Scandal around Volkswagen will cost the car industry dearly

It can bury diesel cars.
Martin Winterkorn had a very good position in the Volkswagen (VW) - an extension of his contract as general director was considered a foregone conclusion and scheduled for a vote on Friday the Supervisory Board of the concern on the issue seemed a formality. Instead, on Wednesday, 23 September, the Council adopted a voluntary resignation of a top manager. "I am shocked by the events of recent days. First of all, I can not believe that an error of this magnitude could be admitted in the concern Volkswagen », - wrote Winterkorn in the statement explaining the decision.

So he reacted to the scandal that raged for the past week, after the US Environmental Protection Agency (EPA) and California Air Resources Board (CARB) have reported that the software controller diesel engines of some cars VW 2009-2015 years of release could spoof checking system exhaust gases to pass tests. When the actual operation of nitrogen oxide emissions could exceed the established norm in the United States nearly 40 times.

VW acknowledged that sold 11 million cars in the world with such tabs in the software. The regulator has threatened to concern wRaph at $ 18 billion, VW has reserved 6.5 billion euros - and that one-third of the company's available funds - to eliminate problems and set up a commission to investigate the situation.

Such noise has risen because VW in North America relied precisely on the sale of diesel cars, advertising them as cleaner and more fuel-efficient than gasoline. (Diesel engines actually emit less carbon dioxide, which is considered guilty of global warming, but more nitrogen oxides, which are considered harmful to health.) The share of diesel cars in Group sales in the US reached 26%, whereas it does not exceed the market average 3%, analysts say Deutsche Bank.

Presidium of the VW supervisory board acknowledged that the scandal caused the company considerable material damage and undermined the trust of many customers around the world.

We wanted the best

Ironically, but to bring VW to clean water helped people who wanted to praise him. Researchers from the International Council on Clean Transportation (ICCT) - an independent non-profit organization - were going to prove is,pean regulators that the cars of the German company in the United States comply with more stringent standards for emissions. If in Europe be disposed 0.08g / km, the US - only 0.025 g / km.

Fighters for clean air with the help of colleagues from the University of West Virginia, has the necessary equipment - a portable emissions measurement system in 2014 had a road test vehicles before that passes laboratory tests. The researchers loaded the measuring equipment in the trunk of the American versions of diesel VW Passat, VW Jetta and the BMW X5 and drove them more than 2,000 km between San Diego and Seattle with the firm conviction that the cars will show good results in the operation. "We did not have any shadow of suspicion", - he told the news agency Bloomberg John Jerman of ICCT. The results shocked, he recalls. At Jetta emissions of nitrogen oxides (NOx) in the United States exceeds the established norm of 15-35 times, while the Passat - 5-20 times. The test took place only BMW X5, only once exceeded the norm - when climbing the hill in the countryside.

During the test, the results of the presentation in the auditorium of the UniversityEPA were employees who took the results and, as it turned out, began its own investigation. Initially VW explained exceeding standards software error and promised to quickly eliminate it, recalling 0.5 million vehicles. However, the car with the corrected software still does not fit into the norm on the real test. US regulators have refused to certify the model, the VW 2016 until the manufacturer does not explain the discrepancy between laboratory and real tests.

It falls short of expectations

Cars with field testing of which (on the photo above is applied when testing equipment) started with the VW scandal, were equipped with engine EA189. This is a common 3-4-cylinder turbodiesel several working volumes (1.2, 1.6 and 2.0 liter) and capacities (from 64 to 152 liters. With.) "Euro-5" / "Euro-6" . Fits on models for all mass market brands VW, Audi, Skoda, Seat, but also supply third-party manufacturers - Chrysler and Mitsubishi. While VW has recognized a problem with 11 million four-cylinder engine volume of 2.0 liters, but the German authorities say, and problems with engine capacity of 1.6 liters. Shortly after the start etc.zelnogo scandal, the company said that the new cars with diesel engines "Euro-6" fully meet the standards for the European market. Nevertheless, several models of the concern for the European market, such as brands Skoda and Seat, to the recent events were set EA189 series engines. A company spokesman declined to comment on it, saying that a detailed and exhaustive about the models and modifications of the information is collected and analyzed. Since September 2014, the EU operates a standard "Euro-6", the transition to which the NOx emission rate decreased from 0.18 to 0.08 g / km.

