Volkswagen AG stock is down 23 per cent in a single day wiping out over USD 17.6 billion in market value. That is a lot of money by any standards in the world, but for Volkswagen AG it is just the start of the problem.The German carmaker may face a penalty of up to USD 18 billion, which then has to be compounded with the cost of rectifying the current cars and the fact that the sales of VW group diesel cars in US has been put on hold. And we still haven’t even taken into consideration the damage to the reputation and goodwill.
The problem started when a small clean-air NGO decided to independently test the emission of various cars in real-world conditions. While the test wasn’t conducted with malicious intent and done to prove that the small diesel cars can run cleanly, the actual result showed that the emissions from the VW cars were anywhere between 10 to 40 per cent higher. On further investigation from EPA (Environment Protection Agency), Volkswagen US admitted to using “defeat device” that detects emission tests and emits far lower than normal.
This affects all the Volkswagen and Audi diesel cars sold in the US with the 2.0-litre turbocharged four-cylinder TDI diesel engine starting from 2008. This particular engine is one of the most widely used engine in the Volkswagen group and affected cars include the Jetta, Passat, Beetle, Golf, Audi A3 and probably few others for a limited period of time. A total of over 4,82,000 cars with the aforementioned engine have been sold, each of which can attract a penalty of up to USD 37,500 after the inquiry.
The immediate effect of the finding is that Volkswagen has asked its dealers to stop selling cars, also since EPA is not granting the certificate for the 2016 models, even those will remain off the grid for the time being. In fact, even Volkswagen Canada has stopped selling the TDI models, as the environment agency in Canada is examining the EPA reports.
None of the above details mean that the diesel-powered VW cars are bad. It is just that these are not as environment friendly as the company claimed them to be, the nitrogen oxides emissions are higher than set by the US government. The entire issue is primarily about giving false information and finding a shortcut instead of actually working on lowering the emissions. The software would have saved lot of money for the company over the last few years, but the whole issue is now going to cost VW multifold.
Volkswagen US has admitted to being dishonest and will comply with the agencies on the investigation. There will certainly be monetary penalty after the investigation, but it might also lead to criminal proceeding against the company.
The company will issue a recall to rectify the problem, once they find a work around. The same 2.0-litre TDI diesel engine powers many of the VW, Skoda and Audi cars in India, but with the much lower BSIV emissions this will not affect our lives.