VW Will Buy Back Your Cheating, Polluting Diesel

Between 2008 and 2015, Volkswagen sold 11 million cars containing software that detected when they were being tested for emissions compliance, and changed the engine settings to meet standards. The rest of the time, the cars went about spewing up to 40 times the legal limit of nitrogen oxides (NOx), which is linked to asthma and other respiratory problems.

It remains to be seen how VW will repair any vehicles that customers aren’t willing to unload, but the known options aren’t tantalizing. VW could tweak the software so the car delivers the emissions recorded during testing, but that would hurt fuel economy and performance. It could add a urea tank to the car, effectively eliminating NOx emissions. Doing so is expensive, though, and raises the question of where VW would install the necessary hardware.

It may be a “very costly solution, particularly given how much the company has already lost in terms of market value and sales,” says Kelley Blue Book analyst Karl Brauer, but it’s “a necessary part of the process and, as painful as it may be, VW has to address this issue before it can move forward.”

VW’s will feel pain in other ways. The DOJ plans to sue the company for violating the Clean Air Act, and the FTC is suing for false advertising. Customers and dealers have filed dozens of lawsuits. Civil fines could reach nearly $20 billion, and criminal prosecutions are a very real possibility. US sales have plummeted—down 15 percent in January, 9.1 percent in December, and 25 percent in November, according to Bloomberg.

Oh, and that’s just in the US—VW sold these cars just about everywhere. It’s impossible to know how much years of deception will cost the company, but one Credit Suisse report put its estimate at $86 billion. Eight months into the largest scandal in automotive history, the pain is just starting to sink in.

“The November sales results reflect the impact of the recent stop-sale for all 2.0L 4-cylinder TDI vehicles as well as for the 3.0L V6,” VW says, referring to the two engines involved in the scandal.

VW sold nearly 500,000 vehicles with the illegal software in the United States between 2008 and September 2015, when the EPA publicly accused the automaker of using an algorithm that detects when its diesel cars are being tested and changes their performance to meet emissions standards. VW could owe the EPA $18.2 billion in fines, to say nothing of the financial fallout from sales numbers this terrible.

This is the first clear sign of the undoubtedly serious damage VW will face in the US. (In October, sales actually rose .24 percent over 2014.) November sales of the Golf and Passat dropped by more than 60 percent, Beetle coupe sales fell nearly 50 percent. All three vehicles were previously available with the dastardly 2-liter TDI engine.

The EPA issued a second notice of violation of the Clean Air Act to Volkswagen today, accusing the automaker of using software to cheat emissions testing with 3.0-liter diesel engines in recent VW, Audi, and Porsche cars. The EPA says that covers about 10,000 passenger cars sold in the US since 2014, which were emitting up to nine times the legal limit of smog-produced nitrogen oxide pollutants in real world driving.

That’s on top of the 482,000 cars with “defeat devices” VW has admitted it sold in the US since 2008, all of which had 2.0-liter, 4-cylinder engines. Since the EPA can charge VW up to $37,000 for each instance of cheating, this new batch of cars could add $370 million to VW’s fines. That brings the potential total up to $18,204,000,000. Worldwide, VW has sold more than 10 million cars with the illegal software, and it’s unclear how fines and legal repercussions will play out in various countries.

“VW has once again failed its obligation to comply with the law that protects clean air for all Americans,” says Cynthia Giles, from the EPA’s enforcement arm. This new batch of cars includes the 2014 VW Touareg, 2015 Porsche Cayenne, and 2016 Audi A6 Quattro, A7 Quattro, A8, A8L, and Q5.

VW released a statement denying the allegation, saying “no software has been installed in the 3-liter V6 diesel power units to alter emissions characteristics in a forbidden manner.”¹

¹Updated November 3, 2015 at 10:53 EST to include Volkswagen’s response.

So how big of a deal is the Volkswagen cheating scandal? In terms of human lives cut short, 60 in the US alone, according a new peer-reviewed study in the journal Environmental Research Letters.

The study’s conclusions are in line with back-of-the-envelope calculations from the New York Times, Vox, and other news organizations when the news of VW’s emissions cheating first broke last month. What’s different, though, is that these MIT and Harvard scientists had a fancy pants computer model. And their calculations could carry some weight as VW faces fines and a criminal investigation into the software that allowed its diesel cars to pass emissions tests while emitting up to 40 times the legal limit of nitrogen oxides (NOx).

