RPT-VW could pose bigger threat to German economy than Greek crisis

24 Sep 2015 | Author: | No comments yet »

The who, what and why of Volkswagen’s diesel scandal.

The Volkswagen diesel emissions scandal could be as serious as BP’s Gulf of Mexico oil disaster, warns professor Baback Yazdani, dean of Nottingham Business School. The chief executive of Volkswagen has quit the car firm, insisting he was not involved in the emissions tests scandal that has rocked the automotive industry and could lead to one of the biggest ever legal claims.SAN FRANCISCO (Reuters) – In April of 2015, Volkswagen of America, Inc. sent letters to California owners of diesel-powered Audis and Volkswagens informing them of an “emissions service action” affecting the vehicles.It was publicly revealed last week that the company had fudged emissions tests using cheat software on diesel powered cars under its three mainstream brands, Volkwagen, Audi and Skoda. Martin Winterkorn said the German company needed a fresh start but stressed he was “not aware of any wrongdoing on my part” as he stepped down as boss.

Owners were told they would need to take their cars to a dealer for new software to ensure tailpipe emissions were “optimised and operating efficiently.” The company didn’t explain that it was taking the action in hopes of satisfying government regulators, who were growing increasingly sceptical about the reason for discrepancies between laboratory emissions test results and real world pollution from Volkswagen’s diesel cars. The result? $41.5 billion wiped from the company’s value, up to $25 billion in penalties from the US alone, on top of the costs to recall and fix 11 million cars worldwide. The financial consequences are too early to calculate as the warranty costs will be combined by loss of consumer trust and potential fines in North America, Europe and beyond. The resignation of Winterkorn follows five days of growing pressure on VW after the US Environmental Protection Agency (EPA) accused the carmaker of using a defeat device to cheat emissions tests on diesel cars. Officials at the California Air Resources Board and the EPA agreed in December of 2014 to allow a voluntary recall of the company’s diesel cars to fix what Volkswagen insisted was a technical – and easily solved – glitch.

In the Autumn of 2014, researchers from the West Virginia University in America were given a grant to do the first ever evaluation of the tailpipe emissions of diesel cars in America made by European manufacturers. Volkswagen, which had no obligation at the time it initiated the recall to disclose the discussions that had led to it, declined to comment on the letter.

The controversy came to public attention last week after Volkswagen acknowledged it had deliberately deceived officials about how much its diesel cars polluted. VW has enlisted Kirkland & Ellis, the US law firm that defended BP after the Deepwater Horizon oil disaster, to help it deal with the growing pile of investigations and lawsuits. Going by Volkswagen’s claims, it should easily have let out the least amount of pollution between those three cars — it had a more modern catalytic reduction system which is meant to convert toxic fumes into safer ones — but that wasn’t the case.

Almost €25bn, or a third, has been wiped off the value of VW this week, although shares in the carmaker rebounded 5% after Winterkorn’s resignation. Justice Department has launched a criminal probe and at least 25 proposed class actions on behalf of consumers have already been filed in seven states. They triple-checked the accuracy of their equipment after the Volkswagen Jetta they tested showed readings 30 times more than the claimed pollution rating. “It wasn’t that we tested three vehicles and brought down a corporation.

Three vehicles is a very, very small subset of a half-million vehicles, so it was more that we had a role, the data we collected spoke for itself and CARB and EPA did their due diligence. The committee said it had “tremendous respect for his willingness to nevertheless assume responsibility” and added that VW’s global expansion would be “inextricably linked to his name”.

However, a few months later at a 2014 conference in San Diego, they presented their research to an audience that just happened to have several EPA officials in it. As the carmaker seemed to be clearing the way to pin the scandal on workers below Winterkorn, Simon Walker, the director general of the Institute of Directors, criticised the company’s response.

The officials immediately started an investigation after talking to the researchers and their funders from the International Council on Clean Transportation. He wrote in the Guardian: “A company which has admitted to a flagrant violation of global rules and went to such extensive lengths to hoodwink officials has bigger questions to answer than just who takes the blame. “Fitting 11m cars with a piece of software which artificially reduces vehicle emissions during regulators’ tests is not the work of a few rogue employees. When the EPA confronted Volkswagen, the company blamed “various technical issues” for the results but still voluntarily recalled nearly 500,000 cars in December last year to issue a software patch. That decision was taken and put into action by people of reasonable seniority. “If the board members knew what was happening, that is clearly severe – and possibly criminal – malpractice.

Eventually they found software called “the switch” which tracks the position of the steering wheel, vehicle speed, how long the engine is on, and air pressure to determine if it is being subjected to an emissions exam. The 20-strong board includes members of the Porsche and Piëch families, union leaders, politicians from Lower Saxony, where VW is based, and representatives from Qatar, a major shareholder. “Ultimately, this must happen quickly,” he said. “We must not allow the impression to arise that this is a problem for the whole auto industry or that it raises questions over the integrity of Volkswagen overall. Finally, on September 3 2015, the EPA presented mountains of evidence to Volkswagen and forced them to confess the vehicles were loaded with software to cheat on emissions testing.

The 600,000 employees of VW cannot help it that individuals carried out criminal actions on whatever scale.” “Above all, I am stunned that misconduct on such a scale was possible in the Volkswagen Group,” said Winterkorn, who has led the company since 2007. “The process of clarification and transparency must continue. I am convinced that the Volkswagen Group and its team will overcome this grave crisis.” Earlier, Prof Karel Williams of the University of Manchester business school told BBC Radio 4’s Today programme that the VW scandal reflected badly on Germany. “Germany has been lecturing the Greeks for years on how they cheated on the budget deficit calculations and now look at this – Germany’s largest company is cheating on emissions,” Williams said. Diesel engines have been hugely popular in Europe and Australia, especially with recent high unleaded petrol prices due to diesel’s much better fuel economy.

Diesel fuel contains much more energy per litre than a standard litre of petrol, which, combined with the efficiency of diesel engines, allows modern cars to get over 1000kms of highway driving off just one tank of fuel. Oliver Krischer, the deputy leader of the Green party, told German television that this showed the government knew that car makers were trying to manipulate emissions tests. He said: “The government worked together with the auto industry, not to ensure that the emissions levels were reduced, but so that the measuring system was set up in such a way that on paper the cars met the necessary standards.” The European Automobile Manufacturers’ Association (ACEA) said European rules will soon require testing to be conducted in realistic driving conditions as well as in laboratories, creating the strictest regime in the world. Yes, until you realise there’s a huge catch — diesel engines emit a large amount of nitrogen oxides (NOx) which can cause serious health problems and form a large amount of smog. It said: “The ACEA will continue to engage with the European commission and national governments to address the current challenges and ensure that trust and confidence in the car industry and clean diesel technology are maintained.”

In the past, Europe has been quite loose on its regulations, resulting in around one-third of European cars running on diesel, however it’s also the reason why big cities such as Paris and London have smog problems. Companies such as Volkswagen took advantage of this to break into the huge US market, offering “clean diesel” cars that theoretically offered great fuel economy without giving off too much poisonous NOx.

For Australians, there is no word yet as to whether the scandal will hit home, although experts have told News Corp Australia as many as 50,000 diesel Volkswagens could be affected.

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