Just over a year ago, the automotive industry took centre stage in world affairs when Volkswagen AG was caught fitting software designed to cheat regulations into its 2009 thru 2016 diesel-engined offerings.
The software, known as a “defeat device,” would vary engine performance so it would emit fewer nitrogen oxides from the tailpipe when an emissions test was being conducted—up to 35 times fewer oxides than when the car was normally driven on the road.
The scandal was uncovered by a research team at West Virginia University, and the fight was taken on by the Environmental Protection Agency (EPA); eventually the giant German automaker had to admit guilt.
Apologies were carried out and resignations followed, starting at the top with CEO Martin Winterkorn. But this was only the beginning, and the reputation of one the world’s biggest automakers was at stake.
For months, the scandal, known as “Dieselgate,” grew to encompass not just VW’s 2.0-litre TDIs, but the 3.0-litre V6 TDIs used throughout the Volkswagen conglomerate, including in Audi and Porsche cars and vehicles from a few other European brands.
The total number of vehicles affected sits at more than 11 million worldwide; close to a half a million of those were sold in the United States, and another 107,000 in Canada.
Resolution: around the corner?
It has taken a while to get a finalized settlement out of VW, given the amount of time needed for the investigation and trials. Volkswagen AG has been forthcoming with information that’s allowed for an expedited process in the 2.0-litre TDI class-action settlement filed in the United States.
The result is a compensation package – for the 2009 to 2015 Jetta; 2010 to 2015 Golf; 2012 to 2015 Passat; 2013 to 2015 Beetle; and the 2010 to 2015 Audi A3 – that totals close to $10 billion (potentially $5,100 US to $10,000 US each vehicle, depending on the its age and model). That’s on top of a choice between a fair-value buyback of the car at its worth when the scandal first broke; or a vehicle fix, still to be determined.
For the 107,000 Canadians with those 2.0-litre TDIs in question, Volkswagen Canada is working on a settlement that’s expected to be similar to the one south of the border. For now, though, we have no concrete information, as the court-order requires the discussions to remain confidential.
Canadian TDI owners have waited patiently, but thus far, the only recompense they’ve got are $1,000 vouchers issued as a sort of apology until the compensation deal has been figured out. There’s no doubt the waiting game can be frustrating, considering how, in comparison, the Volkswagen Group of America handled things pretty swiftly—plus there’s the looming prospect the automaker might offer a less generous deal to Canadians.
The only thing Canadians can take solace in is that they’re much better off than the millions of Europeans that may not see any compensation due to different emission rules.
The frustration 2.0-litre TDI owners may feel also doesn’t compare to that felt by owners of 3.0-litre V6 TDI vehicles, who’ve been waiting even longer. The vehicles in question here are the 2009 to 2016 Volkswagen Touareg; the 2009 to 2016 Audi Q7; the 2013 to 2016 Porsche Cayenne; the 2014 to 2016 Audi A6 Quattro; the 2014 to 2016 Audi A7 Quattro; the 2014 to 2016 Audi A8 and A8L; and the 2014 to 2016 Audi Q5.
Outside of TDI customers, Volkswagen is facing numerous global lawsuits from investors, suppliers, and dealerships. The dealers recently settled, but, once again, only in the United States. Volkswagen AG has agreed to pay $1.2 billion US to its 652 U.S. dealerships, an average payout of $1.85 million US each.
No remedy has yet been brought up regarding Canadian Volkswagen dealerships, but according to a report from Automotive News Canada, Environment and Climate Change Canada are “actively investigating” specific Volkswagen, Audi, and Porsche diesels to see if those automakers are in breach of the Canadian Environmental Protection Act.
Specifically they’re investigating whether the Volkswagen Group imported vehicles with software used to defeat emissions testing—if they find the specific evidence they’re looking for, VW could be charged via the Public Prosecution Service of Canada. Finally, the automaker’s also facing separate lawsuits mounted in Australia, France, Germany, Italy, and South Korea.
Collateral damage: VW employees
In scandals as large as Dieselgate, it’s not just the vehicle owners that’ve been hard done by. The handful of top executives who knew about the “defeat device” have created a negative ripple effect on the lives of many Volkswagen workers and dealers who had nothing to do with it.
