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It’s not every day you come across a top global brand shooting itself in the foot. But this is what Volkswagen has done by intentionally fitting its diesel vehicles with a “defeat device” that falsified its emissions tests in the US, possibly even beyond those shores.
After admitting to cheating emissions standards in the US through the use of a defeat device, Volkswagen AG shares lost almost a third of their value and the German carmaker faces hefty reparation costs as well as a colossal fine if the US Environmental Protection Agency (EPA) decides to enforce the maximum fine of $37 000 (R508 600) per affected vehicle. Although unlikely given previous penalty history, this would bring the total to $18bn (R47bn) for the 482 000 affected VW diesel vehicles that include the Jetta, Beetle, Audi A3, Golf and Passat, sold in the US since 2008.?
Nitrogen oxides (NOx) emission levels in the VW diesels fitted with the defeat device in the US, are 10 to 40 times higher than US emission standards, the EPA says. Volkswagen AG, however, communicates a vastly bigger problem: “Discrepancies relate to vehicles with Type EA 189 [diesel] engines, involving some 11m vehicles worldwide.”
VW says it has set aside €6.5bn (R99.7bn) “to cover the necessary service measures and other efforts to win back the trust of our customers”. Would winning back that trust extend to reimbursement for increased fuel costs and taxes as well as the difference in cost paid for a “greener” car? We will have to wait and see.
The tanking of its share price and the departure of Volkswagen AG CEO Martin Winterkorn is likely the beginning of a global fallout that could affect other brands like Audi and Porsche within the VW Group. The domino effect could spill over to the broader vehicle manufacturing industry as other car manufacturers come under the spotlight.
VW is not the only carmaker to have been embroiled in a defeat device scandal in the US. In the late 90s, both Honda and Ford had to cough up $267m and $7.8m respectively for fitting devices equipped to defeat the engines’ emission control system.
Yet to be unveiled is how South Africa is affected, as VWSA declined to comment. SA however conforms to a lower diesel emissions standard, Euro 2, an industry spokesman tells Finweek. “You cannot compare the very strict emissions standards in the US (Euro 6) with those that apply here in SA. The CO2 emissions dispensation and tax system in SA is based on European test cycle CO2 data, which is an internationally accepted standard.”
This is an excerpt of an article that originally appeared in the 8 October 2015 edition of Finweek. Buy and download the magazine here.
