Volkswagen’s admission that its cars may emit more carbon dioxide than they are supposed to raises questions for the already reeling German carmaker, as well as the European auto industry, national and EU regulators, politicians, investors and NGOs.
POLITICO took a look at what’s at stake for Volkswagen, until recently the world’s largest carmaker, and the wider European impacts ranging from stock prices to climate goals.
The latest emission problems relate to the way cars are tested before being approved by national authorities. Volkswagen was conducting an internal investigation because of the emissions scandal revealed in September, when it admitted that 11 million cars had been rigged with so-called defeat devices to cheat on tests for smog-causing nitrous oxides, or NOx.
That internal probe turned up incorrectly low CO2 and fuel consumption figures, which could apply to as many as 800,000 vehicles from the Volkswagen Group, of which about 200,000 are on German roads. This would also include cars from brands such as Audi, Skoda and Seat.
This time, Volkswagen said the problem wasn’t just confined to the diesel engines implicated in the NOx scandal. Alexander Dobrindt, Germany’s transport minister, told the Bundestag Wednesday that 98,000 of the 800,000 affected vehicles were powered by gasoline.
Volkswagen didn’t indicate by how much the cars overshoot their stated CO2 figures, which makes it difficult to quantify precisely the potential damage to the company.
Volkswagen says it could cost about €2 billion to fix the CO2 problem. That breaks down to about €2,500 per car. By contrast, VW booked a charge of €6.5 billion to cover expenses related to the NOx scandal, or only about €680 per car.
The higher cost “likely covers the cost of repaying tax credits or similar that vehicles earned due to lower CO2 test statistics than should have been awarded,” wrote Stuart Pearson, an analyst with Exane Paribas BNP.
Dobrindt said that if Volkswagen’s per-car CO2 values have to be downgraded, the German government will have to impose “another kind of automobile tax … that is also valid retroactively.”
VW is going to have to foot the whole bill, the minister said: “We’re working with the finance ministry on a law that will make sure the customer won’t be burdened.”
That’s not the only cost faced by VW. Irate car owners could sue the company for selling cars with misstated fuel consumption, making their cars more expensive to run. The issue could also affect the resale value of VW cars.
Still, the carmaker doesn’t appear to be in danger of going under: UBS estimated VW faces a total cost of €35 billion, including repair costs of about €10 billion as well as litigation and fines. “This development will however certainly add to pressure on VW shares and on-going concerns about costs as well as ethics and governance at the group level,” UBS wrote.
That’s already evident on the Deutsche Börse in Frankfurt, where Volkswagen has shed a third of its value since the emissions scandal first broke in mid-September. Its shares fell a further 10 percent after the CO2 problem was revealed late Tuesday.
Dobrindt met with Volkswagen and later told MPs, “Clearly, measures were taken by VW during the test of CO2 emissions and consumption which falsified the consumption levels downwards.”
In its original statement on Tuesday night, Volkswagen had said, “The CO2 levels and thus the fuel consumption figures for some models were set too low during the CO2 certification process.”
Dobrindt said all measures which might have led to the falsification of data would need to be checked and investigated. The car company may have taken steps like manipulating tire pressure to tweak emissions output, he said.
The German government has ordered tests on all current diesel and gasoline-powered Volkswagen Group cars, both for NOx and CO2 emissions.
“New test results must be established,” Dobrindt said.“The customer has the right to discover the true situation of their cars.”
It’s terrible news for Germany. Volkswagen was an icon of Teutonic efficiency, but that image has been seriously undermined.
“It’s unnecessary to stress my irritation that there is once again a case of this magnitude,” Dobrindt said.
It’s also battering Volkswagen’s reputation. The carmaker had only recently become the world’s largest automaker, but has now been overtaken by Toyota. Sales figures haven’t yet shown a steep downturn, but analysts to expect that to change.
“The impact of the latest CO2 admission may be greater, as customers may well care more about fuel economy than NOx,” wrote BNP’s Pearson.
It’s not only Volkswagen which is in danger. Other European carmakers also rely heavily on diesel engines, and Europe’s testing procedures for certifying car emissions have long been something of a joke.
“We do know that ‘real world’ CO2 data is consistently shown to be far higher than test statistics for essentially all [carmakers],” wrote Pearson.
NGOs have long pointed to the defects of Europe’s car tests.
“This widening of the VW scandal is shocking but it doesn’t come as a surprise,” said Monique Goyens, director general of BEUC, the European consumer organization. “It sadly confirms what we have said since a long time. The whole testing system in Europe is flawed because there is no room for independent testing and there is also no obligation to make real life testing, on-the-road testing.”
The EU is already revamping testing procedures to take them out of the lab and on to the road. That means stunts like taping over the cracks in doors and removing side mirrors in order to boost ratings will no longer be allowed. The new system will start to be applied to some cars by 2017.
The Commission wants action from VW as well.
“The Commission invites Volkswagen to speed up its internal investigation to clarify without delay what kind of CO2 emissions irregularities were found, what has caused them, which cars are affected, where they were registered, and what measures the group will undertake to remedy the situation,” said spokeswoman Lucia Caudet.
In the European Parliament, Rebecca Harms, co-president of the Greens, said the recent revelations show a systemic problem with the car industry and its regulation. She called on the Commission to undertake a comprehensive investigation and “ensure any transgressions are properly sanctioned.”
The NOx issue didn’t have an impact on global warming because nitrous oxides are the main ingredient of smog, which pollutes cities and increases respiratory diseases but doesn’t heat the planet. However, CO2 is the leading greenhouse gas, raising questions over whether VW’s problems will undermine the EU’s commitments on reducing emissions.
“Today, I cannot estimate what consequences this will have on our climate goals since we don’t know the real additional emissions,” Dobrindt said, adding: “By establishing new values this will become clear and then we can make a comment.”
The European Commission was keen to underline that the EU was on course to overshoot its 2020 climate target, which calls for a 20 percent reduction in greenhouse gas emissions from 1990 levels.
Carmakers have their emissions measured on a fleet basis as of 2012, taking into account all the cars they have on the road. The permitted average for Volkswagen last year was 131.2 grams of CO2 per kilometer, a figure the carmaker has consistently beaten.
The Commission can fine carmakers whose vehicles break the emissions rules. and has done so in the past with Russia’s AvtoVAZ and Ferrari. If the recalibration puts VW above that limit, it could face fines on each registered vehicle of €5 for the first gram per kilometer above the limit, €15 for the second, €25 for the third and €95 for each subsequent gram.
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