Why Volkswagen May Have Risked It All by Allegedly Cheating on Emissions

26 Sep 2015 | Author: | No comments yet »

Emissions scandal: Volkswagen to appoint new chief.

Wolfsburg – Volkswagen is expected to name Matthias Mueller, the head of its Porsche division, as chief executive on Friday and purge other managers to show it is acting decisively to end a crisis over its rigging of US diesel emission tests. Volkswagen AG VLKAY 0.22 % ’s supervisory board assembled Friday for a meeting that could run until evening to anoint a new chief executive, shake up the senior management team and begin repairing damage from a massive scandal that has erased almost one-third of the company’s market value.Germany’s transport minister says 2.8 million vehicles in Germany were among those containing software at the center of the emissions-rigging scandal that started in the United States.

European stock markets are continuing their rise this morning, after US Fed chief Janet Yellen shed more clarity on the US interest rate outlook, by saying that rates would probably be raised before the end of the year.Volkswagen’s supervisory board is set to announce a new CEO after Martin Winterkorn quit the job this week over an emissions-rigging scandal that’s rocking the world’s top-selling automaker. The 62-year-old company veteran will be chosen at a supervisory board meeting to replace Martin Winterkorn, who resigned on Wednesday and said VW needed a fresh start, a source close to the matter told Reuters.

Campaign groups have long claimed that car firms are cheating on the official tests and say the results bear little relationship to real-life driving. By resetting those expectations she appears to have given reassurance to investors about timings, but ultimately she hasn’t really said anything new, and last night’s speech appears to have been nothing more than a sop to the market, which continues to behave like a petulant child that constantly needs parental reassurance. Does it go for a seasoned insider who knows the VW Group and its many brands inside-out or an untainted outsider with a track record for turning companies around? He will take responsibility for steering Volkswagen through the biggest business crisis in its 78-year history. “We have been informed that also in Europe, vehicles with 1.6 and 2.0 liter diesel engines are affected by the manipulations that are being talked about,” Alexander Dobrindt told reporters, adding it was unclear how many vehicles in Europe were affected.

Winterkorn resigned Wednesday after the German company admitted that up to 11 million cars could be affected by Volkswagen’s efforts to deliberately circumvent environmental regulations. VW later acknowledged that similar software exists in 11 million diesel vehicles worldwide, but hasn’t given details of the models and their whereabouts.

She went on to play down the risks emanating from a China slowdown in contrast to last week’s statement and the markets appear to have liked the more upbeat tone, but she still left plenty of wiggle room in case events don’t pan out as expected, by stating that any decision would still be data dependant. VW is in the midst of probably its biggest crisis ever, its reputation for trustworthiness in tatters following last week’s disclosure that stealth software was used in its diesel cars to dupe US testers. Dobrindt said Europe would agree on new emissions tests in coming months that should take place on roads, rather than in laboratories, and that random checks would be made on all manufacturers.

Wolfsburg-based Volkswagen now faces the prospect of multibillion-dollar financial penalties, massive costs for fixing or replacing affected cars, and lawsuits. Winterkorn, who had been CEO since 2007, said he took responsibility for the “irregularities” found by US inspectors in VW’s diesel engines, but insisted he had personally done nothing wrong. Separately, a group of at least 27 U.S. state attorneys general launched a multi-state investigation of Volkswagen’s representations to consumers about its diesel vehicles, and said it will send subpoenas to the automaker. “I am furious that the world’s leading car company wilfully took steps that polluted our environment and deceived consumers,” Maryland Attorney General Brian Frosh said in a statement. In Sacramento, California, that state’s top air quality regulator said her agency is preparing a series of actions against Volkswagen in response to the company’s admission that it cheated on tailpipe pollution tests. “Right now we are organizing ourselves for a major enforcement action,” said Mary Nichols, head of the California Air Resources Board.

The wider car market has been rocked, with manufacturers fearing a drop in sales of diesel cars and tighter regulations, while customers and dealers are furious that Volkswagen has yet to say whether it will have to recall any cars. “VW needs to be very open about what has happened, how it was possible that this could happen to make sure that this never happens again in the future,” said a leading VW shareholder, underlining the importance of the meeting. Müller, a long-serving employee of the Volkswagen group, would oversee a sprawling empire with €200 billion ($225 billion) in sales that produces models including inexpensive Czech-made Skoda cars, its world-known VW models, as well as luxury vehicles from Audi, NSU 2.86 % Bentley and Bugatti.

