Vehicle owners affected by the recent Volkswagen/Audi emission scandal may have a nasty surprise in store when they get their recall notices. Many of the potential fixes Volkswagen has outlined could impact acceleration, fuel economy, and even trunk space in the cars covered by the recall.
In September, Volkswagen admitted to a brazen scheme in which it used software to manipulate emissions test results for its "clean" diesel vehicles, taking advantage of weaknesses in U.S. EPA testing procedures.
"Let's be clear about this," said Michael Horn, president and CEO of Volkswagen Group of America. "Our company was dishonest."
Some 500,000 vehicles in the U.S. (and 11 million worldwide, roughly 20 percent of the company's passenger fleet) were loaded with illicit software. The company has set aside $7.2 billion to cover the anticipated costs of the recall.
The EPA issued a notice of violation of the Clean Air Act (CAA) to Volkswagen AG, Audi AG, and Volkswagen Group of America after the company copped to the software switch.
“Using a defeat device in cars to evade clean air standards is illegal and a threat to public health,” said Cynthia Giles, assistant administrator for the Office of Enforcement and Compliance Assurance at the EPA. “Working closely with the California Air Resources Board (CARB), EPA is committed to making sure that all automakers play by the same rules. EPA will continue to investigate these very serious matters.”
EPA and CARB uncovered the problem after independent analysis by researchers at West Virginia University, working with the International Council on Clean Transportation, raised questions about emissions levels. In September, after EPA and CARB confronted the company and threatened to deny its 2016 model emissions certifications, Volkswagen admitted that the cars contained defeat devices.
The affected models include the 2009-2015 Jetta, Beetle, and Golf; 2014-2015 Passat; and the 2009-2015 Audi A3.
VW's admission prompted National Highway Traffic Safety Administration (NHTSA) chief Mark Rosekind to say that his agency would take a harder look at all automaker claims, particularly where self-certified testing is involved. At a recent Auto Industry Action Group conference in Detroit, he told attendees "You don't have to say 'was that a lie?' You just have to challenge every assumption when information is provided."
The EPA, meanwhile, plans to strengthen its own emissions testing, and announced an audit of every current make and model of light-duty diesel passenger vehicle to confirm emissions information.
VW and Audi could face penalties as high as $18 billion. Hyundai and Kia were previously penalized $300 million in 2014 for fudging fuel economy and emissions data.
According to the U.S. EPA, the software was designed to recognize when the vehicle was being tested on a dynamometer (an automotive treadmill), and then command the emissions control systems to operate at their maximum effectiveness. That would bring the vehicles into compliance with U.S. and California emissions standards. Afterward, the systems would switch to a different mode and increase emissions by as much as 40 times.
No easy solutions
The Volkswagen emissions recall poses a dilemma for the automaker and drivers in that the potential fixes could reduce the vehicles' fuel efficiency. In an industry that is already challenged to get consumers to complete recalls, issuing one that could potentially degrade vehicle performance is a tall order.
The company is working on a technical fix that can remove the software without affecting performance. A total of 488,000 VW and Audi vehicles with four-cylinder engines were recalled, and the automaker told dealers to stop selling those diesel models.
During testimony before the U.S. House of Representatives Energy and Commerce Committee, North American CEO Horn outlined several possible fixes, most of which involve up to five to 10 hours of labor per car. Most will require a full replacement of the emissions control system.
Roughly 430,000 of the older model vehicles will require hardware upgrades that could include a urea SCR tank and a new catalytic converter. About 90,000 2012-2015 Passat sedans will require a software fix only, but will have to wait until later in 2016 for the repair. Another 70,000 vehicles only require a software fix that could be available as early as the beginning of 2016.
The software fixes, however, could reduce fuel economy and/or torque. That could put VW in the crosshairs of additional lawsuits. When Kia and Hyundai downgraded their fuel economy ratings, they paid a $395 million settlement to drivers to compensate them for higher fuel costs. VW is already the target of 230 class action suits in the U.S.
The urea tanks, meanwhile, will cost thousands of dollars to install, require periodic urea refills, and could eat up space in the trunk of the car. The hardware upgrade also undercuts VW's clean diesel pitch, which was based in part of the idea that they had eliminated the need for urea in the system.
Volkswagen's CEO, Martin Winterkorn, resigned in October, and the company's share price dropped by 25 percent. In his testimony on Capital Hill, VW's Horn said that three unnamed employees had been suspended for their role in the scandal.
The company also withdrew its U.S. applications for emissions certifications for its 2016 model vehicles, which has left dealers with no new diesels to sell. Dealers are also holding inventory of cars affected by the recall that they are not allowed to sell.
VW claims the recalls will begin in January and should be complete by the end of 2016. In early October, new CEO Matthias Muller told employees that an action plan had been created and customers would be informed about necessary upgrades.
He also addressed concerns about the financial state of the company. As a result of the scandal, VW will likely shift its sales and development efforts. VW formed a special Volkswagen Brand Board of Management that announced a reorientation of the company's diesel strategy to focus strictly on selective catalytic converter (SCR) and AdBlue (urea) technology, along with an increased focus on plug-in hybrids and all-electric vehicles.
There were also concerns that the financial toll could spread to the rest of the German economy.
"While the technical solutions to these problems are imminent, it is not possible to quantify the commercial and financial implications at present," Muller said. "That is why we have initiated a further critical review of all planned investments. Anything that is not absolutely necessary will be cancelled or postponed. And it is why we will be intensifying the efficiency program. To be perfectly frank: this will not be a painless process."
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