Test recognition program

Eventually concern acknowledged that developed and installed in diesel vehicles controllers deceive device in the form of a complex algorithm that determines when the vehicle passes the test for emissions, the EPA said in a statement.

"Instructs the machine to make it understood that it was tested, potentially quite simple - Financial Times explained the expert on air pollution York University Professor Alastair Lewis. - For example, when testing the machine spinningtsya only driven wheels, an accelerator is pressed unnaturally smooth, and the speed is maintained very stable, as if the wheel was a robot, not a person. " The sensors can also celebrate a strictly horizontal position of the car, no rudder movements, open the hood - which does not happen when driving on the road. Then, the engine power is reduced more gas is sent for recycling and catalysts.
Contrary to the statement of the former general director of VW management in Germany not only knew about the violations during inspections of automobile emissions in the United States, but also supervised the test results were falsified, say Bloomberg sources. If a car does not cope with the trials of the VW headquarters in Wolfsburg or from the head office of the brand Audi in Ingolstadt, sent a special group of engineers. After the "improvements" usually takes about a week, the car successfully passed re-inspection, says the source agency.

He could know about the group manipulations and German Transport Minister Alex Dobrindt, says Financial Times. In July of this year in response to lock thewith the German Green Party as to whether the authorities are aware of the special equipment of new VW cars, the minister said, "Yes, the federal government is aware of this," the newspaper writes. However, at a meeting of the Bundestag Dobrindt he said that he learned about the machinations of the emissions in the second half of September.

Implications for one

A fine of $ 18 billion to VW does not impose, but still more expensive than the scandal cost the concern earmarked 6.5 billion euros, according to analysts Deutsche Bank.

Practice shows that the US agreed to control the amount of the penalty is 10 to 45% of the maximum, they point out. For example, GM's agreed out of court to pay $ 900 million for the ignition defect in their cars, or $ 360 for each car is revoked, although initially it was about $ 2 billion fine (see. Incision on p. 21).

Fines and court payments VW will cost at least 400 euros for each of the 11 million cars equipped with engines with a "bookmark" in the software. And given the fact that the originally called number of defective cars usually grows during the investigation, it costs next pageysyat € 5 billion, analysts Deutsche Bank. At least the same amount, in their assessment, the company loses due to the impact of the scandal on the operating business concern. Sales may be affected due to reputational damage, and profit - shortened due to the increase in costs for the production of diesel cars, analysts say. In the worst case scenario, they reduced the revenue forecast for the VW and Audi in the years 2015-2017. 35%. And it does not take into account the payment of possible claims from consumers, depreciation of shares and losses from the change of management, the experts concentrated paint.

Last week VW capitalization has fallen by a third to 53.5 billion euros.

There is also the threat of criminal prosecution leadership. In early September, the US Justice Department has introduced the priority of personal responsibility on the responsibility of the organization, reminds Deutsche Welle. "Companies commit crimes only because people - flesh and blood", - explained the new rules the US Deputy Attorney General Sally Yates. So the US Ministry of Justice responded to the accusation that corporate executives found guilty of harming consumers rarely attractivenessare accountable. Manipulation of indications of environmental tests should be considered a crime, he told Deutsche Welle Deborah Gordon of the Carnegie Endowment for International Peace. Winterkorn may be the first to whom will apply the new rules does not exclude the expert Van Ness Feldman Richard Penn law firm. However, for this it is necessary to prove that Winterkorn personally knew about the fraud. He himself categorically denies.

The consequences for all

The scandal with the VW spawned multiple blast waves. Regulators in Europe have launched an investigation against not only the VW, but other automakers. Last week, the French and British officials have called for Europe-wide action in this area, and the Minister of Environment of France Ségolène Royal, announcing the investigation, demanded that the French carmakers "to ensure that this was not the case in France."

The investigation is in Germany, Norway, the United States connected to the actions of regulators, prosecutors 27 states.

Now the industry for a long time ensured attention of the authorities, says Stuart Pearson, an analyst at Exane BNP Paribas: & laquo; there is no irrefutable evidence, but ... can not say that even any carmaker "would not implicated in this. "Almost all new vehicles in recent years, seems to throw much more nitrogen oxides in the actual operation, what is shown on the tests in independent laboratories, - he told the Financial Times Lewis from York University. - VW had been caught red-handed, but it is likely that others also play in the dubious game to pass the tests. "
Under the blow has hit BMW. German automobile publication Auto Bild reported that the road test crossover BMW X3 xDrive 20d, held ICCT, showed above the norm "Euro-6" NOx by more than 11 times. "All the data indicate that [manipulation emission designs] are not specific to VW», - said the managing director of Auto Bild ICCT Europe Peter Mok, who at one time had the idea to check the American version of VW. By Friday evening, the capitalization of BMW Group fell by almost 8% to 50.9 billion euros.