Former Volkswagen AG CEO Martin Winterkorn, who left the company in the wake of the scandal
Back in March, there were rumblings of job cuts to Volkswagen employees in western Europe, but nothing has been officially reported as of yet. And as recent as October 2016, the Volkswagen Group announced accelerated cost cuts to the tune of 10 percent over the next year. Specific details of these cuts have not been listed, save for generalities such as the reduction of electricity, phone charges, office equipment, consulting, and advertising.
When it’s all said and done and there’s a total bill between 25 to 30 billion euros to be paid as projected by prognosticators from Reuters, the Volkswagen Group will eventually have to start to lay off some of its 600,000 full- and part-time employees around the world.
The road to recovery
With a current year-to-year sales drop of 12.5 percent in the United States and 14.2 percent in Canada, as well as a stock decrease of 20 percent from September 2015 and the setting aside of €17.8 billion in legal provisions, Volkswagen has a long road to recovery. Volkswagen AG has already posted a €1.6-billion net loss for 2015, mostly from legal fees and payouts.
Given the loss of sales in North America, it’s interesting to see Volkswagen’s global sales have dropped less than one percent, thanks mainly to its loyal home country and China. But you have to wonder, for how long could Volkswagen sustain itself without a TDI market in the United States? And who knows if, in the years to come, the rest of the world will follow suit after seeing no compensation for their diesel purchases?
To combat this massive outflow of legal and consumer payments, Volkswagen has set its sights on remaking its entire brand. The German automaker is taking a 180-degree turn by closing the chapter on diesels altogether in North America and concentrating its efforts on electrification: 30 new electrified models are expected by 2025.
We’ve heard about the e-Golf that’s available in some U.S. markets, with a new extended-range version expected to debut at the 2016 L.A. Auto Show in November. But Volkswagen’s first big reveal has already taken place, at the 2016 Paris Auto Show. It’s called the visionary I.D. Concept.
The I.D. is a fully-electric concept sedan that can go 400 to 600 kilometres on a full battery charge. To complete this electrified renovation, a brand-new electric car design language is being introduced, and will trickle down to its other 29 EV siblings.
As for cost, when the production model of the visionary I.D. goes on sale in 2020, its price will be similar to a top-of-the-line Golf. And if you needed that proverbial icing on the cake, autonomous driving capabilities for e-mobility will be introduced by 2025—the same year Volkswagen aims to sell one million electric cars.
The global impact
Has Dieselgate impacted the global production of diesel engines? The quick answer to this is ‘Yes.’ The scandal has naturally stirred in consumers an air of scepticism regarding diesels.
Only a year ago, diesels were on the rise, with many automakers such as Kia and Mazda looking into expanding their engine offerings to include diesels. A study on diesels was conducted by Bosch Diesel Systems Marketing that predicted diesel market shares would rise up to 10 percent by 2015.
The aftermath of Dieselgate has changed that upward path quite dramatically, shifting the attention towards alternative options: pure electrics, hybrids, and hydrogen fuel cells.
In addition to the scandal, more stringent fuel economy targets, especially in the United States, China, and certain parts of Europe, aren’t helping the diesel cause. With diesel powertrains accounting for only 2.9 percent of all passenger vehicles on the road, most automakers are expected to eventually shift resources towards electrified cars.
It may appear gloomy for diesels, but the market isn’t dead in the water yet, with other automakers continuing to sell diesels. Mercedes-Benz stands out as one successful example; its BlueTec diesel engines are still selling well and registering quality fuel economy numbers.
“In particular, the economical, clean, and highly popular diesel engine makes an important contribution to the further reduction of fleet consumption,” a Mercedes-Benz executive announced during a European TecDay in June 2016.
“With 88 models, diesel-powered vehicles account for a disproportionately large number of these efficiency champions.”
The 2017 Chevrolet Cruze hatchback, soon available with a diesel engine
On top of that, Chevrolet has recently introduced two new products that will have an available diesel powertrain: the new 2018 Equinox SUV and the 2017 Cruze sedan and hatch. Both will come with your choice of a six-speed manual or nine-speed automatic transmission.
“The diesel we are putting in the Cruze is a global engine that allows us to bring it into the North American market at a competitive price,” said Seth Valentine, program engineering manager at General Motors Company.
“With these diesel engines, you’re going to get great fuel economy, impressive torque figures and excite the customer in the process. It’s also nice to have it in place before gas prices rise in the future.”
One can only project whether diesels are close to the end. But if we want a clearer picture, we should get it by analyzing the sales of these Mercedes-Benz and Chevrolet products for the next year.