More trouble for Volkswagen: Software in 2016 diesels could help exhaust systems test cleaner

U.S. regulators say they have a lot more questions for Volkswagen, triggered by the company’s recent disclosure of additional suspect software in 2016 diesel models that potentially would help exhaust systems run cleaner during government tests.

That’s more bad news for VW dealers looking for new cars to replace the ones they can no longer sell because of the worldwide cheating scandal already engulfing the world’s largest automaker. And, depending on what the Environmental Protection Agency eventually finds, it raises the possibility of even more severe punishment.

Volkswagen confirmed to The Associated Press on Tuesday that the “auxiliary emissions control device” at issue operates differently from the “defeat” device software included in the company’s 2009 to 2015 models disclosed last month.

The new software was first revealed to Environmental Protection Agency and California regulators on Sept. 29, prompting the company last week to withdraw applications for approval to sell the 2016 cars in the U.S.

“We have a long list of questions for VW about this,” said Janet McCabe, acting assistant EPA administrator for air quality. “We’re getting some answers from them, but we do not have all the answers yet.”

The delay means that thousands of 2016 Beetles, Golfs and Jettas will remain quarantined in U.S. ports until a fix can be developed, approved and implemented. Diesel versions of the Passat sedan manufactured at the company’s plant in Chattanooga, Tennessee, also are on hold.

Volkswagen already faces a criminal investigation and billions of dollars in fines for violating the Clean Air Act for its earlier emissions cheat, as well as a raft of state investigations and class-action lawsuits filed on behalf of customers.

If EPA rules the new software is a second defeat device specifically aimed at gaming government emissions tests, it would call into question repeated assertions by top VW executives that responsibility for the cheating scheme lay with a handful of rogue software developers who wrote the illegal code installed in prior generations of its four-cylinder diesel engines.

That a separate device was included in the redesigned 2016 cars could suggest a multi-year effort by the company to influence U.S. emissions tests that continued even after regulators began pressing the company last year about irregularities with the emissions produced by the older cars.

The software at issue makes a pollution-control catalyst heat up faster, improving performance of the device that separates smog-causing nitrogen oxide into harmless nitrogen and oxygen gases.

“This has the function of a warmup strategy which is subject to approval by the agencies,” said Jeannine Ginivan, a VW spokeswoman. “The agencies are currently evaluating this and Volkswagen is submitting additional information.”

Automakers routinely place auxiliary emissions control devices on passenger vehicles, though they are required by law to disclose them as part of the process to receive the emissions certifications that are required to sell the cars.

EPA’s McCabe wouldn’t say if VW’s failure to disclose the software in its 2016 applications was illegal. “I don’t want to speak to any potential subjects of an enforcement activity,” she said.

If VW was cheating a second time, that would probably mean higher fines against the company, said Kelley Blue Book Senior Analyst Karl Brauer.

Regulators are “going to be even more angry than they already are,” Brauer said. “The punitive actions from the EPA are only going to get more aggressive.”

The German automaker already faces up to $18 billion in potential fines over the nearly half-million vehicles sold with the initial emissions-rigging software.

AP first reported Oct. 7 that the EPA and California Air Resources Board were investigating “the nature and purpose” of additional software on the new VW models, but at the time both the company and regulators declined to provide details about what the device does or how it works.

Volkswagen of America CEO Michael Horn said in congressional testimony last week that the German automaker had withdrawn applications seeking certification of its 2016 diesels because of on-board software that hadn’t been disclosed to regulators. However, Horn’s statement left unclear whether the issue with the 2016 models was the same as that in the earlier models, or whether it potentially constituted a new violation.

A congressional staffer briefed on the issue told AP that VW probably didn’t need the additional software to meet government emissions standards, but that the device appears intended to ensure the 2016 cars would pass inspection by wider margins. The staffer spoke on condition of anonymity because he was not authorized to talk publicly about the ongoing investigation.

VW is now working with regulators to continue the certification process needed to sell its 2016 diesel cars.

 

Winter tires key to driving safety for work and leisure

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MPI: 75 per cent of vehicle thefts in Manitoba involve keys left inside

WINNIPEG – Manitoba drivers are making it easy for thieves to steal their vehicles.

That’s according to Manitoba Public Insurance, which launched an awareness campaign Wednesday to urge people to keep their keys in secure areas at all times.

The Crown corporation says of the 400 vehicles stolen this past spring, 75 per cent of them involved the use of keys.

MPI says key-related thefts in this spring increased 11 per cent, compared to the spring of 2014.

Minister Gord Mackintosh says immobilizers have helped reduce auto theft rates and that over the past 10 years, auto thefts in Winnipeg have declined 85 per cent.

MPI’s Ward Keith said immobilizers are only effective if thieves don’t have access to a vehicle’s keys.

“For public safety it’s important to eliminate the opportunity for these crimes,” said Keith.

“Stolen vehicles are typically driven dangerously, potentially endangering the lives of innocent motorist, pedestrians and cyclists.”

Winnipeg police Detective Cory McKillop said leaving keys inside or leaving your vehicle running makes it an easy target _ thieves “car hop”, or try to open doors to several cars in the same area.

McKillop said police have learned through interviews with car thieves that about one in every 10 cars checked by thieves has keys inside.

With winter right around the corner, CAA Manitoba said vehicles only need a couple minutes to warm up.

“There is no reason to leave your keys in the ignition,” said Mike Mager, CAA Manitoba president and CEO, in a news release.

“To reduce warm-up time, plug your vehicle in when it’s colder than -18 C.”

When MPI was asked if that means vehicle owners shouldn’t warm up their cars, Keith said they shouldn’t leave the vehicle running unattended.

