Things are going from bad to worse for Volkswagen and its associated daughter brands. Last Friday, the U.S. Environmental Protection Agency officially announced it was fining the German automaker for building and selling some 480,000 diesel cars in the U.S. which contained software specifically designed to purposely cheat tight emissions legislation under the Clean Air Act.
Four days later with the non-compliant software believed to be in more than 11 million vehicles worldwide, VW is rumored to be facing more than $18 billion of fines in the U.S., is steadily racking up fines in other key markets around the world, and is now the subject of a full-scale criminal probe from the U.S. Department of Justice.
As we explained on Friday, the software in question resides in the main Electronic Control Module (ECM) on affected cars, and uses input from the steering wheel and other subsystems to determine if the car is being tested on a dynamometer test rig or if it is being driven normally. If the car believes it is strapped to a dynamometer, the ECM ensures that the engine is run in a particularly lean setting to ensure that emissions (specifically Nitrogen oxides or NOx) are kept within regulatory limits. If the car believes it is driven normally, it increases fuel injection and other engine parameters to produce more power. Doing so pushes the vehicle’s NOx emissions to as much as 40 times the legal limit for the U.S.
The code, admitted Volkswagen to the U.S. EPA last week, was purposely written to bypass emissions regulation.
That revelation has driven shares in Volkswagen to plummet. Indeed, with shares worth 37 percent less than they were on Friday morning when the story broke, VW CEO Martin Winterkorn is struggling to save face — and Volkswagen’s press machine is working overtime.
Two days ago Volkswagen halted all U.S. sales of affected 2.0-liter diesel cars, including the 2.0-liter Passat sedan and Golf hatchback. But despite the number of vehicles affected by the problem growing on a daily basis, Volkswagen issued a new press release this morning maintaining that not all of its diesel vehicles are programmed with the EPA-violating code. Certain European models, it said, aren’t affected by this scandal.
“New vehicles from the Volkswagen Group with EU 6 diesel engines currently available in the European Union comply with legal requirements and environmental standards,” Volkswagen’s latest press release stated. “The software in question does not affect handling, consumption or emissions.”
Yet while Volkswagen maintains that many of its newest diesel engines in Europe contain no violating code, there’s significant pressure on the automaker to explain its actions. And as with any major scandal at a major corporation, VW is working hard to ensure the board are not implicated in any investigations.
Speaking earlier today in a pre-recorded video released on Volkswagen’s media website, Winterkorn admitted that the board does not yet have all of the answers to all of the questions concerning the EA189 engine at the centre of the controversy.
“I don’t have answers to all the questions as this moment. We are going to clarify the background unsparingly, and at this very moment, everything is being put on the table as quickly, thoroughly and transparently as possible.” he said, reiterating an earlier statement from the automaker which stated that “it is and remains the top priority of the Board of Management to win back lost trust and to avert damage to our customers.”
But while Winterkorn and Volkswagen now admits that the problem exists — and more importantly that someone at Volkswagen is responsible for the problem — Winterkorn was also keen to reiterate that Volkswagen the automaker shouldn’t be treated badly.
“The irregularities with these engines contradict everything for which Volkswagen stands. We want to continue to work closely with the relevant state departments and authorities,” he said. “I am well aware that much is now questioned. I understand that. But it would be wrong if the hard and honest work of 600,000 people comes under general suspicion because of the bad mistakes of a few. Our team does not deserve this.”
Earlier today, Volkswagen said that it was setting aside a total of €6.5 billion to fund the various fines and penalties it stood to suffer as a consequence of the scandal, issuing an official profit warning at the same time.
But with a full scale criminal investigation under way in the U.S. and countless customers expected to take their own legal action against the automaker as a consequence of buying a car which isn’t the clean, environmentally-friendly car they thought it was, Volkswagen will likely never be the same again.
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