How Will Volkswagen Go About Fixing its Dirty Cars?

How much will Dieselgate cost VW?

Now that the whole world knows about Dieselgate, the massive Volkswagen diesel emissions cheating scandal that has sent the company’s stock price reeling, (shares are down 42% and many billions of dollars’ worth in just the past 2 weeks) the real question is: what is Volkswagen going to do about it?

Unfortunately, the answer is far from clear, and may vary from country to country. Currently, Volkswagen is exploring options that range from a simple $22 software upgrade to simply buying back the nonconforming cars, scrapping them, and replacing then with new, emissions-compliant cars. That second option would cost the company billions, but they may be forced into it, anyway.

Another plan being considered is to install bigger catalytic converters that would store and neutralize harmful emissions on the affected cars.

Germany has given the company until October 7 to present a plan to regulators. said people who asked not to be identified because the plans aren’t final. But what German authorities agree to will not be binding on officials in other countries. Diesel engines accounted for more than half of new vehicle registrations in Europe last year, according to the European Automobile Manufacturers Association.

“We need a clear statement from VW — and regulators — about the European situation,” Max Warburton, an analyst at Sanford C. Bernstein Ltd., said in a note to investors on Monday. If recall costs, including scrapping cars, fines and other penalties, are limited to the U.S., “the damage can be contained.” It’s possible that the cheating software, which turned on full emissions controls only when the cars were being tested, was installed in VW’s European cars but not activated, the analyst wrote.

“We’re working as quickly as we can to find a solution for our customers,” said Eric Felber, a spokesman for Volkswagen. “As soon as we can give a reliable statement to that end, we’ll do so without delay.” Volkswagen has said its new diesel cars meet tighter Euro 6 emissions standards and don’t have the cheating software that was installed in the earlier engines. The diesel engines in question were fitted in cars from model year 2009 to 2015.

The appropriate fix will also be different from model to model, according to one of the people familiar with Volkswagen’s plans. The larger 2-liter engines affected already come with a tank of so-called AdBlue solution (aka urea) to neutralize harmful nitrogen oxides. Without the software, the customer would simply need to refill the tank more frequently.

The smaller engines, which have systems that collect nitrogen oxides in the car, are potentially more complicated, because they can’t be retrofitted. Once the exhaust traps are full, the residue is burned off inside the engine, affecting fuel economy. Depending upon what regulators demand, Volkswagen may have to install larger catalytic converters on some cars.

Volkswagen is conducting an internal investigation about who was responsible for installing the fraudulent software. It has suspended several managers, including Wolfgang Hatz, who ran the group’s powertrain development from 2007 to 2011. People familiar with the situation say several engineers have admitted to putting the software into the cars as project engineers determined there was no way to meet both emissions standards and cost controls, according to Bloomberg News.

So far, there is no word on what action US regulators at the state and federal level may demand of the company to clean up its mess. As of today, Volkswagen has removed all reference to diesel powered cars from its North American website.

While diesel sales are significant in Europe (for now), the number of diesel cars Volkswagen has sold in the US of the years amount to only about 1% of total sales in North America. Volkswagen will pay an enormous price for those few extra sales and the extent of the damage can only be guessed at for the moment.

 

Steve Hanley

Closely following the transition from internal combustion to electricity. Whether it's cars, trucks, ships, or airplanes, sustainability is the key. Please follow me on Google + and Twitter.