Volkswagen AG won regulatory approval for technical plans to fix 8.5 million diesel engines in Europe equipped with software that cheats on emissions tests, enabling the company to start resolving a scandal that has hurt sales since September.
The recall program, scheduled to start early next year, applies to 1.2-liter, 1.6-liter and 2.0-liter engines, and the German clearance extends across the European Union’s 28 national markets, the Wolfsburg-based carmaker said in a statement Wednesday. The 1.2-liter and 2.0-liter engines need only a software upgrade, while the 1.6-liter engine will also require installation of a piece of mesh to regulate air flow.
The final approval by automotive regulator KBA will let Volkswagen start repairing the bulk of cars that carried the test-rigging software, though the clearance doesn’t apply in the U.S., where the issue first came to light three months ago and where regulators have widened a probe. Volkswagen has spent that time trying to rebuild its reputation amid heightened scrutiny, and was able to determine last week that separate suspicions of potentially illegal discrepancies in carbon-dioxide emissions readings were unfounded.
The effort involved to fix the diesel cars in Europe will be “manageable,” Marc-Rene Tonn, a Hamburg-based analyst at Warburg Research, said in a report. “The technical solutions for other markets, however, remain open, and especially in the U.S. the related costs may be a lot higher.”
Volkswagen’s rose as much as 1.1 percent and were trading up 0.8 percent at 126 euros as of 4 p.m. in Frankfurt. The stock has been the best performer on Germany’s DAX Index in the past month, rising 30 percent versus a 1.5 percent decline in the benchmark. Even so, the carmaker’s market value is almost 11 billion euros ($12 billion) less than before the scandal became public.
The company expects to start notifying affected customers in the next few weeks and said it will repair their vehicles in stages, beginning with those that need only a software update. Work will start on the 1.6-liter vehicles that need the hardware fix by the third quarter of next year, Volkswagen said.
The manufacturer admitted in September that about 11 million vehicles worldwide carried software which could lower the level of nitrogen oxides emitted when the engine detected that the auto was being tested. Sales by the main VW brand in the U.S. plunged 25 percent in November, partly because the company couldn’t sell any diesel-powered cars there, while a market-share decline in Europe has accelerated in the past three months.
The EU anti-fraud office OLAF said Wednesday it’s investigating loans Volkswagen received from the European Investment Bank to produce cleaner engines. The carmaker also has yet to come to an agreement with regulators in the U.S. over steps to take for recalling affected VW, Audi and Porsche models there. Authorities in that market also are investigating 3.0-liter diesel engines.
Volkswagen has so far set aside 6.7 billion euros to help pay for recalls and car upgrades. That figure probably won’t rise, said Warburg Research’s Tonn, who reiterated an estimate of 8.5 billion euros in recall costs and risks to residual values.
Still, buying back the affected U.S. vehicles with smaller diesel engines could cost as much as $9.4 billion, according to Bloomberg Intelligence. The company still also faces fines as well as lawsuits.