Dieselgate Repairs

VW May Buy Back U.S. Cars

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VW is expected to pay a hefty price to solve the diesel emissions scandal in the United States.
  • Why it matters

    Why it matters

    Details of VW’s U.S. recall and repairs plan could shed light on how much money the carmaker will have to spend to fix manipulated diesel cars in the United States.

  • Facts

    Facts

    • Volkswagen still has to present plans how to fix almost 600,000 manipulated diesel cars in the United States.
    • VW brand unit sales fell almost 5 percent in the United States last year; one analyst predicts that sales will fall a further 20 percent this year.
    • The head of Volkswagen’s core VW brand, Herbert Diess, may hold the key to the automaker’s recovery as he only joined VW last July and is untainted by the scandal.
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    Audio

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Volkswagen may have to buy back 115,000 of the estimated 600,000 manipulated diesel cars in the United States and make costly repairs to solve its emissions scandal, the Süddeutsche Zeitung newspaper reported on Thursday, without citing sources.

Volkswagen, which has admitted to manipulating around 11 million diesel cars worldwide, remains in talks with U.S. authorities on how to fix the affected cars, which emit more toxic nitrogen oxide gasses than U.S. laws allow.

The automaker faces a January 14 deadline for submitting plans to fix around 480,000 2-liter-engine cars. It must provide a further recall plan for 85,000 3.0-liter engine cars by the beginning of February.

Repairing all of the affected U.S. diesel cars would require extensive work because parts of the exhaust gas system need to be replaced for the manipulated cars to meet U.S. environmental regulations, according to the paper.

The U.S. rules are much stricter than those in Europe, and will require more extensive repairs if they are to be met. Volkswagen plans to repair the cars in Europe with a simpler software update or a combination of a software update and small repairs.

A Volkswagen spokesman declined to directly comment on the newspaper report. “We continue to be in talks with the authorities and are working under high pressure to find a solution,” he said.

“Recall discussions with the company have not produced an acceptable way forward. EPA continues to insist that VW develops effective, appropriate remedies as expeditiously as possible.”

U.S. Environmental Protection Agency

The company could either buy back around 115,000 cars or offer a new vehicle in exchange. The latter option would be less costly, the paper said.

The U.S. Environmental Protection Agency, which sued VW on Monday and demanded billions of euros in fines, was not yet satisfied with VW’s proposals to repair the affected U.S. cars, Reuters reported Wednesday, citing the EPA.

“Recall discussions with the company have not produced an acceptable way forward,” Reuters cited the EPA as saying. “EPA continues to insist that VW develops effective, appropriate remedies as expeditiously as possible.”

A VW spokesman declined to comment on the EPA statement, but on Tuesday, Herbert Diess, the head of Volkswagen’s core VW brand, said he was optimistic “that we will gain their approval within the coming weeks and months,” referring to the EPA and the California Air Resources Board.

Mr. Diess, a 57-year old former BMW executive, made his statement during an appearance at the Las Vegas Consumer Electronics Show, where he launched the automaker’s attempt at a restart in the United States.

In Las Vegas, Mr. Diess again apologized for the diesel emissions scandal, which has led to a 5 percent drop of U.S. VW brand car sales. The engineer, who joined VW in July, also spoke of a “better company, a new Volkswagen,” which stood for electric driving and “fully connected vehicles” and self-driving cars.

 

VW Cars Affected-01

 

He presented a prototype of an electric microbus, Budd-E, designed to awaken fond memories of the “Bulli” microbus that was an icon of the hippie movement of the 1960s and ’70s. It was well received and VW expects it to be ready for series production in three years.

Those years will be difficult ones for VW. Sales of VW brand cars fell almost 5 percent in the U.S. to 349,440 in 2015 despite a boom in the market with overall unit sales rising 5.7 percent to a new record of 17.42 million cars. U.S. and Japanese manufacturers did especially well.

Until the scandal broke in September, VW had seemed on track to achieve a slight rise after years of poor sales. But news of the deliberate rigging of emissions tests led to a temporary ban on the sale of diesel vehicles and severely dented VW’s image.

In absolute terms, though, the decline is modest. VW sold only 18,000 fewer cars in the United States last year than it did it 2014. And elsewhere, VW sales were surprisingly buoyant. VW brand sales in Germany rose 4.4 percent to 685,669. Sales there even increased at the height of the uproar surrounding the diesel scandal.

In the United States, though, VW sales could fall by 20 percent to 280,000 cars, said Patrick Hummel, an analyst at Swiss bank UBS. If that happens, less than 5 percent of VWs sold worldwide would be bought by Americans — a stinging blow to the brand’s image.

But the Asia/Pacific market, especially China, is far more important for VW, accounting for almost 50 percent of sales in recent years. For a long time, the automaker was accustomed to double-digit growth in the region, but then sales collapsed last summer.

They have been recovering since the fall, though. No official figures have been released for 2015 yet but the world’s biggest auto market will likely record another record year with more than 19 million cars sold.

 

VW brand ceo Herbert Diess Las Vegas Consumer Electronics Show Volkswagen Source AFP
Herbert Diess outlined VW’s new priorites at the Las Vegas Consumer Electronics Show on Tuesday. Source: AFP

 

Mr. Diess did not directly address China’s car market volatility, but instead talked about VW’s new developments. He described the “Budd-E” microbus as a smartphone on wheels and portrayed it as a symbol of VW’s commitment to a future of green mobility.

Unlike other speakers at the show he made no attempt to sound grand or showy.

Speaking English with a slightly Bavarian accent, he gave a sober run-down of the automaker’s plans, and he sounded genuine, like an engineer wedded to his projects.

It’s this credibility that makes him so valuable for VW right now. He’s a newcomer to the company and that renders him untainted by the scandal. VW has been at pains to keep him out of the firing line. In September, just after the scandal broke, Mr. Diess was due to appear at the launch of VW’s new Passat family car in the U.S. But he cancelled his trip and VW sent its U.S. chief Michael Horn to take the flak and express remorse.

VW wants Mr. Diess to become the face of its turnaround. Former VW chief executive Martin Winterkorn, who resigned over the scandal, recruited Mr. Diess to boost profits at VW. Now he must prove that he can be the visionary to haul the company out of its crisis.

Mr. Diess is well-versed in long-term product planning. He spearheaded BMW’s rollout of battery-powered vehicles, including the fully electric BMW i3 and the hybrid sports car i8.

Few doubt that he might make it to the very top of VW. The trained engineer knows every aspect of the auto business. He started out at auto components giant Bosch before joining BMW where he ran several plants, the motorbike division and then rose to head of development.

He helped BMW to achieve dream earnings and was seen as a favorite to succeed outgoing Norbert Reithofer as chief executive last year— but then younger rival Harald Krüger got the job.

 

Christian Schnell is a correspondent with Handelsblatt, writing about the auto industry. Lukas Bay is an editor with Handelsblatt’s companies and markets desk. Gilbert Kreijger, an editor with Handelsblatt Global Edition, contributed to this article. To contact the authors: schnell@handelsblatt.com and bay@handelsblatt.com

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