Is Volkswagen the Darth Vader of the automotive space and will clean diesel survive?

Was Greenpeace right about Volkswagen with its Darth Vader spoof in 2011? The environmental group lampooned VW’s TV commercial where a child plays Darth Vader. In the Greenpeace version, another group of kids dressed as Luke Skywalker and other “Star Wars” characters confront Darth junior. We find out that “Volkswagen is threatening our planet by opposing cuts to CO2 emissions. Join the rebellion.”

VW temporarily made right with the European Union after the social media buzz that came out of the Greenpeace campaign. Now VW and the entire auto industry faces much bigger questions: Is VW as evil as Darth Vader? Here are 15 points to consider for shaping your own opinion about it:

1. Bigger than GM recalls?: The scandal at Volkswagen started by the U.S. Environmental Protection Agency (EPA) issuing a recall for inaccurate emissions reporting on its diesel cars, appears to be turning into the biggest story to hit the automotive sector since General Motor’s historic massive vehicle recall. This story will be dragging out and is likely to draw in other automakers and government regulatory agencies around the world (especially in Europe).
2. New CEO in place: Matthias Mueller, president of Volkswagen’s Porsche brand, has been named CEO of VW. He’s replacing Martin Winterkorn, who previously had been expected to keep his job until the end of 2018. Winkerton is now the subject of a criminal probe being taken on by prosecutors in Germany. There’s been talk of an outsider coming in soon to take the reins – to address concerns over more VW executives being tainted by the scandal. Another option could be Mueller staying in place for now and overseeing an internal investigation and ouster of the management considered to be responsible for the diesel scandal. Porsche has done very well in recent years, earning close to three billion euros a year, and barely using any diesels for sales. It never used any of VW’s EA 189 engines that were said to have been manipulated to fool U.S. emissions tests.
3. VW losing No. 1 title?: VW is now Number One in global auto sales, having taken the title from Toyota. A full 25% of the vehicles it has sold in the U.S. in recent years are diesel-powered and those diesel sales figures are much larger globally. For example, less than half a million diesel vehicles are being recalled in the U.S., while 11 million may be recalled globally. That number may grow with more Audi models being added to the recall list. The recall and controversy are likely to bring down VW sales figures. The impact has been staggering with the company’s stock price collapsing, government agencies around the world launching probes, and some potential buyers putting their purchases of VW products on hold for now.
4. Critical importance of transparency and emissions reporting: The scandal highlights two major priorities in government policies around the world – transparency in reporting and reducing carbon emissions. It will take some time to determine how deep these problems run, but it’s already clear that VW has a major crisis to deal with. Some government officials are now calling for random roadside checks to avoid the possibility that VW and other automakers secretly developed software to play with the emissions testing process.
5. What EPA thinks about it: With the recall order, the Obama administration claimed the German automaker covered up the truth about its “clean diesel” models sold in the U.S. The EPA issued a notice of violation to Volkswagen, and accused the company of installing software in its cars known as “defeat devices” in 4-cylinder Volkswagen and Audi diesel cars from model years 2009-2015. EPA says the device was set up to only turn on emissions control systems when the car is undergoing official emissions testing; the controls are turned off during normal driving, when vehicles pollute far more heavily than reported by the OEM, according to EPA. The U.S. Justice Department has launched a probe into allegations Volkswagen intentionally rigged emissions tests of a number of diesel-powered vehicles sold in the U.S. market. VW diesels can emit up to 40 times pollutants allowed by current regulations, which is outraging owners.
6. What vehicles are included in recall: The recall, which won’t go into effect immediately and is awaiting detailed guidelines from EPA, affects 482,000 cars in the U.S., could eventually cost the company about $18 billion to repair, and could include a $37,500 fine per vehicle given to VW. Affected diesel models include the 2009-15 Volkswagen Jetta, 2009-15 Beetle, 2009-15 Golf, 2014-15 Passat, and 2009-15 Audi A3.