BMW said it has not received information about this ICCT test, but the two previous studies that organication confirmed that the BMW X5, as well as 13 other groups of cars meet the standards of emissions of nitrogen oxides. Systems that reduce harmful emissions, are always active - as in the test bench, and in a real road operation, stated in a declaration BMW. On models with diesel engines account for 38% of the German company sold in 2014

Some manufacturers were quick to disown advance fiddling with the engine. "The company does not use any" hoax device "and not trying to mislead the public, regulatory authorities and investors", - the report says Ford.

"When one of the industry con - this, of course, is reflected in all the others. But this particular problem VW. He attempted to use a method of blocking during normal operation the emission control system, so as not to reduce the capacity of the car. Other manufacturers present on the US market, it is not necessary to resort to such devices, as they offer greater engine power and volume, and their clients are not sodemanding fuel consumption, "- he said in an interview with Les Echos, former CEO of Renault Louis Schweitzer.

Errors Price: as producers pay for shortcomings

The automaker was fined tens of millions of dollars for violating safety or environmental requirements - has long been a common thing for the US regulators. Violation became too much, they believe, demonstrating the intention of dramatically raising the bar: Now we are talking about payments to hundreds and even billions of dollars

$ 1.2 billion

Japanese concern Toyota to pay a fine to the US authorities, for having concealed a problem with the electric accelerator pedal in vehicles Toyota and Lexus. US Justice Department in early 2014 acknowledged the concern guilty of cheating customers. Back in September 2009, Toyota experts found that some models of the concern may spontaneously accelerated, but concealed this information from consumers. In 2010, as a result of the investigation it became clear that the fault was the cause of several accidents with victims. Toyota claimed that the accelerator jammed due to poorly secured saloon matss. However, the company withdrew to eliminate defects of about 10 million cars produced in 2009-2010. In just a few years before the scandal the leadership in Toyota Motor «captured financially oriented pirates, acting against the interests of the family owners of the corporation <...> for their opinion of end users no longer have a value of" express their opinion on the causes of the problems in the corporation, Jim Press, who headed up in 2007 its North American division

$ 935 million

To pay the world's largest automaker - GM defect cover-up, which could lead to the deaths of 124 people. In February 2014 the United States after an investigation initiated by journalists several accidents revealed that the models Chevrolet Cobalt and Chevrolet Saturn while driving under the weight of the ignition key fob could turn in the lock, turn off the engine and disabling the airbag. The company knew about the problem, but did not make it public. In May 2014 GM paid $ 35 million for the delay in response to the request of the Department of Transport of the defect. In September 2015 GM signed an agreement with the US Justice Department, promising to pay a fine of $900 million, Reuters reported. This will concern, and his staff to avoid litigation, as well as to stop a government investigation. As a result of the scandal GM recalled to correct a defect of nearly 3 million cars

$ 745 million

Hyundai and Kia have paid for decreasing fuel consumption data for vehicles. In November 2012 the US Environmental Protection Agency (EPA) found that in 13 models of these manufacturers, issued in 2010-2012., Including a best-selling Hyundai Elantra and Kia Soul, said in fuel consumption has been advertising for at least a few percent lower than that shown in the tests. The company claims that their cars are 40 miles per gallon (5.88 liters per 100 km). A few months later it agreed to pay US Hyundai car owners compensation of $ 210 million, and Kia -. In $ 185 million more a year and half the US Justice Department acknowledged Korean manufacturers violators Clean Air Act - the same normative document which figures in the scandal with Volkswagen. Now companies have to pay $ 100 million in fines, $ 200 million - for exceeding the quotas for greenhouse gas emissions, and $ 50 million - for notThe dependence testing vehicles

34 million

The car will be revoked due to a defect airbags - the largest recall in US history. US Justice Department and the National Highway Traffic Safety Administration (NHTSA) conduct an investigation into the Japanese company Takata, which supplied GM, Toyota, Nissan, Honda and Mazda cushions, which have been found as far back as 2000, when an accident could trigger a slowdown or explode, throwing metal fragments. In late 2014, the company recognized the quality problems, its president Stephen Stocker resigned. grand fine, experts warn may be awarded Takata As a result of the investigation. While in the US fined manufacturers, Takata and use the kit, according to the officials to withhold information about their defects from regulators. For example, a fine of $ 35 million threatens Honda

Death of a diesel engine?

