The Wrath of Volkswagen’s Drivers

22 Sep 2015 | Author: | No comments yet »

For 7 years, VW software thwarted pollution regulations.

“This ain’t your daddy’s diesel,” Volkswagen boasted in ads in the U.S. for its “clean diesel” cars that, the car maker asserted, fit its “commitment to making vehicles that are eco-conscious.” Trouble is, the vehicles are only eco-conscious when going through emissions tests. DETROIT (AP) — Volkswagen became the world’s top-selling carmaker trumpeting the environmental friendliness, fuel efficiency and high performance of diesel-powered vehicles that met America’s tough Clean Air laws.EPA officials alleged that Volkswagen used highly sophisticated software that activates full emission controls only during testing but then reduces their effectiveness during normal driving. VW’s success story was so good that pollution-control advocates did their own tests, hoping to persuade other countries to enforce the same strict standards. German officials, alarmed at the potential damage the scandal could inflict on its car industry, urged Volkswagen to fully clear up the matter and said it would investigate whether emissions data had also been falsified in Europe. “You will understand that we are worried that the justifiably excellent reputation of the German car industry and in particular that of Volkswagen suffers,” German Economy Minister Sigmar Gabriel said.

Investors dumped the firm’s shares after it was accused by America’s Environmental Protection Agency (EPA) of cheating emission tests on its diesel-powered vehicles. Instead, they got a foul-smelling surprise: In actual driving, the VWs spewed as much as 40 times more pollution from tailpipes than allowed by the U.S.

Although Volkswagen’s chief executive, Martin Winterkorn, has apologised for faking the data, the carmaker could still face a fine of up to $18 billion—and even more if regulators find that it has committed any more misdemeanours in Europe and Asia. Already, Volkswagen has halted US sales of some of its popular four-cylinder diesel-powered cars, a blow to its ambition to become the world’s biggest auto maker in terms of sales. VW got away with this scheme for seven years, and according to the EPA, didn’t come clean even when repeatedly confronted with evidence of excessive pollution.

Last year, U.S. and California environmental officials began investigating discrepancies between the vehicles’ emissions in tests and in real-world driving, and they started talking with VW about their findings. Volkswagen’s woes should give pause to any company that’s considering a technological quick fix in lieu of following the law, but it also suggests a new danger for regulators. Regulators will need to develop new tests, and consumers will have to learn about the new dangers that come along with having a computer in your car — especially when the danger is to our own health.

On top of this, there’s the cost of fixing the cars, potentially costly class action lawsuits from disgruntled customers, and the risk of a hefty fine from the US Justice Department, which has adopted a harder line with auto industry in the past few years. Unlike cases involving Toyota’s unintended acceleration, Takata’s exploding air bags and General Motors’ defective ignition switch, at least no one has died as a result of VW’s alleged manipulation. EPA spokeswoman Liz Purchia said the agency would be “working closely” with the Department of Justice on the probe but she would not comment about the possibility of a criminal probe. In Germany, where Volkswagen is a source of national pride, the scandal has had huge coverage, with the local press labelling it a “disaster”, a “shock” and a “debacle”.

The alleged attempt to fool the emissions tests also attracted congressional notice, with a House of Representatives panel planning a hearing in the coming weeks. Some investors also worried that Volkswagen was unlikely to have been the only company to cheat on the emission tests, and that it could be an industry-wide problem. Shares of VW, whose vehicles range from budget Seats and Skodas to luxury Bentleys and Lamborghinis, fell 18.6 percent to close at 132.20 euros, wiping some 14 billion euros ($15.6 billion) off its market cap. Instead, VW used secret software — an algorithm that detects when cars are being tested on treadmill-like devices called dynamometers, and stealthily switches the engines to a cleaner mode.

The German government called for an urgent investigation into whether Volkswagen and other carmakers had also manipulated the results of emissions tests in Germany. Analysts said it was unclear what the ultimate cost could be for VW, which reported 2014 net income of 10.84 billion euros ($12.15 billion), according to Thomson Reuters data.

The scandal comes just as VW was hoping to move on from a damaging leadership battle, with a supervisory board meeting on Friday due to discuss a new company structure and management line-up. Forty-one years ago, Volkswagen paid $120,000 to settle charges that it violated emission-control rules by placing a defeat device, which deactivated part of the emission control system, on some 1973 vehicles. Evidence of increased toxic emissions at VW first emerged in 2014, prompting the California Air Resources Board to start investigating VW, a letter from the board to VW dated Sept. 18 showed.

Volkswagen initially denied it was trying to game the inspections, attributing the higher emissions readings to “various technical issues and unexpected in-use conditions,” the EPA said on Friday. “Only then did VW admit it had designed and installed a defeat device” that purposely lowered emissions while a vehicle was being inspected, the agency said. Any decision on emissions control mechanisms would have been taken at the group’s Wolfsburg headquarters and not by regional divisions, a source close to Volkswagen said. And at the White House, spokesman Josh Earnest said “we are quite concerned by some of the reports that we’ve seen about the conduct of this particular company.” “I’d be surprised if Winterkorn can ride this out, but in Germany there’s often a slightly slower process in these matters,” said Christian Stadler, a professor of strategic management at Warwick Business School.

Winterkorn is an engineer by training who led research and development across the VW group beginning in 2007, and became chairman of the management board the same year. The integration is the responsibility of the manufacturer.” The way carmakers test vehicles has been coming under growing scrutiny from regulators worldwide amid complaints from environmental groups that they use loopholes in the rules to exaggerate fuel-saving and emissions results. In 2013, an Indian government-named panel accused GM of flouting testing regulations by fitting engines with low emissions in vehicles sent for inspection. On Sept. 9, without making any reference to VW, the Justice Department announced a renewed commitment to holding individual executives accountable for corporate wrongdoing.

And when the EPA announced VW’s violations on Friday, it noted that in addition to the corporate fines of $37,500 per vehicle, individuals could be fined $3,750 per violation of the Clean Air Act. Ingo Speich, a fund manager at Union Investment, which owns about 0.4 percent of VW shares, said he was braced for the crisis to spread for the carmaker. “The market is anticipating more than just the U.S. issue.

On Capitol Hill, House Energy and Commerce Committee Chairman Fred Upton, R-Mich., said his subcommittee will determine whether auto buyers were deceived. “The American people deserve answers and assurances that this will not happen again. Still, one of VW’s rule-breaking models, the revamped Jetta TDI, proved very popular when it went on sale in 2009, in part because of Obama administration-approved subsidies designed to spur the sale of “clean diesel” technology.

VW has already told its U.S. dealers to stop selling the diesel models criticized by U.S. regulators, while law firm Keller Rohrback LLP has filed a nationwide class action complaint against VW’s U.S. division, saying it deliberately deceived consumers and regulators in its emissions testing. (Additional reporting by Gernot Heller and Markus Wacket in Berlin and Tim Gardner, Patrick Rucker and Emily Stephenson in Washington; Ilona Wissenbach in Stuttgart; Philip Blenkinsop and Barbara Lewis in Brussels; Writing by Christian Plumb; Editing by Mark Potter, Gareth Jones, Grant McCool and Leslie Adler)

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