VW environmental scandal biggest to hit major automaker

David Shepardson
Detroit News Washington Bureau
The VW Logo is photographed at a car at the Car Show in Frankfurt, Germany, Sept. 22, 2015. Volkswagen has admitted that it intentionally installed software programmed to switch engines to a cleaner mode during official emissions testing. The software then switches off again, enabling cars to drive more powerfully on the road while emitting as much as 40 times the legal pollution limit.

New York — Volkswagen AG faces the most expensive auto industry crisis in history, as it disclosed Tuesday that 11 million diesel vehicles worldwide may have evaded emissions rules.

The German automaker said it has set aside at least $7.3 billion to cover the massive costs — and warned it could go higher — as it faces up to $18 billion in fines in the U.S. alone for programming its cars to allow up to 40 times the allowable smog-forming pollution.

As new investigations are being launched around the world, the scandal has now become the biggest environmental controversy to hit any major automaker. Its bill is expected to far surpass the price tag for Toyota Motor Corp.’s sudden acceleration crisis ($3 billion), General Motors Co.’s ignition switch saga (at least $2.35 billion) or Ford Motor Co.’s recall of millions of unsafe tires ($3 billion).

VW’s stock sank another 21 percent Tuesday, falling to a four-year-low after dropping nearly as much Monday. The drops have caused a $30 billion loss in market value this week.

VW CEO Martin Winterkorn apologized again in a new video message posted Tuesday. He showed no signs he will step down and suggested he was unaware of the issue previously. “I am endlessly sorry that we betrayed the trust of customers,” he said, vowing “swift and comprehensive clarification.”

But with an emergency VW board meeting set for Wednesday, some observers think Winterkorn will be forced to resign.

Winterkorn vowed to fix the problems and said they go against everything the company stands for. “I also do not have all the answers to all the questions, but we are working hard to find out exactly what happened.” Noting VW has 600,000 employees worldwide, he blamed the problem “on the terrible mistakes of only a few. ... We will get to the bottom of this.”

The EPA says the automaker evaded federal emissions requirements in diesel cars by writing software that activates anti-pollution controls only during testing. In Washington, Environmental Protection Agency chief Gina McCarthy said Tuesday the government believes VW is an “outlier” — even as the agency moves to add new measures to crack down on cheating by automakers.

The Detroit News reported Friday the EPA is investigating whether other diesel vehicles are using similar “defeat devices” to evade pollution rules.

The scandal has prompted numerous lawsuits by owners, an upcoming Congressional hearing, a criminal investigation by the Justice Department and probes around the world, including by the European Union, South Korea and Germany. Investigators are now looking to learn if VW, or a supplier, wrote the sophisticated computer code — and whether other automakers have used similar code to evade rules.

New York Attorney General Eric Schneiderman said Tuesday that a multi-state investigation into VW has been opened. A spokeswoman for Michigan Attorney General Bill Schuette would not comment.

Sen. Bill Nelson, D-Fla., asked the Federal Trade Commission to open an investigation into whether VW had deceptively marketed the cars. “I am outraged that VW would cheat its customers by deceiving them into buying a car that wasn’t what was advertised,” he wrote.

The automaker’s admission that the problem goes far beyond 482,000 2009-15 diesel cars sold in the United States means that vehicles around the world with the automaker’s EA 189 diesel engine — including Audis and Seats — emitted more pollution than was believed.

The Guardian, the British newspaper, estimated that the diesel emissions rigging could account for nearly 1 million tons of excess air pollution every year — about the same as the United Kingdom’s “combined emissions for all power stations, vehicles, industry and agriculture.”

In Germany, Chancellor Angela Merkel said to reporters, “In view of the difficult situation, it is now key to show full transparency and clear up the entire matter.”

The issue came to light after researchers noticed discrepancies in emissions last year and began investigating.

The EPA’s director of the Office of Transportation and Air Quality, Chris Grundler, told The Detroit News on Monday that the EPA would also take a new look at larger VW diesel engines in several Audi luxury models and the Porsche Cayenne.

VW likely will be required to take expensive steps to eliminate emissions. In previous cases, automakers have been required to pay to offset prior emissions. It may also face costs because U.S. taxpayers also gave millions of dollars in credits for people to buy clean diesel cars.

The scandal threatens VW’s aggressive growth plans in the United States, including its vow to triple sales over a decade by 2018 to 1 million VW and Audi brand vehicles here. Nearly a quarter of VW brand sales in the United States are diesel-powered.

VW has billed the vehicles as “clean diesel” and staked much of its compliance strategy with U.S. fuel efficiency rules with diesels. It unsuccessfully lobbied for additional credits from EPA in the last round of fuel-efficiency hikes.

It’s not clear whether VW can fix the problem through a software upgrade or must make a more expensive mechanical fix to address emissions. It’s also not clear what gain VW got by evading the rules: Most analysts say either VW wanted a boost in fuel efficiency or sought to avoid a more expensive emissions fix.

On Monday night, VW went ahead with a fancy party in Brooklyn to unveil its 2016 Passat amid a lower-key atmosphere than planned. The automaker fed reporters and invited guests chocolate-dipped bacon, mini crab cakes and rum-spiked apple cider. VW paid more than $200,000 for singer Lenny Kravitz to entertain, but all of the company’s executives skipped the party.

VW’s top U.S. official, Michael Horn, said that the company had made a serious mistake and would “pay what we have to pay.”

“Let’s be clear about this: Our company was dishonest — with the EPA and the California Air Resources Board — and with all of you,” he said. “And in my German words: We totally screwed up. We must fix those cars,” he said.

He introduced the Passat and marched off stage into a waiting car without taking questions. Two German executives canceled a scheduled roundtable with reporters.

Standing next to a VW Passat, Kravitz played “It Ain’t Over ’til It’s Over,” the 1991 hit that probably is an apt metaphor for what the German automaker faces in the coming months and years.