7. The Woodward and Bernstein who uncovered the story: The scandal was discovered for the EPA through independent researchers from West Virginia University, working with the International Council on Clean Transportation (ICCT). Peter Mock, Europe managing director of ICCT and John German, a senior fellow at ICCT, contacted West Virginia University’s Center for Alternative Fuels, Engines and Emissions to test a few of the VW diesel cars. As for who may play the Haldeman and Ehrlichman of VW’s Watergate-type scandal, VW Group has suspended Audi development chief Ulrich Hackenberg, VW brand R&D boss Heinz-Jakob Neusser and Porsche development head Wolfgang Hatz, Reuters reported; and don’t forget their Nixon, as previously mentioned about the former CEO Martin Winterkorn who faces potential prosecution in Germany.
8. This could be one piece of a larger puzzle: Automotive Digest Publisher Chuck Parker believes that this scandal will drag in other major automakers – and not just for Vader-like cover-ups. Automakers face a long list of demands from government agencies, consumers, and technology leaders (Google, Apple, etc.) to make these vehicles as clean and technology intensive as possible – with airbags, connected car systems, safety standards, emissions, accurate mpg reporting, etc. Parker thinks they would be wise to be honest and accurate about their mileage and emissions claims, and everything else in their cars – rather than being buried in a mess they didn’t need to create.
9. Death of “clean diesel?”: As for me, I would say that as this recall scandal gets dragged into next year, the future of “clean diesel” passenger vehicles will be shaken up. When you review diesel passenger vehicle sales in the U.S., you’ll see that the recalled models listed above make up a large share of diesel sales in the U.S. It’s likely this crisis will hurt clean diesel vehicle sales. BMW and Daimler immediately issued statements saying that their diesel cars are complying with EPA rules – implying that they’re being more trustworthy than their German competitor. VW’s turbodiesel direct inject diesel engines have been at the heart of its clean diesel lineup. The company was getting credit for its claims that the latest versions of the powertrain technology are boosting mileage, improving performance, and reducing emissions.
10. All eyes are on EPA: EPA has renewed its commitment to improve its testing and reporting methods for emissions on new vehicles sold in the U.S. The agency is “upping its game” to catch cheaters, EPA Administrator Gina McCarthy told reporters. It’s a similar situation to what EPA had been facing during 2013-14 on its mileage ratings. Ford has been forced to lower fuel-economy ratings twice, and Hyundai and Kia were also found to be overestimating gas mileage in EPA scandals. On Friday, the EPA sent a letter to vehicle manufacturers notifying them that the agency is adding to its testing additional evaluations designed to look for potential defeat devices.
11. Sustainability image tarnished: During the past month, Volkswagen AG had been named best in class for automotive industry sustainability by the Dow Jones Sustainability Indices. The diesel emissions reporting scandal is likely to tarnish that rating. Billionaire environmentalist Richard Branson thinks that VW’s recall should be a wake-up call to invest in clean vehicle innovations instead of fossil-fuel derived technologies.
12. True opportunity for other clean technologies: In light of Branson’s comments, I would think there is real opportunity for makers of hybrids, plug-ins, NGVs, propane-powered vehicles, hydrogen fuel cell vehicles, infrastructure suppliers, and producers of innovative alternative fuels like DME, renewable diesel, and RNG, to make the business case for investing in these technologies and fuels.
13. Wasted federal incentives: Taxpayers have given out $51 million in green car incentives to VW through tax credits. An article in the The Los Angeles Times claims the federal government gave out $51 million in green car subsidies directed at model year 2009 Volkswagen Jetta and Jetta SportWagen TDI diesel vehicles; they qualified for a $1,300 tax credit. An estimated 39,500 buyers took advantage of the credit, which added up to $51 million in subsidies.
14. VW experienced in scandals: About 10 years ago, VW faced another scandal. VW management was found to systematically circumvent compliance in a sex and bribes scandal that resulted in a 33-month jail term for the former head of the company’s workers council, Klaus Volkert.
15. Angry VW owners: VW owners have been expressing outrage for what the automaker has done. One of my colleagues forwarded me a voicemail that he’d left to his VW dealer (and to all of VW corporate) about his Jetta TDI that he’d bought from them. He wants to be compensated, along with a half million other Americans owning these VW models, for the “outrageous crime you have committed against us.”

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