Volkswagen scandal…in two minutes

28 Sep 2015 | Author: | No comments yet »

EU may change emissions tests laws.

Volkswagen’s own staff and one of its suppliers warned years ago about software designed to thwart emissions tests, two German newspapers reported over the weekend.Volkswagen’s big push in the United States revolved around making Americans love driving a diesel car again — a challenging task given the poor image diesel had endured since the 1980s.The German carmaker named company veteran Matthias Mueller as new CEO on Friday in an attempt to get to grips with a crisis that its chairman described as “a moral and political disaster”.FRANKFURT— Volkswagen AG VLKAY -5.45 % faces higher financing costs and a strain on its ability to offer loans to boost sales amid an unfolding emissions scandal, which is rippling through all aspects of the auto maker’s business.

Europe’s biggest car maker is adding up the cost of the biggest business scandal in its 78-year history, having acknowledged installing software in diesel engines designed to hide their emissions of toxic gasses. Its answer was a 2-liter, 4-cylinder turbo-diesel engine that could run seemingly forever on a single tank while offering great acceleration and meeting even the most stringent environmental standards. The appointment came as Swiss authorities said they were suspending sales of Volkswagen brand diesel vehicles that could contain devices capable of cheating emissions tests, including Audi, Seat, and Skoda vehicles built between 2009 and 2014.

Volkswagen disclosed last week as many as 11 million diesel cars contained software that U.S. authorities say allowed the company to dodge emissions standards. The German weekly Bild am Sonntag reported that Volkswagen’s internal investigation found a 2007 letter from parts supplier Bosch warning VW not to use the software during regular operation. The company’s internal investigation is likely to focus on how far up the chain of command were executives who were responsible for the cheating, and how long were they aware of it. Separately, the Frankfurter Allgemeine Sonntagszeitung reported that a Volkswagen technician raised concerns about illegal practices in connection with emissions levels in 2011.

To deliver its point, Volkswagen has spent $77 million this year to promote its diesel cars, often in a humorous way, a figure that represents about 45 percent of its total for television ad spending of about $165 million, according to the measurement firm On Sunday, Germany’s motor authority said it would give VW until Oct. 7 to come up with a technological solution to the situation, which concerns engine-management software that made bench-test emissions appear lower than they were on the road. In one, they argue about the car’s smell. (It turns out that it comes from the dog, not the diesel.) In another, they disagree about whether the engine is turned off. (It’s on.) In a third, one of the women asks, “How do you like my new car?” Another jumps in with, “Isn’t diesel dirty?” The first woman ends up holding a white scarf under the tailpipe to show how clean the emissions are. Mueller pressed the board to move ahead with a reorganisation he helped devise before Volkswagen was caught up in an emissions-cheating scandal, as the new leader seeks to put his stamp on the company. A spokesman for Volkswagen declined to comment on the reports, saying that as a matter of principle the company wouldn’t comment on what he called “rumours and speculation.” “Volkswagen is working with all its strength to conduct a thorough and merciless investigation of this matter,” Andreas Lampersbach said in an email.

New CEO Matthais Mueller sent a letter to staff promising “relentless” efforts to investigate the scandal and promote the “strongest compliance and governance standards in the industry”. Volkswagen said on Friday that more authority will be given to individual brands and regions, a departure from the centralised structures that kept key decisions in Wolfsburg and the CEO’s inner circle. VW would hold those responsible for rigging the emissions test to account and discuss technical solutions for the problem with authorities, he said, citing a statement by the company’s supervisory board. “Afterward we will provide a timetable to modify the vehicles of affected customers. The spiraling scandal has badly tarnished VW’s name, left it exposed to up to $18 billion in US fines, and wiped out a third off its stock market value in a week.

The ads’ mantra of clean diesel that combines high performance with high efficiency came with a bonus for prospective car buyers: The cars were also relatively affordable. Volkswagen’s giant U.S. and European financing operations often act as lenders for car buyers and dealers for any of the brands in the company’s stable, from the namesake VW to Bentley, Lamborghini, Audi, Porsche and others. For about $30,000, consumers could get a Jetta or Golf 2-liter TDI engine that can be driven 600 miles on a tank of gas and still meet stringent emissions standards. A Volkswagen spokesman said there had been no instructions from company headquarters in Germany to dealers to stop selling the affected cars, but sales units in individual countries had the right to take such decisions on their own.

Since Volkswagen admitted a little more than a week ago that it had lied about the performance of its diesel technology and had sold 11 million cars equipped with a device that cheated on emissions tests, the company has removed its clean diesel ads from its YouTube channel. German environment minister Barbara Hendricks said the European Commission and member states were considering stricter rules. “We are working on new, honest measuring methods in Brussels,” she told Handelsblatt newspaper. “We can’t just rely on tests in the lab,” she said, adding future tests should focus more on normal road conditions. Now, the company that famously introduced the original Beetle as a “Lemon” and urged consumers to “Think Small” faces a public relations crisis, and a major challenge to restore its image. “It is one thing to make a mistake, it’s another to intentionally trick your customers,” said Sara Roen Brady, a crisis reputation manager based in Florida. “This is a really emotional issue because it’s about the character of the company and the character of their customers. Volkswagen Financial Services AG, as it is formally known, is now evaluating whether it has to book charges on the collateral value of cars affected by a recall, a spokesman said. “We’re in talks with Volkswagen to evaluate the potential impact” and aim to produce results next week, he said. With more than 11,000 employees and assets of around €114 billion ($127.6 billion), the Financial Services unit contributed €781 million or nearly 14% to the group’s overall net profit of €5.66 billion in the first half, according to an analyst presentation.

The European Central Bank late last week temporarily excluded asset- backed securities originated by Volkswagen AG from its bond buying program to review recent developments, according to a person familiar with the matter. The company claimed that the TDI models in its lineup offered up to 30 percent better fuel economy and up to 30 percent lower carbon dioxide emissions than comparable gasoline engines. While asset-backed securities are only a fraction of the ECB’s €60 billion ($67 billion) a month bond-buying program, the move underscores the vulnerability the emissions crisis has created for Volkswagen’s financing operations. Volkswagen and other European manufacturers have promoted “clean diesel” technology, benefiting from diesel’s fuel economy but meeting stringent tests for emissions of toxins. Audi, part of the automotive group that includes the Volkswagen brand, targeted a bigger audience with its 2010 Super Bowl ad, drawing on a greener-than-thou image in a parallel world where overzealous “green police” hunt down environmental offenders who drink water out of plastic bottles, overheat their hot tubs or fail to compost properly.

But the suggestion that this was achieved by cheating on tests could affect the viability of the entire diesel sector and the fate of companies that have bet on it. In July, Volkswagen boasted that a Golf TDI set a record — as measured by Guinness World Records — by being driven more than 8,000 miles and getting an average of 81 miles a gallon. The announcement has shaved off roughly 30% of Volkswagen’s market capitalization, and on Friday led to the ouster of Chief Executive Martin Winterkorn. Müller closed ranks with labor representatives, vowing to ensure that such misconduct “never happens again.” For their part, Volkswagen drivers are concerned about the resale value of their cars, but analysts expect it will take time to assess the full effect.

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