VW's problems are even bigger than you might think.
Volkswagen Auto Group (Volkswagen AG) has admitted to cheating on diesel emissions regulations for the past six years. The admission comes after independent investigations showed vehicles equipped with Volkswagen AG’s outgoing 2.0-liter TDI turbodiesel four-cylinder emitted far more nitrous oxide (NOx) in real-world conditions than during laboratory emissions testing.
After more than a year of scrutiny and an ineffective voluntary recall, VW admitted to installing special cheating software, which only activated emissions controls during emissions testing, on vehicles equipped with the four-cylinder diesel motor. The U.S. government has urged the company to recall roughly 482,000 Volkswagen and Audi cars using the software. The EPA has also referred the matter to the U.S. Justice Department, which could levy a fine of up to $37,500 USD per vehicle, or about $18 billion, for two violations of the Clean Air Act.
The problem was found in May 2014 during testing by West Virginia University’s Center for Alternative Fuels, Engines, and Emissions and the International Council for Clean Transportation. The study results spurred investigations by the EPA and the California Air Resources Board (CARB), which confirmed the findings.
When confronted by regulators, Volkswagen AG engineers blamed “technical issues” and “unexpected conditions,” according to a notice of violation the EPA sent to VW. Volkswagen AG performed a voluntary recall in December 2014 to address the issue, but retesting by EPA and CARB found “limited benefit.” Volkswagen AG had no credible explanation, so the investigations continued.
Volkswagen AG engineers admitted to the deception on September 3, 2015, after the EPA and CARB refused to certify 2016 Volkswagen and Audi four-cylinder diesel models for sale until the issue was resolved. According to the notice, Volkswagen AG engineers wrote two different programs into the engine computer, one for use during emissions testing and one for use at all other times. Additional software would monitor “various inputs including the position of the steering wheel, vehicle speed, the duration of engine operation and barometric pressure” in order to determine when the car was undergoing emissions testing. During a test, it would run the “dyno calibration,” which put emissions controls such as the lean NOx trap (all models) and selective catalyst reduction (AdBlue urea injection, 2012+ Passat only) into full effect. After testing, the computer would revert to the “road calibration,” which turned off the emissions controls resulting in more power and better real-world fuel economy, but at the expense of NOx emissions 10-40 times higher than the legal limit.
NOx emissions are linked to medical conditions including asthma, emphysema, and bronchitis and are estimated to contribute to tens of thousands of deaths every year.
As a result of the scandal, Volkswagen AG has announced it will stop sales of all 2015 and 2016 models equipped with the four-cylinder turbodiesel engine, as well as all affected used cars on dealer lots, until a solution is found. The company will be forced to recall all the affected vehicles and bring them into compliance. How it will do so was unclear at press time, though there are really only two options available to the company: install a urea-injection system on every vehicle without one and reprogram vehicles with one at great expense, or reprogram all affected vehicles to run in “dyno calibration” at all times, which will reduce emissions as well as fuel economy and power. The latter solution seems more likely given the potential cost of the former.
According to a source who engineers catalyst systems for a major automotive supplier, Volkswagen AG saved roughly $400 USD per car not outfitting them with urea injection systems, or roughly $200 million USD total over six years.
Our Real MPG partners, Emissions Analytics, have observed the real-world effects of this programming. According to chief test driver Sam Boyle, “Under the right conditions, the cars will pull throttle, slow shifts basically drive the EPA cycle.”
Nick Bolden, founder and CEO of Emissions Analytics, explains that diesels, particularly Volkswagen AG diesels, tend to perform unusually well in Real MPG testing compared to EPA testing. “Of the models [affected by the recall], we’ve tested the 2014 Jetta and 2015 Golf on several occasions,” he said. “On average, these were 12.2 percent above EPA combined fuel economy [rating], unusually good. We have not tested the Audi A3, [but] we have tested five Audi [V-6] diesels, which on average only exceeded EPA by 0.7 percent, backing up suggestions that the defeat devices may have only been deployed on the [I-4] A3.”
Questions have surrounded the Volkswagen AG 2.0 TDI engine since its production debut in 2009. It was the only non-truck diesel engine on sale in the U.S. not to use urea injection, an engineering feat that impressed and stumped competitors. Honda engineers in particular have remarked to Motor Trend in the past that they could not figure out how Volkswagen did it, as they couldn’t get close without urea.
Beyond the potential fines related to the Clean Air Act violations and the cost of a recall, the fallout from the scandal could be wide-reaching for Volkswagen AG. Potential civil, criminal, and class-action suits could be brought against the company and its employees and executives. The scandal has also prompted inquiries by the governments of Germany and South Korea, as well as the European Commission. Volkswagen sales, already down 3 percent through August, will no doubt suffer from the stop sale and negative publicity. The company’s struggling bid to raise its U.S. market share is also in jeopardy, and its “clean diesel” marketing campaign is likely finished. Volkswagen AG stock dropped nearly 23 percent in the first day of trading following the admissions, wiping out more than $17 billion in value. Resale value of affected vehicles will no doubt suffer, as well.
The scandal also poses serious problems for CEO Martin Winterkorn, who survived an attempt to oust him just five months ago and is in the middle of contract renewal proceedings to keep his job. A board vote was scheduled for after press time, one week after the EPA allegations went public.
The cheating revelations come at a poor time for the company, which has staked much of its reputation in the U.S. and Europe on the cleanliness and efficiency of its diesel engines. Tightening emissions standards on both continents are threatening the commercial viability of diesel engines in passenger vehicles. A 2013 study by the British Department of Energy and Climate Change, which demonstrated that diesel emissions are more dangerous to human health than gasoline emissions, has helped drive a crackdown on diesels.
It is unlikely, however, that Volkswagen AG will pay the full $18 billion USD fine. Historically, the U.S. Justice Department has not levied multibillion-dollar fines against auto companies. Toyota paid $1.2 billion USD to settle the unintended acceleration case, and Hyundai–Kia paid just $300 million USD to settle charges it falsified its EPA fuel economy numbers. GM recently announced it would pay $900 million USD to settle charges in the ignition switch recall, in addition to the money paid out through its Victim’s Compensation Fund. On the other hand, the Obama administration has recently announced it will be making more of an effort to hold corporate executives criminally liable for their companies’ misdeeds, a break from recent history when the Justice Department went after the company as a whole.
Volkswagen AG has not publicly admitted to installing the malicious software. In a statement, the company said it “takes the matter very seriously and is cooperating with the investigation,” adding that it is “committed to fixing this issue as soon as possible.”
In a separate statement, CEO Martin Winterkorn apologized for breaking “the trust of our customers and the public.” The statement continued: “We will cooperate fully with the responsible agencies, with transparency and urgency, to clearly, openly, and completely establish all of the facts of this case. Volkswagen has ordered an external investigation of this matter. We do not and will not tolerate violations of any kind of our internal rules or of the law.”