The great Volkswagen scandal – diesel deception cuts deeply into VW’s reputation, and profit.

After US environmental authorities recently found out about Volkswagen rigging emission-testing software on certain diesel models, almost a million Volkswagens in the US were recalled. But the German automaker has since come clean, admitting that 11 million of its diesel cars worldwide, were indeed fitted with a “defeat device” that could sense when it was being tested for emissions, and to switch on equipment to reduce levels, resulting in a more favourable figure. The ugly truth? These ‘Type EA 189’ four-cylinder turbo-diesels engines actually emitted nitrogen oxide pollutants up to 40 times above what is allowed in the United States. Cars affected include the Audi A3, VW Golf, Beetle, Passat and Jetta.

Now also known as the "diesel dupe”, VW has been trying to sell more diesel-run cars in the US of late, with the backing of a huge marketing campaign, as Volkswagen’s sales for diesels in the US only make up six percent. Engines were marketed as being eco-friendly, of course. But on Tuesday VW said that there were “noticeable deviations” in the emission levels that these diesels (fitted with the Type EA 189 engines) produced on the road, as opposed to the testing laboratory.

Volkswagen is keeping mum about exactly where these 11 million VW diesels are, but according to analysts, up to 10 million are probably in Europe, where VW diesels sell like hot cakes. Smog-testing in Europe is also not as rigorous as in the US. As for the rest… Volkswagens are real volume sellers in Mzanzi. Are our local cars affected? Investigations are taking place as we speak.

Volkswagen said on Tuesday that the scandal would be detrimental to this year’s profit. As a result, its stock market value has plummeted, declining by about €25 billion in two days of trading.

Apologizing profusely, VW said it would set 6.5 billion Euros aside, to cover costs of making these diesel models comply with pollution standards.

It is said that VW’s CEO, Martin Winterkorn, may have anticipated the scandal. At the Frankfurt motor show last week, he promised that Volkswagen would be introducing 20 new hybrid or fully electric vehicles by the end of 2020. Incidentally, he had very little to say about diesels…

If you want to hear it straight from the horse’s mouth, here is the official statement released by Volkswagen:

“Volkswagen is working at full speed to clarify irregularities concerning a particular software used in diesel engines. New vehicles from the Volkswagen Group with EU 6 diesel engines currently available in the European Union comply with legal requirements and environmental standards. The software in question does not affect handling, consumption or emissions. This gives clarity to customers and dealers.

Further internal investigations conducted to date have established that the relevant engine management software is also installed in other Volkswagen Group vehicles with diesel engines. For the majority of these engines the software does not have any effect.

Discrepancies relate to vehicles with Type EA 189 engines, involving some eleven million vehicles worldwide. A noticeable deviation between bench test results and actual road use was established solely for this type of engine. Volkswagen is working intensely to eliminate these deviations through technical measures. The company is therefore in contact with the relevant authorities and the German Federal Motor Transport Authority (KBA – Kraftfahrtbundesamt).

To cover the necessary service measures and other efforts to win back the trust of our customers, Volkswagen plans to set aside a provision of some 6.5 billion EUR (around R100 billion) recognized in the profit and loss statement in the third quarter of the current fiscal year. Due to the ongoing investigations the amounts estimated may be subject to revaluation. Earnings targets for the Group for 2015 will be adjusted accordingly.
Volkswagen does not tolerate any kind of violation of laws whatsoever. It is and remains the top priority of the Board of Management to win back lost trust and to avert damage to our customers. The Group will inform the public on the further progress of the investigations constantly and transparently.”