Volkswagen prepares for its toughest year ever as the emissions reporting scandal continues

VW former CEOVolkswagen AG is facing a catastrophe that will probably take years to recover from. The outcomes of government agency rulings, recalls, and class-action lawsuits will tap into VW’s cash reserves – and will dictate its future strategic planning. It’s the “perfect storm” as automakers compete to dominate global markets; compliance with national emissions standards, for the most part, is being enforced; OEMs face unattainable expectations on advanced technology innovations; and consumers expect major corporations to live with a fairly high level of accountability and transparency.

Opinions shared by VW vehicle owners, fleet operators, regulators, political leaders, and automotive analysts will also play its part in the outcome. As for now, here’s the latest significant developments on VW’s challenges:

  • EVs and charging could be a solution: As part of its ongoing talks with VW on fixing the diesel vehicle reporting problem, the U.S. Environmental Protection Agency has asked the German automaker to produce electric vehicles in the U.S. as a way of making up for its emission testing and reporting violations. This news came from German newspaper Welt am Sonntag, which reported that the EPA was asking VW to produce electric vehicles at its plant in Chattanooga, Tenn. Another layer to the settlement would be VW helping build a network of charging stations for electric vehicles in the U.S. It wasn’t clear whether this resolution would come from current VW models or new ones that would be introduced to the market. The automaker and EPA declined to comment. “Talks with the EPA are ongoing and we are not commenting on the contents and state of the negotiations,” a VW spokesman said.
  • Facing EPA and CARB scrutiny: Earlier this month, VW submitted its draft recall plan for about 85,000 VW, Audi and Porsche diesel vehicles to the U.S. Environmental Protection Agency and California Air Resources Board. CARB rejected VW’s plan in January to fix these vehicles. CARB said the plan did not meet its standards and called it “unacceptable.” On Feb. 3, CARB said that it had up to 20 business days to test if the revised plan actually reduces emissions; and the EPA will probably back CARB’s decision. If the new plan is accepted, VW could begin a recall and end the stopped sale of vehicles with these engines.
  • “Denial” and “obfuscation” continue to be commonly used words to describe VW’s state. Former Volkswagen Group CEO Martin Winterkorn (as seen in the photo above) may take more of the blame, as has been expected. Media has reported that Winterkorn was notified as early as May 2014 about the inevitable investigation U.S. authorities would put in motion on the diesel car emissions-test defeat device placed in several VW, Audi, and Porsche models. Volkswagen internal memos and emails suggest that Winterkorn and other company executives pursued a strategy of delay and obfuscation. The automaker would not be able to provide an explanation for elevated nitrogen oxide emissions and deceptive emissions reporting data. Winkerton resigned on Sept. 23, 2015, and said at that time that he didn’t find out about the defeat device until right before the company’s response to EPA’s recall announcement.
  • Class-action lawsuits: Dozens of class-action lawsuits filed nationwide on behalf of hundreds of thousands of angry Volkswagen owners, dealers, and other parties have been centralized in San Francisco federal court. Attorneys have been in communications on the best strategy to hold VW accountable in a case with billions of dollars at stake. It’s considered to be in the process of becoming one of the most massive legal assaults in U.S. history. All of the cases against VW have been assigned by a special national panel to San Francisco U.S. District Judge Charles Breyer.
  • Daimler is facing its own accusation that it utilized a shut-off device in emissions testing. The German automaker said that a U.S. class action lawsuit alleging that its Mercedes-Benz diesel cars use a device that turns off pollution controls is inaccurate. Consumer-rights law firm Hagens Berman Sobol Shapiro filed a lawsuit in a federal court in New Jersey alleging that Mercedes has placed a shut-off device in its BlueTec “clean diesel” cars that causes the vehicles to violate U.S. emissions standards when running at cooler temperatures. Daimler spokesman Joerg Howe said the company is complying with regulatory frameworks and all its vehicle are certified according to all the laws that it’s required to comply with. Daimler may be going in a similar direction as VW in cleaning up its image as a responsible, sustainable company. VW may need to manufacture more EVs in the U.S. as part of its EPA settlement. Daimler just decided that its executives must drive a battery electric vehicle or plug-in hybrid vehicle at the Stuttgart, Germany headquarters. These will be their company cars and it’s thought to be part of Daimler’s strategy to give its management more experience with plug-in electric vehicles.
  • Former General Motors vice chair Bob Lutz says that years ago he and his colleagues had been mystified at VW’s ability to build diesel cars that could pass stringent emissions tests. When Lutz served as GM’s “car czar” from 2001 to 2009, he had GM engineers analyze Volkswagen’s TDI models to see how the German automaker managed to meet U.S. emissions standards. Lutz wanted GM to sell more diesel cars in the U.S. GM staff couldn’t figure out how VW was able to meet the particularly strict standards in California, Lutz said. GM and its competitors wanted to build fuel efficient cars with strong engine performance; but they left diesel passenger cars to VW to take the lead. Lutz has always supported plug-in hybrid electric vehicles (such as the Chevrolet Volt and Via Motors vehicles).
  • Global sales: VW had been aiming to retain its number one spot in global auto sales, but that took a sharp turn after the news broke out in September. There’s been a lot of media coverage recently with a humorous twist. Car sales may be down, but wiener sales have gone up. Last year, VW’s car deliveries fell about 5% from 2014 to 5.8 million units; during that year its currywurst wiener output climbed 14% to 7.2 million sausages. Beyond that story, here’s the numbers on VW’s sales performance: In January, according to figures released by the European Automobile Manufacturers Association, overall new car registrations in European Union nations rose 6.2% while registrations of VW-brand vehicles fell 3.8%. VW brand’s market share in the EU fell 1.2 points year over year, to 11.7%. VW still has the commanding lead in the EU and its Audi brand did well, increasing 13.7% in January. Its sales fell 7% in the U.S. in January after the automaker had to halt sales of several models over the scandal. The automaker’s global sales rose 3.7% in January, as it still holds a strong position in a few overseas markets, especially China. The automaker sold 847,000 vehicles worldwide in January, up from 817,000 in the same month a year earlier.
  • Diesel car sales: VW and Audi diesel car models had been dominating diesel passenger car sales in the U.S., but that’s taken a downward turn since September. In January, automakers sold fewer than 225 diesel cars compared to somewhere between 4,800 and 9,500 a month through the first eight months of 2015, according to Diesel-engine pickups are still doing pretty well (which GM and Chrysler had been counting on). Automakers sold 21,999 diesel light-trucks in January.
  • Taking the heat in South Korea: South Korean government prosecutors raided and searched VW’s Seoul headquarters and other South Korean offices. Computer hard drives, emails exchanged with headquarters, emissions verification, and vehicle certification information were confiscated by investigators during the search. The homes of VW executives in charge of product quality control were also raided. “We have made (it) clear that we will fully cooperate with the investigation and our position remains unchanged,” a Volkswagen spokesman told the AFP news agency.
  • VW has indefinitely postponed its fourth-quarter and full-year 2015 earnings reports as it scrambles to adjust its financial reporting to include the spiraling costs of the scandal. Some analysts are speculating that CEO Matthias Mueller is working behind the scenes to get to a settlement with the U.S. government that VW can charge against its 2015 earnings. The idea is that these negotiations could help get the company past the scandal more quickly – and it could help speed its efforts to recover its reputation with consumers around the world. That’s a very tall order for VW to face.

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