When Steven Barrett, an emissions researcher at MIT, heard about the cheating, he immediately thought it was a perfect use for the model he had been developing with colleagues for the last five years. Its name is, as these technical things tend to be, a mouthful: GEOS-Chem adjoint-based rapid air pollution exposure model. Instead of taking the number of affected VW vehicles and multiplying some factors to get an estimated number of premature deaths, the GEOS-Chem model allows scientists to estimate the impact of extra NOx in any 50 km by 50 km square of the world.

Specifically, it takes into account the population in a given area and the local climate. NOx interacts with chemicals in the atmosphere to form particulate matter and smog—a process that depends on sunlight and temperature. Those particles are the actual nasty stuff that cause lung and heart disease and, eventually, death. According to the model, the extra NOx from VW’s cars will cause about 10 to 150 (or a median of 59) people to die 10 to 20 years early. Hospital bills and other social costs add up to $450 million.

The study went from conception to publishing in a month—lightning fast by academic standards. And GEOS-Chem is a big part of that. Taking into account all those variables would have taken weeks using an old algorithm that also calculated a lot of irrelevant information, says Barrett. The team had developed GEOS-Chem as a way to provide “rapid response” to evolving policy conversations.

Whether this study will have an effect on VW remains to be seen. “The exact amount of the excess NOx emissions and the location of these emissions from the VW vehicles with the defeat device is a part of our ongoing investigation,” said an EPA spokesperson, “so we can’t provide specific estimates at this time.” VW did not immediately respond to a request for comment. 

The authors are now beginning to analyze the impact of VW’s emissions cheating in Europe—where diesel cars are even more abundant.

Meanwhile, VW’s newly chosen head of North America, Winfried Vahland, is leaving the company just two weeks after being designated for the post. According to a Reuters report, Vahland, who’s been running VW’s Skoda brand, is leaving over differences of opinion with the Board.

This week, VW announced it plans to recover from the scandal by increasing its focus on electric cars, including plans for a plug-in hybrid Phaeton sedan.

To figure out precisely how “cheat mode” changed those numbers, Consumer Reports hacked its way into a 2015 Jetta TDI and 2011 Jetta Sportwagen TDI, tricking them into thinking they were being tested by the EPA, then put them on the track.

According to CR, both cars added less than a second in the 0 to 60 mph time. The Jetta saw fuel economy drop from 53 to 50 mpg, and the Sportwagen went from 50 to 46 mpg.

Fortunately for owners, those aren’t dramatic changes. But that’s unlikely to stop the lawsuits or potentially crippling penalties that are coming for VW.

Beyond potentially give up an entire year’s worth of very valuable models in the US, the move indicates VW doesn’t really know how to fix this problem.

“The fix is not only too costly, but may not even be functional yet,” says Rebecca Lindland, a senior analyst at Kelley Blue Book. “If there was a software fix they would have implemented it long ago. This isn’t a simple matter of a recall or fixing a broken or compromised part. This is the entire powertrain, impacting the daily driving experience, not just in specific situations. This impacts the very foundation of the vehicle.”

This morning, the company announced it will begin recalling the 11 million diesel cars equipped with software that allowed them to cheat on and pass emissions tests, early next year. Most will be fixed with a software update, but others will require costly new hardware.

Mueller took over Volkswagen last month after previous CEO Martin Winterkorn resigned in the wake of the discovery that the company had cheated on emissions tests. Volkswagen has admitted to not only deliberately deceiving regulators by using software to circumvent inspections of many of its diesel cars. Ultimately, the problem affects some 11 million vehicles.

Unsurprisingly, the scandal will have serious financial repercussions for the company. Today, Mueller told the employees that many of the cars could be fixed by replacing the software, but others would need unspecified mechanical fixes.

Meanwhile, Volkswagen faces as much as $18 billion in fines from the EPA alone, and class action lawsuits are already piling up. The bigger problem, however, may be the ripple effect that massive layoffs could have on the European economy. Although the fallout from the scandal probably won’t kill Volkswagen, the worst is likely yet to come.

Volkswagen’s emissions cheating scandal is getting worse fast, and the executive board is in full-speed amputation mode to stop the spread of the damage.

Matthias Müller, the head of Porsche, will replace former VW CEO Martin Winterkorn, according to reports from The Wall Street Journal and Reuters.

German magazine Der Spiegel reports that the heads of R&D at VW, Audi, and Porsche, Heinz-Jakob Neusser and Ulrich Hackenberg, and Wolfgang Hatz, are also losing their jobs. Michael Horn, the head of VW’s US operations, is also getting axed, according to Automotive News.

