RPT-New VW boss faces host of problems after emissions scandal

26 Sep 2015 | Author: | No comments yet »

EPA To Auto Manufacturers: We’re Watching You.

Volkswagen appointed Porsche brand chief Matthias Mueller as chief executive officer as the German car maker reels from the biggest crisis in its history.As the new head of Volkswagen, Matthias Mueller will be overseeing the largest automaker in the world, a sprawling empire of brands and manufacturing facilities stretching from China to North America.

Hot on the heels of the Environmental Protection Agency discovering that Volkswagen secretly installed software that gave falsified emissions data from cars, the EPA says it’s ramping up its checks.Volkswagen’s emissions cheating scandal has shaken the auto industry on both sides of the Atlantic, displacing the company’s chief executive and sparking investigations in the U.S. and Europe.Volkswagen knows it will take much more than just new leadership and a corporate overhaul to clear the air after it was caught cheating in U.S. diesel emissions tests. The supervisory board, which met for seven hours on Friday, named four-decade company veteran Mueller to replace Martin Winterkorn, who quit Wednesday as the diesel cheating scandal widened and countries around the globe announced investigations. Beyond the measures announced by the German carmaker on Friday, VW executives, customers, investors and workers alike are struggling to divine what lies ahead.

The veteran Volkswagen executive, who until Friday morning was in charge of its Porsche brand, will now run the entire company, replacing Martin Winterkorn as CEO in wake of the diesel emissions scandal. The new chief executive, 62-year-old Matthias Mueller, until now head of the Porsche sports-car division, faces a host of problems that had already been looming before the diesel scandal broke and may now be worsened by its repercussions. The crisis wiped about €20 billion off VW’s market value this week, and the company estimates irregularities on diesel-emission readings extend to 11 million vehicles around the world.

Volkswagen faces the unenviable task of trying to do damage control and to make amends with stakeholders, betrayed auto owners, and regulatory agencies worldwide. VW embedded software in the vehicles’ electronics that allows the cars to emit up to 40 times the legally allowed amount of nitrogen oxide while appearing in tests to be within the limit, U.S. environmental officials said. Not least among these is falling profitability at the VW brand, but the immediate priority will be to clean up the mess in the United States, whose potential impact on the company has been compared to the 2010 BP oil spill. But Phillippi stressed that even if Mueller can come up with a “fix-it plan,” VW’s troubles are far from over, “and are going to take years to resolve.” There’s no question that the German automaker—which operates a dozen brands, ranging from entry-level Seat and Skoda to high-line marques Audi, Bentley and Bugatti—has some desperate and immediate challenges.

VW faces dozens of public and private lawsuits, government investigations, compensation and recall expenses, the combined cost of which could exceed the 6.5 billion euros ($7.28 billion) it has put aside. VW officials this week acknowledged the company used special software code, dubbed a “defeat device,” to get its diesel models to recognize when they were undergoing emissions tests.

It turns out that Internet-connected cars are not just great for listening to Pandora or turning on your air conditioner on a hundred-degree day in advance; they also can help auto manufacturers generate fraudulent data for the sake of avoiding government regulation. Horn at an event on Monday in New York apologised profusely for what VW had done, saying: “We have totally screwed up.” “We need a climate where problems aren’t hidden,” Bernd Osterloh, VW’s top labour leader said at a press conference in Wolfsburg, Germany. “Volkswagen needs a fundamental cultural change.” The board that oversees the management of Volkswagen is expected to announce further management changes as the company tries to quell the growing outcry over the deception. VW’s software senses the testing environment by analyzing a variety of data such as steering position, speed, duration of engine operation and barometric pressure, and then adjusts engine performance and emissions to pass the test. Mueller should go further and abandon U.S. diesel vehicles altogether, said Bernstein analyst Max Warburton, recommending that the company funnel cash into plug-in hybrids and other low-emissions technology instead.

The automaker hasn’t said what it plans to do, but automotive experts believe any repair will diminish the driving dynamics of the vehicles and slash fuel economy — the two major characteristics that attracted buyers. VW’s centralization under Winterkorn and Ferdinand Piech – ousted as chairman in April – was ill-suited to a 12-brand empire with 119 plants in 31 countries. Mueller, who studied information technology and joined the Audi division as a toolmaking apprentice in the early 1970s, is the first non-engineer to run VW since 1992, when Carl Hahn retired from the post. The “climate of fear” may have been a factor in the test-rigging, said one company official, just as it was two years earlier when Chinese customer complaints about defective gearboxes were suppressed for months. “We need to create an atmosphere in which problems can be communicated openly to superiors rather than concealed,” labor chief Berndt Osterloh told staff on Thursday. The new CEO “has to put the emphasis on VW customers, whatever the cost,” said Mike Jackson, CEO of the largest U.S. auto retail chain, Florida-based AutoNation.

Volkswagen was “essentially running two tracks on their software,” said David Clegern, an ARB spokesman. “The software that would be running during a smog check would show that all was working according to plan.” California VW owners need to wait for the automaker to devise procedures to reduce emissions from the vehicles. The situation is compounded by the fact that the overall automotive market in China, where VW is the dominant manufacturer, has been slowing rapidly in recent months. Volkswagen’s humiliation could weaken its European prices, further eroding the core brand’s narrow margins and requiring still bigger cuts from unions. “The (U.S.) disclosures may impact negatively on VW’s ability to maintain its global premium pricing power,” Morgan Stanley analyst Harald Hendrikse said in a note this week. As a result, VW could very well lose the king-of-the-hill status it obtained during the first half of this year, when it pushed past Toyota to become the world’s best-selling automaker. Because the range of cars affected includes three generations of diesel engines, the remedies for the other vehicles could take much longer to develop.

While most of the world’s major makers reported gains during a generally strong second quarter, Volkswagen saw a 16 percent drop in its after-tax profit during the second quarter, to 2.73 billion euros. Once approved, the company will issue a national recall and notify owners about when and where they can get the fix, likely to be new software for the engine control module. Like key competitors such as Toyota and General Motors, VW has developed a handful of so-called vehicle “architectures” that can be shared by a wide range of models and brands.

Drivers will have to obtain a “proof of correction certificate” from a dealership after the recall repairs are performed and submit it to the DMV in order to renew a vehicle’s registration. There will be a plethora of lawsuits that will make claims for fraudulent concealment, breach of contract, loss due to the diminished value of the cars and violation of consumer protection laws and false advertising laws, according to Hagens Berman Sobol Shapiro, a class-action law firm in Seattle.

At the Frankfurt Motor Show, several executives said hybrids, plug-ins and pure electric models would likely begin to replace some high-mileage diesel options. The firm believes owners should be entitled to return of any premiums they paid for the diesel version of their car over the gasoline model, typically about $3,000. Additionally, Volkswagen suspended sales of all new and used 2.0-liter TDI four-cylinder diesel engines, including in the 2015 Beetle, Jetta, Golf and Passat TDI, as well as the Audi A3 TDI. It is too early to tell how prices for used VWs and specifically its diesels cars will be affected by the emissions scandal, said Larry Dominique, executive vice president of industry insights at car shopping website TrueCar.com.

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