as many as 11 million worldwide:
Volkswagen’s emissions scandal ballooned Tuesday as the automaker said it affects 11 million vehicles worldwide and will require the company to set aside 6.5 billion euro ($7.3 billion).
The startling admission instantly makes the crisis one of the most expensive automotive scandals in recent memory.
The crisis also threatens to upend the company on its rapid path to becoming the world’s largest automaker. Volkswagen had seized the title from Toyota for the first six months of 2015.
“This could damage the Volkswagen brand globally for years to come,” said former automotive marketing executive Peter De Lorenzo, blogger at Autoextremist.com, in an interview. “Trust and belief in the brand has been broken.”
It looks as though VW’s CEO is on his way out:
Volkswagen will dismiss Chief Executive Martin Winterkorn, a German newspaper said on Tuesday, after the carmaker admitted to cheating U.S. vehicles emissions tests and said 11 million of its cars could be affected worldwide.
The Tagesspiegel newspaper, citing unidentified sources on Volkswagen’s supervisory board, said Winterkorn would be replaced by Matthias Mueller, the head of the carmaker’s Porsche sports car business.
A Volkswagen spokesman denied the report. A spokesman for Porsche said Mueller was attending a Volkswagen board meeting at its headquarters in Wolfsburg.
Never believe any rumor until it has been officially denied. South Korea is opening its own investigation into the VW fraud:
The scandal engulfing Volkswagen AG (VOWG_p.DE), which has admitted cheating diesel vehicle emissions tests in the United States, spread east on Tuesday as South Korea said it would investigate three of the maker’s diesel models.
Volkswagen shares plunged by 19 percent on Monday after the U.S. Environmental Protection Agency (EPA) said on
Friday that the world’s biggest carmaker by sales used software that deceived regulators measuring toxic emissions and could face penalties of up to $18 billion.
Media reports say the U.S. Department of Justice has started a criminal probe into the allegations, which cover several VW and Audi-branded diesel models including the Audi A3, VW Jetta, Beetle, Golf and Passat.
The South Korean probe will involve 4,000 to 5,000 Jetta, Golf and Audi A3 vehicles produced in 2014 and 2015, Park Pan-kyu, a deputy director at South Korea’s environment ministry, told Reuters.
The ministry will consider recalling those vehicles after conducting the investigation, he said.
“If South Korean authorities find problems in the VW diesel cars, the probe could be expanded to all German diesel cars,” he said.
Expect damage control from the German government sooner rather than later. The French finance minister is calling for a Europe-wide investigation:
French Finance Minister Michel Sapin has called for a Europe-wide inquiry after revelations that Volkswagen placed secret software in cars to dodge US pollution tests. The German carmaker’s shares fell four per cent at opening in Frankfurt on Tuesday morning, following a 17 per cent fall on Monday.
“We are in a European market, with European rules that need to be respected and that have been broken in the US,” Sapin told Europe 1 radio.
“Even if it’s just to reassure each other, it seems necessary to carry them out also on French carmakers,” he said, although he said he had no “particular reason” to suspect them of wrongdoing.
According to US authorities, Volkswagen has admitted equipping about 482,000 diesel cars with software that turns off pollution controls, except when they are undergoing emission tests.
“This is not a minor subject, it’s not about speed or the quality of leather,” Sapin said. “What we are dealing with is making sure people avoid being poisoned by pollution.”
The irony, of course, is that these vehicles were marketed as one way of reducing pollution. As with so many of Europe’s strategies, the unforeseen effects are coming around to bite them in the hind quarters. Anti-pollution measures have apparently incentivized VW to look for clever ways of evading detection.
The question now is whether VW can weather this storm. Before this morning’s news I would have predicted that VW would circle the wagons and seek protection from the EU. Does the company have enough U. S. assets to cover its fines here?
But eleven million is a lot of vehicles and VW’s net revenues are only about $10 billion annually. If the problem is as difficult to remediate as I suspect it is, between fines, recalls, and the inevitable lawsuits (at least here in the States) not to mention the increasingly likely criminal charges and declines in sales due to lost reputation, I think that VW’s future is in serious doubt.
I was commenting on this on the previous thread as you were posting this. I’ll ask my question here: Has a company this large ever vanished before?
And PD ‘s suggestion that this may be a widespread issue for European auto manufacturers looks on target. Indeed, I bet this is a widespread problem w/ European manufacturing and possibly power generation. As Schuler states, the incentives are there.
A few thoughts:
1) I’m curious to learn if U.S. emission standards are tougher than EU standards with regard to this issue, and if so, how? Are the numeric levels simply higher? Are the standards the same, but not enforced? Is it simply that the test is different, and they only found it convenient to design to one test? Are EU standards more flexible or multi-factoral?
2) What do the above concerns mean for any international global warming initiative?
3) The penalty estimate given earlier appears to be based upon someone’s estimate. Unlike European countries, there will be an attempt to quantify the damage. Assuming VW fixes the problem on all U.S. cars promptly at its own expense, the two big factors will likely be the competitive advantage VW received from noncompliance, and the harm to human health. On the first factor, there will probably be some sort of multiplier — cannot have a company that received $1 million in savings simply pay a $1 million penalty, for deterrence purposes they have to pay multiple of that. On the second factor, the emission standards are based upon rulemakings that assumed certain types of medical harms and healthcare costs derived from them. I assume there will statistically proven health care costs from the world’s leading healthcare provider, and perhaps even statistical deaths. These numbers could be quite large and involve complex issues. European countries apparently tend to impose civil penalties on grounds of moral approbation, a cheaper qualitative assessment.
4) Ellipses: I initially thought of Johns-Manville, asbestos manufacturer, but then I remembered they are still around; they were allowed to reorganize in bankruptcy because they would be able to pay future toxic tort victims more than if they liquidated. Most of the companies I can think of didn’t quite disappear, but were bought or merged.
I thought California had a yearly emissions test for all vehicles where they tested the exhaust. Is this correct? If so, are diesels included? If so, how did they pass? Also, I thought California had higher standards. Is this correct?
PD:
1) There’s a good summary here.
2) It may actually mean that it’s easier for the Europeans to meet their targets than might otherwise be the case.
@ Tastybits, they passed inspections because VW installed a defeat device that insured that the vehicle would. There is an assurance on the EPA website to car owners that there shouldn’t be any problem because the defeat device has not been known to fail and the EPA is not going to confiscate vehicles. But post-sale vehicle emission requirements are controlled by states and vary from location to location, and by pollutant. The EPA appears to assume that at some point states will require proof that the VW repairs have been made, but a lot of places don’t have the laws or infrastructure in place for vehicle inspections.
@Dave, thanks. From that link it looks like:
U.S. NOx standards are more stringent than EU but the test is different, so they are not directly comparable. According to the EPA website, the device allows NOx emission levels 10 – 40 times higher than emission standards, which would appear to be higher than EU NOx standards as well.