Volkswagen Moves One Step Closer to Fixing Its Diesels – Motley Fool

Posted: Tuesday, December 01, 2015


Image source: Volkswagen.

Volkswagen (NASDAQOTH:VLKAY) is gearing up to recall 2.46 million diesel-powered vehicles fitted with emissions-cheating software in Germany, according to a German newspaper. 

What’s happening: According to a report in Germany’s Die Welt newspaper on Monday, VW has presented the German government with its plan to recall and fix all of the vehicles equipped with software that enables some emission controls only when it detects that an emissions test is underway. 

This recall will include all of the four-cylinder diesels with the software. In Germany, that includes models equipped with 1.2 liter, 1.6 liter, and 2.0 liter “TDI” turbocharged diesel engines, in vehicles sold under the Volkswagen, Audi, Skoda, and SEAT brands. (Of those, only the 2.0 liter engine was sold in the United States, in VW and Audi models.) 

The repairs that VW is proposing appear to be fairly simple and inexpensive to implement. The 1.6-liter engine will require a new part in the air filter system, but the others appear to need only software updates. VW said last week that the repairs for all of the cars will take less than an hour each.

Why it’s important: If these simple repairs are sufficient to satisfy German authorities, then VW may have dodged a bullet. By working cooperatively to quickly and (apparently) inexpensively bring the cars into compliance, it may be able to defuse German officials’ ire over the scandal. That could help VW avoid, or at least mitigate, some of the potentially severe civil and criminal consequences arising from the scandal.

One big thing to remember: This just covers the cars in Germany. VW has yet to get approval to begin fixing affected cars in the United States. The potential consequences, and the level of scrutiny, in the U.S. are likely to be much more significant. 

German — and European Union — rules around nitrogen oxide pollution are less strict than U.S. rules. Nitrogen oxides cause smog. The software is considered a “defeat device” under the Clean Air Act, and the act gives the U.S. Environmental Protection Agency power to levy huge fines for each violation. VW could theoretically be fined over $20 billion. 

VW is also likely to face additional sanctions in California, where the rules are even more strict. That’s a particular worry for VW: California is the single largest market for its Audi and Porsche brands. 

VW has submitted its plan for fixing the U.S. cars to the EPA and to the California Air Resources Board. The regulators have until Dec. 21 to review VW’s plan and respond. We’re not likely to know the details of VW’s proposal until then.

What’s next: VW may be one step closer to off the hook in its home country. But it still faces big potential consequences in the U.S. and elsewhere. How big? We may get more of an idea on Dec. 21. Until then, it’s unwise to assume that the worst has passed.

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