Dieselgate Scandal

In Las Vegas, VW Gambles on a Rebrand

diess in vegas_bloomberg
Volkswagen Passenger Cars CEO Herbert Diess speaks at CES, the world's largest annual consumer technology trade show, in Las Vegas this month.
  • Why it matters

    Why it matters

    VW’s hopes that it could mark a new beginning in the U.S. at the Las Vegas Consumer Electronics Show and the Detroit Motor Show to overcome its Dieselgate scandal.

  • Facts

    Facts

    • VW brand chief Herbert Diess and Chief Executive Matthias Müller are venturing to the United States for presentations at key trade shows and talks with officials.
    • Prosecutors in the U.S. filed a civil lawsuit this week alleging that VW knowingly installed so-called defeat devices in almost 600,000 of its diesel cars in the United States.
    • The prosecutors are theoretically demanding up to $48 billion in fines, much higher than the $18 billion initially estimated.
  • Audio

    Audio

  • Pdf

If you’re chosen to give the opening speech at the Las Vegas Consumer Electronics Show, you’re part of a very select group of people. VW spent months of networking to ensure that one of its executives got that honor, according to sources at the company.

Last summer, Martin Winterkorn, the then chief executive, finally got the OK to enter the date in his diary. By September, the diesel scandal had cost him his job, but that didn’t matter. The VW speech would go on.

One might think that Mr. Winterkorn’s successor, Matthias Müller, would step up to the lectern himself. Instead he chose to send the head of the core VW brand, Herbert Diess. Until half a year ago, Mr. Winterkorn held both positions — that of chief executive of the VW group and head of the VW brand.

“We disappointed our customers and the American people for which I am truly, truly sorry and for which I apologize.”

Herbert Diess, Head of VW brand

The decision that Mr. Diess should hold the speech on VW’s electric car strategy shows the new division of labor at the top of VW, with Mr. Müller in charge of overall group strategy and Mr. Diess responsible for rebuilding the VW brand’s sorely tarnished presence in the the United States.

Mr. Diess, a 57-year old executive who joined VW from BWM in July, started his speech by apologizing for the diesel emissions scandal. With illegal software in around 11 million cars, of which almost 600,000 were sold in the United States, VW lowered nitrogen oxide emissions during testing.

On the road, the VW, Audi, Porsche and Škoda cars emitted much higher volumes of nitrogen oxide, highly toxic pollutants which play a key role in creating smog.

“The current issue with the diesel engines is certainly nothing to be proud of. We disappointed our customers and the American people for which I am truly, truly sorry and for which I apologize,” Mr. Diess told the Las Vegas conference.

In Europe, VW had already presented plans to fix 8.5 million affected cars, but the carmaker was still working on a recall plan in the United States. “Here in the United States the set of regulations is different compared to Europe: it’s more demanding in terms of nitrogen oxide and less demanding in terms of CO2. We are working hard to present an acceptable package to the U.S. authorities,” Mr. Diess said.

The VW executive said he was “confident” the carmaker would “find good solutions for the affected U.S. vehicles and our valued customers” and that he was optimistic Volkswagen would win approval for a recall and repair plan “within the coming weeks and months.”

In his presentation, Mr. Diess did not address Monday’s lawsuit filed by the U.S. Department of Justice, nor did he allude to a 9.1 percent drop of VW brand car sales in the United States in December.

The U.S. Justice Department filed a civil lawsuit against VW on Monday and the complaint, filed in a federal court in Detroit on behalf of the U.S. Environmental Protection Agency, alleges that Europe’s largest automaker knowingly installed so-called defeat devices in almost 600,000 of its diesel cars in the United States.

In its 30-page complaint, the Justice Department said the charges carry fines of between $2,750 and $37,500 per car, per violation. Based on four separate violations laid out in the complaint, VW could theoretically face as much as $48 billion in penalties, according to Reuters calculations, which is higher than the $18 billion estimated when the scandal broke in September.

“It’s a common tactic in U.S. lawsuits to present immensely high demands,” said Carsten Albrecht, a business lawyer at the FPS law firm in Hamburg. “The actual compensation usually ends up much smaller.”

But the news, which sent Volkswagen preference shares tumbling to a 6-week low on Tuesday, will inevitably cast a big shadow on Mr. Müller’s trip to Detroit this weekend for the first big auto show of the year — at the traditional eve-of-show beer and burgers dinner in Fishbones Restaurant, where the VW chief usually just says a few words to the invited guests, and on Monday when VW will present new models including a hybrid sports utility vehicle aimed at regaining the trust of U.S. customers.

Mr. Diess presented two electric VW cars, the E-Golf Touch and the Bulli Budd-e, which are part of “a new Volkswagen”.

