VW emissions scandal erupts in America

Volkswagen is facing a scandal of unprecedented proportions after the company admitted to rigging emission values for its diesel vehicles in the US. The company’s shares have nosedived and it could be ordered to pay billions in fines. VW CEO Winterkorn is coming under pressure to react — or resign. John Dyer reports from Boston.

Volkswagen could be ordered to pay billions in fines for falsifying emission levels, putting the fate of VW CEO Winterkorn in doubt. (Photo credit: , flickr)

Volkswagen could be ordered to pay billions in fines for falsifying emission levels, putting the fate of VW CEO Winterkorn in doubt. (Photo credit: <p&p>, flickr)

Volkswagen (VW) was in damage control mode in the United States. But Sunday’s apology from VW CEO Martin Winterkorn was not enough. After the company admitted to deceiving regulators on emissions, it had to go one step further and announced a halt to sales of its popular diesel-powered cars.

Software concealed actual emissions

“I personally am deeply sorry that we have broken the trust of our customers and the public,” Winterkorn said in a statement.

He added that he has launched a third-party probe into the federal Environmental Protection Agency, or EPA, and the California Air Resources Board’s findings last week that the German automaker installed software in its cars to make it look as if their emissions were lower than federal and state limits.

Volkswagen shares tumbled on Monday as the scandal unfolded. Under the U.S. Clean Air Act, the German automaker also faces fines of as much as USD 37,500 per car or USD 18 billion in total.

On Friday, regulators alleged that Volkswagen installed software to conceal emissions in 2009 through 2015 model diesel cars using the four-cylinder, 2.0 litre turbo direct injection engine. Called a ‘defeat device’, the software made it appear as if the cars were generating as much as 40 times less nitrogen gases that cause smog and climate change than in they were in reality.

Around 482,000 vehicles could be carrying the software. Volkswagen has not yet recalled vehicles, and the government has said the software does not affect safety.

Multi-billion dollar fine

On Sunday, VW executives announced that the company would stop selling 2015 and 2016 Volkswagen and Audi models with the 4-cylinder engines in the US. Those cars could include the Beetle, Golf, Jetta, Passat and Audi’s A3 luxury compact.

The embarrassment will likely cut into Volkswagen’s sales in the US, which are already down 37 per cent from their peak in March when Volkswagen’s sales briefly outpaced Toyota in the US, said analyst Max Warburton of Bernstein Research in London.

“There is no way to put an optimistic spin on this. This is really serious,” said Warburton. “The best case for VW is probably still a multi-billion dollar fine.”

Winterkorn under pressure

Winterkorn’s fate is also in doubt. His efforts to make Volkswagen the world’s biggest car seller, a goal that requires leading in the US, has faced widespread criticism. Last year, shareholders tried to unseat him. Recently he was passed over to become chairman of the company’s board.

The illegal software allegedly installed on the car could reflect desperation in Volkswagen’s American unit to achieve Winterkorn’s unrealistic expectations, said analysts.

“Now, we have to wonder if the technology really advanced as far as we thought at VW,” said Kelley Blue Book analyst Karl Brauer. “They must have had a mix of performance, economy and durability that they liked, but realised they couldn’t achieve that and still get the emissions. They must have had a problem making it work in a way that delivered truly clean diesel. At least clean enough to meet the regulations.”

Not the only scandal

The scandal is not the only case of a car company attempting to deceive regulators.

Last week, General Motors reached an agreement with U.S. Department of Justice prosecutors over the company ignoring a safety issue with faulty air bags that contributed to 124 deaths in accidents. Under the agreement, GM admitted it waited two years to recall 2.6 million cars.

In 2014, the EPA fined South Korea’s Hyundai and Kia with a total of USD 300 million in penalties related to exaggerated fuel-economy claims.

 

Photo credit: <p&p>, flickr/Creative Commons

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