Dieselgate - VW Emissions Scandal

VW Admits to Emissions "Defeat Device" on Diesel Autos, Resolution Reached with EPA & CARB

German automobile manufacturer Volkswagen admitted in the Fall of 2015 that 2009 – 2015 diesel powered VW, Audi, and Porsche vehicles sold in the United States were equipped with software that lowered emissions for testing purposes, hiding the fact that the cars produced up to 40 times more NOx emissions than allowed by the United States Clean Air Act during normal operation. The system is being hailed as a “defeat device”, which circumvented emissions tests by altering how an engine operated when it sensed it was being monitored. Owners of affected vehicles experienced higher performance and improved fuel economy on the road at the expense of greatly increased emissions of nitrous oxides.

VW, whom surpassed Toyota in 2015 as the world’s largest vehicle manufacturer by sales volume, has been a serious proponent of clean diesel technology and, until now, considered by many to be at the forefront of diesel innovation in the United States. As a result of the defeat device scandal, VW’s intentions in the industry have come into question and the company has prompted a sense of deep distrust from past and potential customers.

Affected models include the VW Beetle, Jetta, Passat, Golf, and the Audi A3 sold between 2009 and 2015. Nearly 500,000 estimated vehicles in the U.S. will need to be recalled and repaired to meet Federal and State (where applicable) emissions standards.

The California Air Resources Board reportedly identified the emissions anomaly in Volkswagen’s diesel cars during testing. For roughly a year, VW denied allegations that its vehicles were purposely designed to produce lower emissions during test procedures. The CARB shared its findings with the EPA, and it was not until VW’s 2016 model year emissions certifications were put on hold that the company decided to come clean and admit to the use of deceptive programming.

While Volkswagen's CEO in the United States, Michael Horn, maintains that he was unaware of any emissions compliance issues, Global CEO, Martin Winterkorn stepped down after accepting responsibility for the scandal but claiming that he is “not aware of any wrongdoing on my part.” Winterhorn hopes that removal from his position will grant VW a “fresh start.” Considering the depth and significance of the scandal, the company faces a long and difficult road to recovery.

VW’s “fresh start” will include severe penalties, and the company could face civil and criminal charges. Per the U.S. Clean Air Act, Volkswagen could face fines of up to $37,500 per affected vehicle. The fines are not likely to reach this amount, and it’s plausible that the actual penalty amount will depend on VW’s cooperation in the matter. Regardless, it’s estimated that VW could face up to 18 billion dollars in fines. Recalling and repairing affected vehicles could also prove costly; at time of publishing, Volkswagen’s recall strategy remains under development.

Volkswagen’s scandal has already caused ripple effects through the automotive industry. As a result of growing popularity, automakers have continued to expand the size of and scope of diesel offerings within their product lines over the past many years. Unfortunately, VW’s actions may slow growth within some sectors and disconnect diesels with the concept of being “clean” for years to come. The EPA has already issued a statement to automakers, warning that their vehicles may be subjected to more rigorous testing in the future. The diesel pickup market seems to have been untouched by news of the scandal, and we’re confident that manufacturer’s in this sector will continue to expand their reach as the demand for fuel efficient trucks increases. If VW never sells a diesel car again, however, we’ll understand why.

Update - January 15th, 2016

The California Air Resources Board (CARB) has denied a proposed recall plan from Volkswagen regarding repairs for the tens of thousands of VW cars that do not meet diesel emission requirements. The CARB cited that "the proposals do not adequately address overall impacts on vehicle performance, emissions and safety." The EPA has openly agreed with the CARB, and both organizations await an updated plan from VW that sufficiently addresses concerns with affected vehicles.

VW Reaches Partial Resolution with EPA & CARB

On June 28th, 2016, Volkswagen reached a partial settlement with the United States Environmental Protection Agency (EPA) regarding 2.0L diesel engines the company sold with defeat devices in order to circumvent emissions testing of 2009 to 2015 model year cars from VW and its affiliated brands. In total, the partial settlement is expected to cost Volkswagen $14.7 billion (USD).

As part of the settlement, Volkswagen must remove from the U.S. market or repair 85% of affected 2.0L diesel powered vehicles. Volkswagen must offer all owners and lessees of affected vehicles the option to buyback or terminate their lease, in addition to receiving monetary compensation for damages. If Volkswagen is able to develop a suitable repair that is approved by both the EPA and CARB (California Air Resources Board), Volkswagen is obligated to offer the repair free of charge to owners and lessees.

Volkswagen must also pay a $2.7 billion (USD) fine to be distributed through a trust in order to provide funds for NOx emission reducing actions. Additionally, Volkswagen is required to invest $2 billion to promote zero emission vehicles. The settlement comes following Volkswagens failure to establish a suitable repair for affected vehicles in the United States. The company is likely to face related penalties at the International level, as the scandal affects significantly more vehicles outside of the U.S.

A $1.18 billion (USD) settlement was also reached with the California Air Resources Board (CARB). From these penalties, $10 million is to be invested to improve defeat device detection services and improve emissions test procedures. $76 million will be directed towards the Attorney General's office in order to pay for the lengthy investigation following the scandal and cover costs related to the State's legal expenditures throughout the process. The remainder of the funds are to be used towards air quality programs and to increase the demand for zero emission vehicles within California.

Sources: California Air Resources Board, U.S. Environmental Protection Agency