Opinion: Volkswagen shoots itself in the foot

Cheating the authorities in United States of America isn’t a wise thing to do. But that is exactly what Volkswagen, world’s largest manufacturer (first half of 2015) of cars did. According to U.S. Environmental Protection Agency (EPA), Volkswagen deployed a sophisticated software algorithm on some cars that detects “when the car is undergoing official emissions testing, and turns full emissions controls on only during the test.” The effectiveness of the cars’ emissions-control devices is “greatly reduced during all normal driving situations.” The Volkswagen software is a “defeat device” as defined by the Clean Air Act, says the EPA.

The allegation is 500,000 diesel cars were fitted with this defeat device from year 2008 which include four models – Jetta, Beetle, Golf and Passat—and the Audi A3 (Volkswagen is the parent company of Audi, just in case you are wondering how is Audi connected to VW). These cars would emit upto 40 times the legal limit of nitrogen oxide according to EPA. During normal driving, it helped the performance of the car.

The company shares have plummeted 23 percent, wiping off almost $17 billion in value for a company which has a market capital of about $75 billion before the news broke out. The sales of these models have already been stopped in USA and the CEO of Volkswagen has tendered an apology. “I personally am deeply sorry that we have broken the trust of our customers and the public,” Martin Winterkorn said.

The scale of this scandal is gargantuan. Volkswagen will be liable to fines upto $18 billion as, the EPA said that the fine for each vehicle that did not comply with federal clean air rules would be up to $37,500 (£24,000). With the wipe out of about quarter of the valuation on the stock market and another $18 billion in fines, this could potentially be devastating for a company that has built credibility over several decades.

VW group has already has appointed a third party for investigation to find the ‘real culprits’ but it seems the leadership will not be able to escape unscathed from this goof-up. That the EPA was not able to detect for about 8 years only creates more problems since the number of cars sold and the proportional fines increased where it could threaten the very existence of the group.

This is, considering that defeat devices were fitted to cars sold in America. If similar cases are found in European Union, it could potentially add to the crises. With the leadership already throwing in the towel, it will be hard to convince the authorities which could help save face.

The US law firm Hagens Berman is launching a class-action suit against VW on behalf of people who bought the relevant cars, and lawsuits can be very expensive if we are to go by history of American law. “While Volkswagen tells consumers that its diesel cars meet California emissions standards, vehicle owners are duped into paying for vehicles that do not meet this standard and unknowingly pay more for quality they never receive,” the firm alleged.

Big of decisions are usually taken by the higher management and cannot be done without using resources. After all, developing a sophisticated algorithm takes time, money and talent which doesn’t come cheap. Taking into consideration the factors, top management will be at loss of words to explain reasons behind its action at the end of the investigation. Volkswagen scandal might become the biggest in automotive world.

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