In any case, environmentalists received additional trumps in disputes with regulators. The scandal with the VW, says Jos Dings, director of the Belgian research organization Transport & Environment, will make Europeyskih officials more closely examine the fuel, the promotion of which, until recently, they helped in many different ways, from tax breaks to the parking lot of discounts - appealing to the lower price compared to gasoline and lower carbon dioxide emissions.

Recently blame for air pollution in Europe began to lay it on diesel engines due to their presence in the exhaust of nitrogen oxides and particulates. Paris Mayor Anne Hidalgo even offered this year to ban the use of diesel cars in the city.

Obsolete norms of European tests that automakers have learned to circumvent a legitimate way - one of the causes of today's problems, environmentalists say. According to the UK Committee on Climate Change and ICCT, the average for all brands of new passenger cars the difference in carbon dioxide emissions during the tests in laboratory and real conditions has increased from approximately 10% in 2002 to 35% in 2014

From 2017 will be carried out tests in real conditions on the new EU, tougher standards, but it had to be doneI have long been convinced Nick Malden, CEO Emissions Analytics. "Over the past four years, we have tested 250 European diesel cars, and only five correspond to their stated standards", - he says.

Experts even wondered whether the scandal will lead to loss of diesel vehicles. "Does this mean the end of a diesel engine? Yes, it is quite possible ", - says Max Warburton, auto analyst at Sanford C. Bernstein. According to him, reducing the market share of diesel cars will accelerate in Europe, and US growth will stop. Will cease to be manufactured diesel versions of small cars - the VW Golf and from below to compact urban cars, because the high cost of the technology to clean up their emissions lead to the actual resetting the rate of profit, according to UBS analyst Philip Ushuaia. Suffer the profitability of European automakers, including premium, which, using less stringent standards, before investing less in an environmentally friendly diesel engines, analysts Credit Suisse.

Most diesel cars in the world sells just VW (2,44 million2013), although they make up only a quarter of the company's sales (see. Chart). But at BMW and Daimler is one of the highest shares of diesel engines in European sales - 81 and 71%, respectively, and at Volvo and it does 90%, calculated Exane BNP Paribas.
"The story of the VW just the latest blow to a diesel engine, - says Pearson from Exane BNP Paribas. - Society and, consequently, the policy of turning away from him, but on the following environmental standards costs are rising. " Fighting NOx emissions to meet the "Euro-6" and leads to a decrease in efficiency of this fuel, analysts said Credit Suisse. According to their calculations, as a result of the current 4% advantage diesel car ownership compared to petrol will become a 6% -s' losses.

"If diesel engine manufacturers will be able to show that they are able to provide us a car with very low emissions, then, I think, when the dust settles, the worry is not particularly about anything, - said Frank Kelly, professor at King's College London and Environment Specialist. - And if not, then the industry will slowly die. "

Russia awaits

Acting in Russian "Euro-4 & raquo; It allows for diesel emissions of 0.25 g / km. In a number of controversial VW tests in the United States, these standards have been exceeded. Last week Rosstandart asked the Russian representative VW and BMW explanations and materials for the problem with the emission control system.

Foreign automakers often provide for certification in the Russian environmental certificates obtained abroad, revealing facts of falsification of documents threatens to recall the entire batch of cars from the market, he explained the Deputy Director General of FSUE "NAMI" Denis Zagarin. But to carry out additional checks VW cars and other environmentally friendly companies, including Russian, US on its own initiative does not plan, he says, this procedure is expensive - costing more than 1 million rubles. one model. Orders from the Russian regulatory authorities, too, have been received - most likely, the government will wait for the outcome "dizelgeyta" in Europe, he added Zagarin.

Rosstandart waiting for a response from the manufacturers: for example, VW Inform us that an internal investigation would be carried out within a month, the results to thetorogo present in service, then the possible development of the situation, told "Vedomosti" representative Rosstandart.