The German automotive giant, number one globally in terms of sales, stands accused by US regulators of deliberately transgressing emissions standards and as a consequence investors are fleeing – shares are down 30% – and the world’s media has Wolfsburg’s behemoth firmly under scrutiny.
To recap, the US Environmental Protection Agency (EPA) is issuing a notice of violation of the Clean Air Act to Volkswagen, alleging that certain four-cylinder Volkswagen and Audi diesels built between 2009-2015 contain a so-called defeat device, an algorithm in the engine control unit (ECU) that identifies when a vehicle is on a rolling road for emissions testing and then puts the vehicle into a lower-emissions mode. Authorities in California are also investigating Volkswagen’s alleged manipulation of emissions tests.
An estimated 11 million vehicles fitted with EA 189 engines are affected worldwide and the company has set aside €6.5bn to cover any legal action taken against it.
Some commentators estimate that Volkswagen will be stung to the tune of $18bn should certain further actions be taken against the company, which is said to be convening an executive meeting today to discuss the crisis.
Two points of order that are emerging from this sorry state of affairs revolve around overall tailpipe emissions testing and whether Volkswagen can recover. In the US, a manufacturer conducts in-house tests and sends the results to EPA, which decides whether to accept them or test the vehicle itself. In the UK, the situation is different with tests carried out in a government-approved test facility, with a government-appointed independent witness overseeing proceedings.
Tests on both sides of the pond, however, are conducted on a ‘rolling road’ and the vehicle is fitted with equipment to measure emissions. Failure to meet emissions standards, be they here or in the US, have clear consequences for the manufacturer, especially if it is able to manipulate the test scenario to give test vehicles a lower emissions footprint.
The rules clearly need to be changed to help provide more accurate emissions data and this is happening is Europe with EC-approval pending for a new emissions test that embraces new testing technologies, and which is more representative of on-road conditions.
After all, manipulating NOx et al output is of no help to governments that use such data from automotive companies to set air pollution standards, only to find that on road emissions and emissions from a test bed are markedly different.
Scotiabank’s Global Auto Report notes that passenger vehicle sales in North America have advanced by 5% year-on-year through July 2015, and full-year volumes will surpass 20 million units for the first time. In western Europe, car sales accelerated to an 8% year-on-year increase in the first half of 2015, and will approach a full-year total of 13 million units for the first time in five years. That amounts to a lot of tail pipe emissions by anyone’s standards.
And what of Volkswagen and its cynical manipulation of emissions testing? History shows us that large automotive companies have weathered storms far worse than this, albeit largely in the days before 24/7 media scrutiny and the advent of Twitter, which – rightly or wrongly – is fast becoming a tool to bring about change by people organising themselves into consumer pressure groups.
Millions of well-meaning Volkswagen owners may have made the decision to buy their diesel vehicle in the hope that they were lowering their personal GHG emissions footprint, only to find that they’ve been duped. In terms of brand reputation this is nothing short of disastrous but it should serve the big corporations a lesson in not underestimating how much heed the wider public is making toward environmental custodianship. And if that doesn’t work, there’s always the proposed fines of $37,500 per vehicle that are likely to be imposed on the company, plus the sobering downward spiral of stock which by some estimates is now over 35 per cent.
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