While the scandal centres on nitrogen oxide (NOx) emissions, if the EU test system is overhauled to reflect real-life driving conditions rather than test lab conditions, then it’s likely to result in higher official figures for both fuel consumption and carbon dioxide (CO2) emissions. The state also intends to order a recall of Volkswagen diesel vehicles sold in the state with software that enabled the cars to pass the agency’s emissions tests, but then emit far more pollution on the road. Ultimately it may also call into question the long-term popularity of diesel powertrains as a renewed focus on air quality may encourage governments to wind back the incentives and tax regimes that make diesels so popular. Volkswagen has long been seen as a symbol of German industrial prowess and the auto industry is one of the country’s major employers and a key source of export income. He has been a member of VW’s management board since 2003. “Volkswagen needs to think big and bold,” said Bernstein Research analyst Max Warbuton.

The recall involves the engine management system on a 2-litre turbodiesel engine – known as EA189 – and we can’t confirm how many cars were sold with this engine in Ireland. But Bernstein’s Max Warburton questioned whether a man who has spent more than three decades at the company was the right man to signal a break with the past. The company is under pressure to act decisively, with German Chancellor Angela Merkel urging it to quickly restore confidence in a business held up for generations as a paragon of German engineering prowess. “There will be further personnel consequences in the next days and we are calling for those consequences,” Volkswagen board member Olaf Lies told the Bavarian broadcasting network. With environmental campaigners protesting outside Volkswagen’s headquarters on Friday, coming clean on the emissions scandal is one priority, analysts say.

Environmentalists have long complained that carmakers game the vehicle testing regime to exaggerate the fuel-efficiency and emissions readings of their vehicles. Details are so far scarce on how many people were involved in installing so-called “defeat devices” on nearly half a million diesel-powered cars in the U.S. The European Commission urged all member states to investigate the use of so-called defeat devices by carmakers to cheat emissions tests and said there would be “zero tolerance” of any wrongdoing. An Italian consumer group, Altroconsumo, said Friday a class action suit was planned and called on Volkswagen to either correct the software employed in the emissions-rigging or substitute the vehicle. Verified email addresses: All users on Independent Media news sites are now required to have a verified email address before being allowed to comment on articles.

A Turin-based prosecutor specializing in health and pollution probes has ordered checks of Volkswagens, and eventually of other brands, in Italy to see if commercial fraud or environmental damage is involved. Analysts said a new management structure, possibly more decentralized but also with a clearer system of checks, was all the more urgent, with top executives apparently unaware of the emissions test cheating despite a tight control on decisions. But this process will take time – time for an analysis of the circumstances and time to initiate technical measures. “Please understand that we are currently not able to specify, which models and years of construction are affected. However it looks likely that, while a recall is not necessary for safety reasons, management at Audi, VW, Skoda and Seat may instigate a recall for reassurance purposes. Dealers and customers have been complaining about the lack of information coming their way amid the crisis, so recalling the cars may act as necessary PR exercise.

Other senior members of the board include: IG Metall Deputy Chairman Berthold Huber—a sign of organized labor’s important role in German corporate governance; Qatar Minister of State and CEO of Qatar Airways Akbar Al Bakar; Lower Saxony’s Minister of Economic Affairs Olaf Lies; and Annika Falkengren, CEO of Swedish bank Skandinaviska Enskilda Banken SEBA 2.38 % AB and one of four women on the board. According to a spokesman for the Road Safety Authority, which oversees the NCT test, NOx emissions aren’t part of the criteria for the European roadworthiness directive upon which the test is based. It’s understandable that people are concerned, given the favoured status of diesel amongst Irish buyers.Without getting into the ins and outs of what any individual car is likely to pass or fail on the NCT, the question here is obviously related to the constantly evolving scandal of VW”s cheating on its American emissions tests.

In which case, it will probably be that the problem will be one for Volkswagen to fix and make amends for, not for its customers who were buying unawares. As far as the NCT is concerned, it looks at the vehicles hydrocarbon emissions, which for the registration period of the VW vehicles concerned, is set at 200-parts-per-million. Investigations have, obviously, been launched, but there’s as yet no evidence that the European tests, from which the NCT draws much of its own regulations, have been circumvented. However campaigners have long accused the motor industry of using various “tricks” to get results in the EU testing regime that bear no relationship to real world conditions. According to the reports from the American Environmental Protection Agency (EPA) the software would switch the car’s engine management computer into ‘cheat’ mode when it detected certain parameters were bring met – the stability and anti-collision systems were turned off, the engine was running but there were no steering inputs and so on.

The NCT does not require you to switch off stability or collision systems, so perhaps the software wouldn’t know to go in to cheat mode when being tested on Irish shores. Some have suggested though that the software is hugely sophisticated, and can use many more inputs than just a stability control switch off to know of its surroundings.

However, a change in the test procedures is highly unlikely to be retrospective, given that as with any testing procedures there is an arbitrary element to them all. However, if authorities begin to focus on NOx and, for example, introduce limits on diesels in certain parts of the city, then petrol engines and alternatives will prove more popular and that will impact on the value of all diesel cars, not just those from VW Group brands.

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