“When I look few years into he future I see a car that is all electric, has zero emission, mitigates virtually all accidents, is smarter than anything we can imagine today and is also incredibly comfortable,” Mr. Diess said.

 

VW Cars Affected-01

 

Volkswagen, a conglomerate based in Wolfsburg with 12 different brands, has lagged its bigger rival Toyota in developing hybrid cars, Tesla in producing all-electric vehicles, and Google in testing self-driving cars.

Mr. Diess said his company was dedicated to change. “The new Volkswagen stands for affordable electric mobility, the new Volkswagen stands for fully connected vehicles, the new Volkswagen stands for automated driving,” he said.

When Mr. Diess’ boss visits Detroit in a few days time, VW will finally show off SUV cars that U.S. drivers really want. The European carmaker has long struggled to build a large market share in the United States as its cars did not meet many of the U.S. customers tastes.

But the scandal will dog Mr. Müller wherever he goes. VW may have found solutions for refitting and repairing the more than 8.5 million cars affected in Europe, but that’s irrelevant in the United States. The company has until Jan. 14 to present a solution for the more than 480,000  2.0-liter engines fitted with the fraudulent software. It must present a further recall plan for 85,000 3.0-liter engine cars by the beginning of February.

Mr. Müller will hold political talks from Tuesday of next week, sources at VW said. They did not say who he will meet.

Just before Christmas, Mr. Müller likened the relationship between VW and the U.S. authorities to that of an old married couple that had got on well for a long time but was going through a rough patch. It looks as if the reconciliation will take some time.

The lawsuit dashed any hopes of lenient treatment for VW. Its wording heralds a tough legal battle, and an uncertain outcome.

Japanese rival Toyota faced demands totalling $58 billion for similar environmental transgressions, but escaped with a fine of just $34 million in 2003. But unlike VW, Toyota did not deliberately cheat.

Experts say VW must brace itself for the highest environmental fine ever imposed on an automaker in the United States. On top of that it faces numerous civil compensation claims from car owners and criminal fines.

Experts say VW must brace itself for the highest environmental fine ever imposed on an automaker in the United States.

Dutch banking group ING expects total fines of $13 billion. VW declined to comment on the possible extent of penalties. A company spokesman said VW will continue to cooperate with the authorities. It doesn’t have much choice.

In Germany, VW managed to sell more cars in 2015, despite the emissions scandal, figures from Germany’s Federal Motor Transport Authority showed Wednesday. The agency registered 4.4 percent more VW brand car registrations, while its unit Audi recorded a 3.7 percent increase last year. The two brands, however, lagged the growth rate of the the entire German car market, which expanded by 5.6 percent.

U.S. rules on diesel emissions are far stricter than in Europe. According to the latest U.S. standard, BIN 5, the most modern diesel cars must emit no more than 31 milligrams of nitrogen oxide per kilometer, the same level as gasoline-powered vehicles. Manufacturers must guarantee this level for five years or 80,000 kilometers. After that, 44 milligrams are permitted.

The new U.S. rules mark a radical cut from the BIN 10 standard which applied until 2009 and permitted emissions of 375 milligrams, more than 10 times the current limit. The message to manufacturers was clear: either get diesel emissions down to gasoline levels or stop selling diesel cars in the U.S.

That was a shock for European diesel auto manufacturers. The European Union also tightened its emissions rules but it was far more lenient and currently allows 80 milligrams of nitrogen oxide emissions per kilometer.

Diesel remains highly popular in Europe where it’s seen as cost-efficient, robust and durable. The U.S. tests are also far tougher than those in Europe. In Europe, diesel vehicles are required to drive 1,180 seconds with an average speed of 33.6 kilometers per hour for a distance of 10,966 meters.

In the United States, it’s 1, 877 seconds with 34.1 kilometers per hour for a distance of 17,770 meters. The U.S. test is regarded as slightly more realistic due to the slightly higher speed.

From 2017 there will be a global standard callee WLTC: 1,800 seconds, 46.5 kilometers per hour and a distance of 23,274 meters. That will be closer to reality.

 

Markus Fasse covers the aviation and automobile industry for Handelsblatt. Thomas Jahn is Handelsblatt’s New York correspondent since 2011. Christian Schnell is an editor with Handelsblatt, covering the stock market and German auto industry. Christof Kerkmann is a Handelsblatt editor and writes about the technology sector. Gilbert Kreijger is an editor with Handelsblatt Global Edition, covering companies and markets. To contact the authors: fasse@handelsblatt.comjahn@handelsblatt.comschnell@handelsblatt.comkerkmann@handelsblatt.com and kreijger@handelsblatt.com

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