The Fallout of the Volkswagen Emissions Scandal
It’s been almost five months now since the Volkswagen Emissions Scandal emerged in September, creating an absolute firestorm for the company, including a tumbling of its stock price. And if you thought that the worst was over for Volkswagen since the revelations back then, you’d be wrong. As more and more details emerge, the situation has grown much worse for Volkswagen and its brands. Here’s an update on the situation:
What’s the Main Issue
The main issue is that Volkswagen, as the Environmental Protection Agency has stated, sold around 72,000 Volkswagen diesel vehicles in the United States during 2008 to 2015 that had special software installed to control emissions only during government agency tests. In reality, they released close to 40 times the legal limit of nitrogen oxide. In addition, Volkswagen has also been accused of also installing similar software on the 3-liter diesel engines that are used in some Porsche and Audi models.
The accusations and admittance of guilt from Volkswagen continued to grow since then. In December, Volkswagen stated that around 36,000 of the cars that it manufactures per year in Europe had irregularities in their carbon dioxide emissions levels tests.
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This is an issue that is affecting Volkswagen worldwide. They have stated that they will recall 500,000 vehicles in the United States and 8.5 million in Europe. This is not even taking into account Asia, in which Volkswagen has not yet determined how many vehicles will need to be recalled. In fact, countries such as Italy, the UK, France, Germany, Canada, South Korea, and the United States have all launched investigations. Its sales are also down significantly.
In Europe in November 2015, it experienced a 26.8% decline in sales compared to the same time period a year ago. This decline in sales is mainly the result of the terrible public image that Volkswagen now has in many people’s minds, leading to them suffering greatly from both a financial and public relations perspective.
To exemplify this point, in October, it posted its first quarterly loss in 15 years of around $2.73 billion. It has also set aside $7.3 billion to cover its eventual recall costs.
In the United States, Volkswagen is facing an enormous amount of pressure. On January 12th of this year, the California Air Resources Board, also known as CARB, rejected a proposal by Volkswagen concerning how to rectify the situation involving the 76,000 affected Volkswagen vehicles in the United States with their 2.0-liter diesel engines. Volkswagen had wanted to use a catalytic converter to solve the emissions problem, but CARB has stated that it is not adequate. CARB has stressed, which the EPA has also agreed with, that Volkswagen is not acting fast enough in solving the issue. Volkswagen also will be meeting with the EPA soon in February, but the results are expected to be similar.
Moving forward, Volkswagen has a major uphill battle to climb. While they can’t change what has already been done, they need to develop an organized and directed approach that is efficient and extremely responsive. Otherwise, the damage to their health as a viable company may become permanent.