Innovation

Volkswagen estimates $7.3bn in damages caused by emissions software scandal

The company has set aside billions to cover fines, repairs and to "win back" the trust of its customers.

Written by Charlie Osborne, Contributing Writer Sept. 22, 2015 at 5:19 a.m. PT

This has not been an easy week for Volkswagen, which has occupied center stage as the source of illegal emissions standards dodging.

Last week, the US Environmental Protection Agency (EPA) ordered the German automaker to recall approximately 482,000 vehicles which allegedly use software to circumvent emission standards.

According to the US watchdog, the vehicles use a "sophisticated software algorithm," as part of a "defeat device," which only turns on full emission controls in lab and testing environments. When a driver is on the road, clean air and emission controls are "greatly reduced," resulting in nitrogen oxide levels emitting at up to "40 times" the required level.

Affected vehicles include four-cylinder Volkswagen and Audi diesel cars from model years 2009-2015, the Jetta (2009 - 2015), Beetle (2009 - 2015), Audi A3 (2009 - 2015), Golf (2009 - 2015) and Passat (2014 - 2015).

The CEO of Volkswagen Prof. Dr. Martin Winterkorn said he was "personally deeply sorry" for breaking trust with customers.

As the news broke, Volkswagen shares took an enormous tumble; plummeting over 18 percent. This was salt rubbed into the wound for the automaker, which already faced the prospect of a $37,500 fine per vehicle which avoided the clean emissions regulations -- a potential total of $18 billion.

On Wednesday, Volkswagen released an updated statement, stating the company was working "at full speed" to investigate the software use and "to clarify irregularities" brought up by the US regulator's claims.

While the software is also installed in other Volkswagen Group vehicles with diesel engines, the automaker claims the "majority" of these engines are not affected. The company said:

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"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."

The mistakes have cost the company dearly, and not only in the matter of share prices. Volkswagen is setting aside 6.5 billion euros ($7.3bn) to cover repairs, services and "other efforts to win back the trust of customers." Earnings targets, as you can imagine, will also have to be adjusted.

It's unlikely this will be the end of the matter, as Volkswagen will likely face fines, costs to recall and repair, fresh investigations in other countries and potentially class-action lawsuits as a result of duping customers.

The automaker said:

"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."