Diesel Repairs

VW’s Quick European Fix

diesel Affected VW Volkswagen EA189 2-liter engine Source Julian Stratenschulte DPA
Fix my engine please.
  • Why it matters

    Why it matters

    Relatively easy fixes of VW’s diesel cars in Europe will help to limit costs the carmaker has to bear.

  • Facts

    Facts

    • Germany’s transport authority has approved the repairs of about 8 million diesel cars in Europe.
    • The fix will require a software update or a software update plus an air filter and up to one hour.
    • Repairs in the United States, where about 500,000 are manipulated, are expected to cost much more.
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    Audio

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Europe’s largest carmaker will start repairing diesel cars affected by “Dieselgate” across Europe in late January, now that its plans have been approved by Germany’s Federal Motor Transport Authority, VW said in a statement on Wednesday.

The repairs have turned out to be simpler – and less costly – than initially expected, sending stocks in VW higher on Wednesday. The cars will require a software update in some cases and a software update plus an air filter in others, meaning the costs will remain relatively small.

“In Europe, the recalls will cost perhaps €1 billion (or $1.1 billion). This is a shockingly low number compared with original estimates,” Ferdinand Dudenhöffer, a business and economics professor at the University of Duisburg-Essen and an auto industry expert, told Handelsblatt Global Edition.

In September, VW admitted it had installed illegal software in around 11 million diesel cars, of which 8 million are in Europe, to lower nitrogen oxide emissions during testing. On the road, the VW, Audi, Porsche and Škoda cars emitted much higher volumes of nitrogen oxide, a highly toxic pollutant that plays a crucial role in creating smog.

Volkswagen preference shares extended gains following the company’s announcement Wednesday and were up 0.7 percent at €126.30, or $137.98, in Frankfurt on Wednesday afternoon. The stock had lost up to 40 percent of its value after the scandal became public in September, but has since made up part of its losses.

After the scandal broke, it was initially unclear how difficult and costly it would be for Volkswagen to carry out all the repairs needed and indeed whether it would be possible to fix all the vehicles affected by the scandal. The company has so far set aside €6.7 billion, or $7.3 billion, to handle recalls and repairs. The provisions do not include possible fines and lawsuits.

There was also bad news for VW on Wednesday. Earlier in the day, German newspaper Süddeutsche Zeitung reported that Europe’s Anti-Fraud Office is investigating whether, in light of the emissions scandal, VW may have illegally received E.U. funds that were used for research and development of more environmentally-friendly engines.

A spokeswoman at the European Anti-Fraud Office, an independent agency of the European Union’s executive arm, confirmed to the newspaper it was investigating the carmaker, but declined to give further details while the inquiry was ongoing.

A VW spokesman told Handelsblatt it was not aware of any investigation: “We are surprised that the agency seeks publicity without first informing the parties involved,” the spokesman said.

Separately, VW also announced it would shut down a plant which makes the VW luxury car Phaeton, costing around 600 temporary employees their jobs.

“How the repairs will turn out in the United States remains unclear. In the worst case scenario it may have to buy back the cars.”

Ferdinand Dudenhöffer, University of Duisburg-Essen

VW also continues to have bigger problems in the United States. The engine fix announced Wednesday, which is relatively straightforward, only applies to cars in Europe, said VW, which is based in Wolfsburg in the state of Lower Saxony. The company did not provide details about how the rigged engines would be repaired in the United States, where authorities revealed the scandal in September and about 500,000 cars are affected.

The big question mark remains for VW’s U.S. operations, where the carmaker also faces more than 500 lawsuits from consumers and investors claiming compensation for the lower re-sell values of their cars or their shares.

“How the repairs will turn out in the United States remains unclear. In the worst case scenario it may have to buy back the cars. Investor lawsuits come on top of this,” Mr. Dudenhöffer told Handelsblatt Global Edition.

He estimated VW might have to pay up to €10 billion in repairs and fines in the United States to solve the scandal, although this number excluded expenses to settle the lawsuits, a number which was difficult to forecast.

Volkswagen said the 1.2 and 2.0 liter diesel engines affected would only need a software update that would take less than 30 minutes, VW said. The larger 1.6 liter engines would need a software update and an air flow transformer, a mesh which reduces the air flow in front of the engine’s air mass sensor and helps improve the combustion process.

The German state of Lower Saxony owns 20 percent of VW, but Mr. Dudenhöffer said he did not believe this shareholder had influenced Germany’s Federal Motor Transport Authority to grant its approval.

“The Federal Motor Transport Authority is independent,” Mr. Dudenhöffer said. “It has no own expertise but relies on testing agencies such as Tüvs or Dekra. Therefore there is a low chance the authority is influenced by politicians.”

Volkswagen may also have solved another issue by naming a new development executive at its VW brand, German publication Manager Magazin reported.

According to the magazine, Ulrich Eichhorn will take up the vacant position. Mr. Eichhorn worked at VW from 2000 to 2003 as leader of the group’s research department, then worked at Bentley and has been a managing director of the German car industry association since 2012.

VW said it would not comment on speculation on staffing.

 

Gilbert Kreijger is an editor with Handelsblatt Global Edition in Berlin, covering companies and markets. To contact the author:  kreijger@handelsblatt.com

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