Volkswagen Scandal: explained

In the latest in a series of big announcements from German carmaker Volkswagen, the company have confirmed that around 8 million diesel vehicles in the European Union were fitted with software capable of cheating vehicle emissions tests.

According to Reuters, a copy of the letter sent to German lawmakers clarifies that vehicles with 1.2, 1.6 and 2.0 litre variants of the engine type EA 189 are affected.

Since the scandal broke the situation has got progressively worse, with more and more cars being affected. It is a huge blow to a carmaker that has built its reputation on reliability and it has plenty to lose; its 590,000 employees produce nearly 41,000 vehicles daily and about 16% of cars on UK roads are VW Group cars.

So what exactly is the scandal about?

Essentially, VW has been found to have fitted its cars with a computer software that can sense when it is being emissions tested in a laboratory and puts the car into a safety mode; running below full power and therefore diminishing emissions.

VW has recently prided itself on its eco-friendly cars, even having major marketing campaign in the US based on their cars’ low emissions. However, the EPA have so far found over 482,000 cars in the US only that are fitted with the software, including the VW-manufactured Audi A3, and the VW brands Jetta, Beetle, Golf and Passat.

Many car drivers are now faced with the possibility that their car is less economical and more costly to run than they initially believed.

What action has been taken?

An internal inquiry has been launched by the company and they have recalled almost 500,000 cars in the US alone as well as setting €6.5bn (£4.7bn) to cover costs. However, it is more than likely that this will not be enough; there is speculation that the US Justice Department will launch a criminal probe and if compensation claims get the go ahead, the full figure could be much higher.

Chief executive of the group Martin Winterkorn has resigned, although he denies any wrongdoing.

I own a VW – what should I do?

The cars are still safe to drive, so owners can continue to drive as normal. However, in the long term, compensation claims may be possible.

Although the scandal is still in its infancy, VW has started outlining which brands and models are likely to have been affected and the next steps to be taken. In the next few days, the UK are will give the vehicle identification numbers to retailers and initiating a process in which owners can check if their cars are affected.

There is some speculation that the crisis will give way to compensation claims by owners, although the likelihood of this has not been confirmed. However, Jacqueline Young, head of group litigation at law firm Slater and Gordon has told the BBC that “if UK cars are found to contain defeat devices, this would give rise to a claim by car owners and car dealerships who bought VW vehicles on the basis of false information and whose asset has now devalued”.

What about investors?

Unsurprisingly, the share price of Volkswagen (ETR:VOW) has dropped right down after the scandal was revealed on the 19th September, from around 160 pence per share to 134. Since then it has largely remained at that price, but sinking lower as more news has emerged over the last couple of days; it is now trading at 103 pence per share.

Automakers have been having a difficult time lately, with the slowdown in China affecting demand in that area and leaving companies with disappointing financial results in the last quarter.

Whether VW can recover from what is undoubtedly the biggest scandal in its history still remains to be seen.


Miranda Wadham on 06/10/2015
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