This week an all-too-familiar scene played out on Capitol Hill — another executive of a major auto manufacturer was called before a congressional panel to answer for alleged corporate misdeeds. Volkswagen’s top US executive, Michael Horn, testified Thursday it was his belief that “a couple of software engineers” were responsible for the emissions-testing defeat devices on nearly 500,000 diesel engine Volkswagen Group cars sold in the US, and not a top-down conspiracy originating in the upper echelons of VW’s management.
Horn testified he first heard of possible emissions-compliance problems as early as the spring of 2014, but insisted he was unaware of any pervasive corporate attempt to evade emissions testing of VW diesel-engine cars. He said he found out about the devices when VW made a presentation explaining their use to regulators in early September.
Volkswagen’s use of software to cheat on emissions testing could affect up to 11 million vehicles, and the details as to the costs of the company’s actions are just starting to trickle in. Volkswagen has said it has set aside $7.3 billion to address the issue, but new VW CEO Matthias Müller has suggested the actual costs could surpass that figure.
The full scope of the recall of all affected Volkswagen Group vehicles is not yet known, but it will be the largest recall in company history. VW hopes the European recall will be underway by January 2016 and be finished by the end of the year. Details regarding the US recall are pending approval by the EPA.
In some cases, a software update will fix the problem, but on other models the repair is more complicated and may require new fuel injection equipment, catalytic converters, or other fuel/exhaust system modifications. Because of differences in engine calibrations and regulatory variations across markets, Müller has said the number of potential solutions reaches into the thousands.
The legal fallout stemming from the VW scandal is mounting by the hour. At least 34 US federal lawsuits have been filed from individuals claiming their vehicles are less valuable as a result of VW fudging emissions tests. Many of the suits are class-action. At least one German consumer has lawyered up, and other European drivers of affected VWs are expected to do the same. Harris County, Texas, and the City of Dallas have both filed suits claiming the company violated air-quality standards.
The attorney general of West Virginia is suing VW on behalf of consumers who the state alleges were hoodwinked by Volkswagen. At this rate, VW could face lawsuits in most legal jurisdictions on Earth where an affected vehicle has been sold since 2008. VW also faces about $7 billion in potential EPA fines, as well as additional financial penalties by regulatory and government agencies around the world.
Other carmakers have been quick to kick VW while it’s down. Through its dealers in Europe, Ford Motor is offering financing incentives of up to $2,000 to buyers who are willing to trade in their VW or Audi diesel for one of Ford’s models. Fiat Chrysler is offering a similar deal to consumers in Italy.
In less than a month since the news of the scandal broke, the value of used VW and Audi diesels has fallen by an average of 13%, according to Kelley Blue Book. Smelling blood in the water, all the major carmakers are likely to join in the feeding frenzy to take a bite out of VW’s market share, especially in Europe where it dominates the passenger-car market.
It’s too early to tell how long it will take for VW to recover from the emissions cheating scandal, and the damage to the VW brand is hard to quantify. Nonetheless, someone has done just that. According to Warburg Research, the total costs for the crisis — including lost revenue, expenses, and brand damage — are estimated to be about $39 billion. That figure represents more than 65% of Volkswagen’s current market capitalization.
James Bryant is an industry editor for Dun & Bradstreet. Based in Austin, Texas, he writes about issues affecting the global manufacturing sector. He’s been the company’s specialist on the auto industry for 15 years.