Dieselgate, Two Years on, Volkswagen Still in Trouble

On September 18, 2015 the U.S Environmental Protection Agency (EPA) found and reported that the Volkswagen Auto Group was in violation of the Clean Air Act that went into effect in 1963. The world’s largest automotive manufacturer includes the brands of Audi, Volkswagen, Bentley, Lamborghini, Bugatti, Porsche, and six more brands. Over the course of the investigation it was discovered that all vehicles that use their 2.0-liter and 3.0-liter V6 diesel motors were in violation of emission control standards.these cars were produced from 2008 to 2015 and the investigation affected 550,000 vehicles in the US and 11 million worldwide. As a result a $14.7 billion settlement followed to the owners and to cover any environmental damage. Along with the settlement they were forced to recall all of the vehicles affected. To put that number in perspective, Volkswagen is projecting to make $15.5 Billion in profit in 2017, up 14 percent from 2016.

Where does this put VAG? As a result they were forced to stop sale of all diesel vehicles in the US and Europe. Diesel vehicles make up about 20 percent of sales just for the Volkswagen brand alone. However, outside of diesel, VAG is the world’s largest automotive manufacturer holding 13.55% of the total market share in 2014. The VAG is closely followed by Toyota with 12.19% of the total market share. From 2015 to 2016 VAG saw a sharp decrease in sales as expected, however in 2016 and predicted sales for 2017 both are increasing and surpassed levels in 2015, pre-scandal. The company has shown impressive resilience in the past years despite such a big loss. VAG as a whole, even though the scandal hit 3 of their 12 major brands, was hit surprisingly hard; there is speculation that they might sell off some of their “extra” brands. 2 years after there doesn’t seem to be any sign that this sale will actually go through.

What does all this mean for diesel motors in small cars for America and the rest of the world? Volkswagen, Audi, BMW, Chevrolet, and Jaguar are the only companies that offer diesel motors in a sedan in the US, with the majority of these cars coming from VW and Audi. With the removal of six VW models, six Audi models, and one Porsche model, only a hand full of other options remain for US consumers that want a diesel motor in a small car. There is currently a lot of speculation on whether or not VW will return to the US with diesel cars in the coming years. But it looks very unlikely that we will see a diesel motor under the VW, Audi, or Porsche brand for a few years. Even the current CEO of the Volkswagen brand has said there is possiblilty of TDI (clean diesel motors designed by the VAG) in 2018-2020. But emissions regulations are tightening in 2020 which will prove to be another road block in VAG’s diesel production.

Even two years after the emissions problems went public, there are still problems coming out of VAG. Ferdinand Piëch, an exectutive for VAG told German prosecutors that people within the company knew about the problems with their diesel motors in March 2015, a full 6 months before the EPA informed Volkswagen of the problems and the story made headlines. Piëch said in testimony that he informed the steering committee for VAG’s Supervisory Board as soon as he knew, but the board did nothing with this information. VAG’s shareholders are in German court trying to find out how long the company knew about the problems with their diesel motors. Piëch’s testimony in early Febuary 2017 could lead to another hard hit to the company and its stock value. Volkswagen responded to the testimony strongly denying all of the statements that Piëch made and even threatened legal action against Piëch. Stephan Weil, prime minister of Volkswagen 20% shareholder Lower Saxony, who is on the steering committee, even called the testimony and reports “fake news”. He stated that Piëch was just attempting to take his revenge for being removed from his chairman post from the company in April 2015. This break in the court case comes at a time when Volkswagen is already in trouble with the company’s workers union, who say that management broke a pact they had with the unions to make their cars more profitable so the workers could have more confidence in their own job security.

Volkswagen now has made the first settlement for car owners and has begun to take the cars back and pay out their market value to the customers. They gave the owners two options, either buy the car back completely or get the car fixed so it will meet emissions standards and lose power and milage. The majority of people are taking the full buy back; once VW gets the vehicles back we’re not really sure what they’re doing with them. No matter what happens with VAG and they’re emissions cutting cars it is clear that diesel motors in America are no longer trusted by consumers. Even with all the advantages of the motors it is unlikely that American consumers will trust them again, especially now that gas engines are improving and electric cars are becoming more and more popular.



The Future of Jobs

Economies of Scale(s)