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Costs from scandal piling up for VW, with spot as No. 1 carmaker likely to be lost

By David McHugh And Pan Pylas

THE ASSOCIATED PRESS

FRANKFURT – For Volkswagen, the cost of its cheating on emissions tests in the U.S. is likely to run into the tens of billions of dollars and prematurely end its long-sought status as the world’s biggest carmaker.

As well as fines from governments, Volkswagen faces the massive expense of recalling up to 11 million cars globally.

Already the company has set aside 6.5 billion euros ($7.3 billion) to cover the fines and recalls — but it’s a fair bet that’s only the start. Some experts estimate the bill could ultimately be five times as large.

Beyond initial charges, the company is expected to suffer a drop in sales. And the damage to the brand’s image could take years to heal.

“This is damaging stuff that goes way beyond negligence and incompetence,” said Jeremy Robinson-Leon, principal and chief operating officer at New York-based PR firm Group Gordon. “The issue here is fraud and pretty brazen fraud at that.”

Here’s a look at the financial reckoning the Wolfsburg, Germany-based automaker will face. The blows could fall in multiple areas.

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FINANCIAL CHARGES

The costs of fines, lawsuits and recalls are hard to estimate but have the potential to snowball.

Marc-Rene Tonn, an analyst at Warburg Research, says they could ultimately exceed 35 billion euros ($39 billion).

A chunk of that would come from fines from the U.S. Environmental Protection Agency, which could amount to as much as $18 billion. In theory, each of the 482,000 cars identified as having the deceptive software could be slapped with a $37,500 penalty. The actual fine will likely be much lower if the company co-operates with authorities. Tonn says it could reach 12.5 billion euros ($14 billion).

The carmaker faces dozens of lawsuits from U.S. states and counties. One county in Texas is seeking penalties worth $100 million, and that’s just one lawsuit.

Volkswagen may also face fines in other countries where it sold such rigged cars if there is evidence it cheated on emissions tests there, too. It is being investigated in Germany and other European countries.

Customers who feel cheated are going after Volkswagen as well, with several class-action lawsuits already filed in the U.S. and Europe. That could amount to billions more in damages.

And the cost of recalling and fixing the cars could run 2 billion euros ($2.2 billion) beyond what Volkswagen set aside, Tonn wrote in a research note to investors.

As a result, analysts are predicting a serious hit to Volkswagen’s profits.

Tonn halved his profit forecast for this year to 6.4 billion euros. For 2016, he reduced it to 11.0 billion euros from 15.7 billion euros.

Volkswagen has strong finances, starting with 20 billion euros in net industrial cash. It needs to keep at least 10 billion euros of that however to maintain its credit rating.

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SALES

Volkswagen is expected to see a drop in interest in its cars because of the scandal, especially in the United States.

Already in September, Volkswagen’s sales in the U.S. barely grew despite the wider market’s double-digit growth, as it had to halt sales of many diesel vehicles.

Auto analyst Ferdinand Dudenhoeffer at the University of Duisburg-Essen estimates that Volkswagen could see vehicle sales fall by up to 10 per cent globally next year.

Earnings could take a bigger hit, as the company may have to hold down prices through purchasing incentives in order to maintain sales.

To make matters worse, the scandal comes just as demand is slowing in China, where Volkswagen’s brands are heavily exposed.

As for the company’s strategic goal of maintaining its lead over Toyota as the world’s biggest automaker, Dudenhoeffer says, “Forget about it.”

Toyota’s 10.23 million vehicles edged Volkswagen’s 10.14 million last year, though Volkswagen pulled ahead in the first six months of this year.

Dudenhoeffer said it would take Volkswagen at least five years to have another chance at passing Toyota.

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SHARES

The scandal has caused Volkswagen’s shares to drop by about 40 per cent, lopping off about 30 billion euros ($33 billion) from the company’s market value.

That hit has been taken mostly by its big shareholders: the Piech and Porsche families, who control over 50 per cent of the company, and the other major shareholders: the state of Lower Saxony and Qatar Holdings.

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BRAND VALUE

Perhaps the worst news for Volkswagen relates to the erosion of its brand — the intangible value of built up over decades.

The scandal has wiped $10 billion off the value of Volkswagen’s $31 billion brand, according to Brand Finance, a London-based firm that values corporate names by estimating what a company would have had to pay to license it if it didn’t already own it. The damage could be worse than that suffered by Toyota over unintended vehicle acceleration.

Volkswagen’s carefully tended brand means it has been able to charge more for the equivalent vehicle than competitors — a key driver of profit in the highly competitive market for basic transportation. Morgan Stanley estimated that weaker pricing could cost up to 4 billion euros in lost earnings next year.

Rebuilding trust will take time and money, including advertising.

Ioannis Ioannou, assistant professor of strategy and entrepreneurship at London Business School, said one thing Volkswagen could do is to invest in emissions testing in collaboration with the U.S. Environmental Protection Agency.

“Recovery will not be quick and will take time,” he said. “Volkswagen must be prepared to heavily invest in this recovery to bring back the trust and integrity it needs to survive.”

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Manitoba Crown insurer puts brakes on some deductibles for vandalism

Manitoba drivers whose vehicles are vandalized are getting a break on their insurance claims.

Manitoba Public Insurance says effective immediately, motorists with deductibles of $100 and $200 can qualify to have them reduced to zero when a claim is made for damage caused by vandalism.

The Crown insurance company expects the move will affect 75 per cent of all of its customers.

To help cover the move, most drivers will see a $3 to $5 rate hike on their premiums starting in March of next year.

MPI says there were about 10,000 vandalism claims last year, and that the issue came to the forefront earlier this year after a rash of crimes in the Winnipeg region.

The average cost of a vandalism claim is about $1,300.

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