VW: The emissions scandal that rocked the motor industry

24 September 2015 -

The German car giant could be facing an $18bn fine as a result of the emissions test rigging scandal that forced the resignation of CEO Martin Winterkorn, but the resulting reputational damage could be much more damaging for Volkswagen and the wider motor industry

Jermaine Haughton

Caught red-handed lying to drivers about the carbon emissions emitted from its vehicles in the US, German car manufacturing giant Volkswagen (VW) faces a long, expensive and treacherous journey to win back the trust and loyalty of customers, regulators and politicians across the world.

Last Friday, the Environmental Protection Agency (EPA) revealed that some 482,000 cars being sold in America had devices fitted in diesel engines that misled emissions testers into believing the vehicles gave off much less pollution than it actually does. Since 2009, US drivers have bought VW cars that emitted up to 40 times the legal limit of pollutants in the environment despite being sold as “clean diesel”.

Including popular models such as the VW Jetta, Beetle, Golf and Passat, the regulator found that VW’s vehicles were fitted with a so-called “defeat device,” which reconfigured the car engine to run below normal power and performance during laboratory emissions testing to improve results. Now, VW has admitted 11 million vehicles worldwide have the device.

As the company halted sales of its 2015 2-liter TDI cars in the US where diesel cars account for about a quarter of its sales, VW chief executive Martin Winterkorn apologised for the automotive’s deceptive tactics.

He said: “I personally am deeply sorry that we have broken the trust of our customers and the public. We will cooperate fully with the responsible agencies, with transparency and urgency, to clearly, openly, and completely establish all of the facts of this case. Volkswagen has ordered an external investigation of this matter.”

The scandal has since forced Winterkorn to resign from his position at the motor giant. In a statement Winterkorn said he was standing down “in the interests of the company, although I am not aware of any wrongdoing on my part” and that he wanted the company to have a “fresh start”.

But the damage caused by the scandal may mean that Winterkorn’s resignation is not enough to grant the reprieve VW is so desperate to find.

Selling diesel vehicles in the US has been a perennial issue for car manufacturers because, despite being up to 30% more powerful than their petrol alternative, the American market has been slow to accept it. This is largely because diesel gives off much stronger pollutants into the environment and has been incompatible with the US’ stringent NOx standards.

The breakthrough of “clean diesel,” a technology using lower-sulphur fuel, advanced engines, and new emission-control systems to produce more environmentally-friendly cars, seemed to be the catalyst for the advancement of diesel in the US.

The VW scandal, however, will call into question the validity of these claims.

The fraudulent rigging of car emissions has broken the US Clean Air Act, a law that regulates air emissions from stationary and mobile sources, and VW is reportedly set to face fines of up to $18 billion (£11.8bn). This is because the fine for each vehicle that did not comply with the rules is up to £24,000.

Meanwhile, VW is set to face great scrutiny in its largest market, Europe, with the German car giant already having admitted that European cars have also been fitted with the device.

In the UK, the Department of Transport has called for an EU-wide investigation into the affair, which could lead to further sanctions. Increased rigour is also set to be applied to the testing process on carbon emissions of cars. Starting with model year 2017 vehicles, European regulators are going to start requiring automakers to test their passenger cars on the road in addition to laboratory tests. In theory this would make it harder for manufacturers to deceive investigators, as road testing would be more difficult to predict than the standard manoeuvres undertaken in labs.

Financially, the auto manufacturer is bracing itself for a major hit to its balance sheet of £4.7bn to cover costs of the scandal. Just three days after the story made international headlines, VW saw one-third wiped off its share value with investors rapidly distancing themselves from the company, which recently overtook Toyota to be the world's top-selling vehicle maker in the first six months of the year. As more specific details about the depth of VW’s deception are revealed over the coming months, share value could sink even further.

The slowing of diesel sales is, also, unlikely to improve.

"The revelations are likely to lead to a sharp fall in demand for diesel engine cars," said Richard Gane, automotive expert at consultants Vendigital. "In the US, the diesel car market currently represents around 1% of all new car sales and this is unlikely to increase in the short to medium term.

“However, in Europe the impact could be much more significant, leading to a large tranche of the market switching to petrol engine cars virtually overnight."

And with other car manufacturers set to be put under the spotlight to see if the problem of emissions test rigging is more widespread than just VW, the motor manufacturing industry is facing a bumpy road for the foreseeable future.