Winterkorn resigned a few days after the EPA accused VW of using an algorithm that detects when its diesel cars are being tested and changes their performance to meet emissions standards. The rest of the time, the cars produce up to 40 times the legal limit of nitrogen oxides (NOx), the stuff linked to asthma and other respiratory problems. The accusation applies to 482,000 diesel-powered, four-cylinder cars in the US, and 11 million cars worldwide.

VW’s executive board said yesterday it expected “further personnel consequences in the next days,” and that “all participants in these proceedings that has resulted in unmeasurable harm for Volkswagen, will be subject to the full consequences.”

Müller, 62, has been running Porsche for nearly five years, in which time the sports car brand has greatly expanded its sales volume and profits.

Martin Winterkorn, the CEO of Volkswagen who resigned today amid allegations that the company cheated emissions testing for 11 million diesel-powered cars, stands to take home a $32 million pension.

Bloomberg Business reported the figure, along with the fact that the ousted CEO may also be eligible for two years’ worth of remuneration, if VW determines he was terminated for no fault of his own. Winterkorn made $18.6 million in 2014.

“As CEO I accept responsibility for the irregularities that have been found in diesel engines,” Winterkorn said in a statement. VW’s supervisory board said Winterkorn “had no knowledge of the manipulation of emissions data,” and thanked him for his “towering contributions” and “his willingness to take responsibility in this criticall [sic] phase for the company.”

Last week, the EPA accused VW of using an algorithm that detects when the car is being tested and changes its performance to meet emissions standards. The rest of the time, the cars produce up to 40 times the legal limit of nitrogen oxides (NOx), the stuff linked to asthma and other respiratory problems. The accusation applies to 482,000 diesel-powered, four-cylinder cars sold since 2008 in the US. Tuesday, Volkswagen said the software is present on 11 million cars worldwide.

Meanwhile, the EPA could fine VW some $18 billion for its violation of the Clean Air Act.

Following intense criticism in the wake of Volkswagen’s emissions cheating scandal, CEO Martin Winterkorn has announced his resignation.

“Volkswagen needs a fresh start,” wrote Winterkorn in a statement, “also in terms of personnel. I am clearing the way for this fresh start with my resignation.”

Winterkorn maintained that he is “shocked by the events of the last few days,” alluding to the discovery by the U.S. Environmental Protection Agency that Volkswagen had used software to cheat on emissions testing in its so-called “clean diesel” vehicles.

“Above all, I am stunned that misconduct on such a scale was possible in the Volkswagen Group,” Winterkorn wrote. “As CEO I accept responsibility for the irregularities that have been found in diesel engines and have therefore requested the Supervisory Board to agree on terminating my function as CEO of the Volkswagen Group.”

This announcement appears to be a change of heart for Winterkorn, who just yesterday released an apologetic video explaining how Volkswagen planned to proceed. Winterkorn, as The New York Times has pointed out, is the highest paid executive in Germany, with an annual salary of nearly $18 million. There’s no official word yet on who will replace Winterkorn, but reports have already surfaced that Porsche CEO Matthias Müeller is next in line for the job.

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The Volkswagen deception is now a global problem. The trickery is much bigger than VW first acknowledged last week when the EPA demanded that a half million diesel vehicles in the US be recalled. In an announcement today, VW says that the same engine software that skirts emissions tests in the US is installed on an estimated 11 million diesel cars worldwide. The “discrepancies relate to vehicles with Type EA 189 engines,” VW writes, which includes Audis, VWs, Skodas, and Seats. “A noticeable deviation between bench test results and actual road use was established solely for this type of engine.”

The whole release, which is currently not available on VW’s press site but was copied in its entirety by Jalopnik earlier this morning, is written in passive voice, never actually admitting guilt. Based on this language, Volkswagen could say an evil dragon installed the software without its knowledge, and it would not contradict any company language up to this point.

“To cover the necessary service measures and other efforts to win back the trust of our customers, Volkswagen plans to set aside a provision of some 6.5 billion EUR recognized in the profit and loss statement in the third quarter of the current fiscal year,” the company says in its release.

Rumors began flying this morning that CEO Martin Winterkorn will step down. VW quickly shot them down. The stock, which has been down since last week, is tanking.

This is a developing story.

The drop is a clear reaction to the fact that Volkswagen will now miss out on a key market in the U.S. and may well be slapped $18 billion in fines, according to Reuters.

Volkswagen CEO, Martin Winterkorn, for his part, has issued an apology, saying in a statement, “I personally am deeply sorry that we have broken the trust of our customers and the public.”