Volkswagen shares have plunged nearly 30% since news broke that the company cheated emissions tests on its “clean diesel” vehicles. With recalls, fines and class action lawsuits looming, the reputation of the world’s second largest automaker appears shaky heading into the future.
What’s the problem?
September 25, 2015 – Shares of Volkswagen are down more than 50% since a 52-week high in March, according to CNNMoney. The departure of CEO Martin Winterkorn has helped VW rebound slightly in the short-term; however, the company’s troubles are far from over.
The emissions scandal has experts from the auto industry asking why Volkswagen allowed its vehicles to be sold with deceptive software.
“Any time you have standards or rules, some people will choose to cheat,” Morningstar analyst David Whiston told ABC News. “Volkswagen had made increasing its sales in the U.S. a priority. Part of the way to meet that goal of more U.S. sales was to increase diesel’s appeal with Americans. It appears those efforts are now wasted at least for quite a while.”
If VW had the technology to pass the emissions tests, why then was it not in use when the vehicles were on the road? Whiston guesses that had it been used under real-world conditions, the cars probably wouldn’t have met drivers’ expectations for performance.
Diesel vehicles are typically more expensive than gasoline-powered cars, yet they appeal to a growing cross section of environmentally conscious drivers who want increased fuel economy, according to Kelly Blue Book editorial director Jack Nerad.
“Rather than delay diesel introduction as others, including Honda and Mazda, did, Volkswagen decided to go ahead, but it appears that it was unable to reach emissions targets as it had hoped,” Nerad said. “Thus it resorted to the software-hardware combination that deceived the EPA.”
Volkswagen sold about 7,400 “clean diesel” vehicles in August, accounting for nearly 23% of its total U.S. new car sales for the month. By comparison, BMW’s diesel vehicles accounted for just 6% of its total U.S. sales in 2014, about 20,000 cars.
In the U.S., Volkswagen has faced increasingly restrictive emissions standards for diesels which make drivability and fuel economy more challenging. “This put Volkswagen engineers in a bind, while it prompted other manufacturers to delay or cancel their plans to introduce diesel engines in the U.S.,” according to Nerad.
The Environmental Protection Agency says VW’s diesel cars emit nitrogen oxide (NOx) fumes at 10 to 40 times the federal limit. EPA has accused the company of using “defeat device” software in nearly 500,000 vehicles that allows them to cheat emissions testing. Dozens of lawsuits have been filed since the news broke last Friday.
In response to the controversy, Volkswagen has halted sales of new and certified pre-owned vehicles equipped with the 4-cylinder 2.0 TDI engine. Audi, which is owned by VW, also discontinued sales of its model with the same engine, the A3 2.0 TDI.