Wolfsburg, Germany - Volkswagen will repair up to 11 million vehicles and overhaul its namesake brand following the scandal over its rigging of emissions tests.
New chief executive Matthias Mueller said on Tuesday the company would tell customers in the coming days they would need to have diesel vehicles with illegal software refitted, a move which some analysts have said could cost more than €6.5 billion (R100 billion).
Meanwhile in Washington, US lawmakers asked the automaker to turn over documents related to the scandal, including records concerning the development of a software program intended to defeat regulatory emissions tests.
In separate letters, leading Republicans and Democrats on the House Energy and Commerce Committee requested information from both Volkswagen and the US Environmental Protection Agency as part of an investigation into the controversy.
Europe's biggest carmaker has admitted cheating in diesel emissions tests in the United States and Germany's transport minister says it also manipulated them in Europe, where Volkswagen sells about 40 percent of its vehicles.
‘THERE WILL BE SETBACKS’
The company is under huge pressure to address a crisis that has wiped more than a third off its market value, sent shock waves through the global car market and could harm Germany's economy.
“We are facing a long trudge and a lot of hard work,” Mueller told a closed-door gathering of about 1000 top managers at Volkswagen headquarters late on Monday.
“We will only be able to make progress in steps and there will be setbacks,” he said.
Volkswagen did not say how the planned refit would make cars with the “cheat” software comply with regulations, or how this might affect vehicles' mileage or efficiency, which are important considerations for customers. It said it would submit the details to Germany's KBA watchdog in October.
Manipulating emissions results allowed Volkswagen to keep down engine costs in a “clean diesel” strategy that was popular in Europe and at the heart of a drive to improve US results.
Mueller was appointed CEO on Friday to replace Martin Winterkorn. German prosecutors said on Monday they were investigating Winterkorn over allegations of fraud.
EMBARRASSMENT
The crisis is an embarrassment for Germany, which has for years held up Volkswagen as a model of its engineering prowess and has lobbied against some tighter regulations on automakers. The German car industry employs more than 750 000 people and is a major source of export income.
Economy Minister Sigmar Gabriel told reporters he was not worried about damage to the economy from Volkswagen's problems, “at least, not if we deal with it sensibly.”
There must be no “soft pedalling, no obfuscation and no covering-up” by Volkswagen, he added.
The KBA had set Volkswagen a 7 October deadline for a plan to bring diesel emissions into line with the law.
Investors are impatient for answers too. A survey of 62 institutions by investment banking advisory firm Evercore found about two-thirds said it would not be possible to invest in Volkswagen over the next six months if costs, fines, legal and criminal proceedings were outstanding or inadequately quantified.
VW's brand image has also slumped this month, market researchers YouGov said, citing a survey of about 2000 consumers.
MILLIONS OF CARS
Volkswagen said previously about 11 million vehicles were fitted with software capable of cheating emissions tests, including five million Volkswagens, 2.1 million Audis, 1.2 million Skodas and 1.8 million light commercial vehicles.
Refitting 11 million cars would be among the biggest recalls in history by a single automaker, similar in scale to Toyota's 2010 recall of more than 10 million vehicles over acceleration problems, though dwarfed by the number recalled by multiple carmakers due to faulty Takata airbags.
Volkswagen sold 10.1 million vehicles in the whole of 2014.
The company said last week it would set aside €6.5 billion to help cover the cost of the crisis.
But analysts think that may not be enough, as it faces potential fines from regulators and prosecutors, as well as lawsuits from cheated customers.
Spain's industry ministry said on Tuesday Volkswagen's local business had agreed to return fuel-efficiency subsidies on vehicles that had broken rules. It said Spain, which offered subsidies of €1000 (R15 700) for energy-efficient car purchases, would ask for the money back from the car manufacturer and not consumers.
The emissions scandal has sent ripples through the global car market too, with manufacturers fearing more costly regulations and a drop in diesel car sales.
The European Commission is also working on plans to reform the European system for approving new models of cars by the end of the year.
AUDI PROBE
Meanwhile, German prosecutors have launched a preliminary investigation into Volkswagen subsidiary Audi related to the scandal over rigged emissions
Wolfram Herrle, chief prosecutor in Audi's hometown of Ingolstadt in southern Germany, was quoted as saying a preliminary investigation had been launched to see whether to initiate formal proceedings against the company.
"We are currently reviewing all the facts in order to decide whether an investigation should be initiated," he said.
Neither the Ingolstadt prosecutors nor Audi were immediately available to comment on the newspaper report.
Among those suspended in the scandal were Ulrich Hackenberg, the head of research and development at premium brand Audi, who oversees technical development across the group.
TWO FIXES REQUIRED
Volkswagen's promise to fix pollution control systems on about 11 million diesel vehicles could involve changes to software, and possibly hardware, that would increase fuel-consumption, reduce performance or require more maintenance.
A former executive of Volkswagen's US operation said on Tuesday the company might only have to change software to bring older diesel models into compliance with US emissions standards.
Other experts and US regulators said it would probably have to come up with two sets of solutions for two different emission-control systems installed on 482 000 US diesel cars from model years 2009-2015.
Volkswagen has admitted using software that circumvented US and California pollution rules by fully activating the exhaust scrubbing systems only when the car was being put through precisely prescribed government emissions tests. That meant the cars were able to pass laboratory tests that showed they met the relevant regulations, but then switched off the emission control devices while driving.
NOX TRAPS
VW began installing the illegal software in late 2008 on two-litre, four-cylinder turbodiesel engines fitted with devices known as “lean NOx traps,” designed to reduce nitrogen oxides - linked to smog, acid rain and lung cancer - in engine exhaust. Any device used to control nitrogen oxide emissions typically “diminishes the performance and fuel economy” of diesel engines, according to automotive consultant Sandy Munro.
Marc Trahan, who retired in late 2014 as executive vice president of group quality after a 35-year career with VW and Audi, said older Volkswagen diesels could be made to function properly with a software fix; they shouldn’t need to have newer hardware installed, which would take much longer, require extensive “re-engineering” and be cost-prohibitive, he said.
From 2012, however, Volkswagen offered the same two-litre TDI engines with a more sophisticated and expensive emissions control system called Selective Catalytic Reduction, which injected a liquid urea solution into the exhaust to break down the nitrogen oxides. The solution is supposed to be replenished every 15 000km by a dealer, but VW encountered potential problems.
Trahan said there were concerns within the company about the urea consumption being so great that it would require separate “fill-ups” every 8000km, rather than the desired 15 000-km intervals that are typical between engine oil changes.
Reuters