In The News


f t # e
Washington, January 14, 2016 | comments

VW bungles US trip

By: Alan Katz and Jeff Plungis

Washington - Volkswagen CEO Matthias Mueller’s visit to the US started with a bungled media interview in Detroit and ended in Washington on Wednesday with only a terse thanks-for-stopping-by message from regulators investigating the cheating scandal set to cost it billions of dollars.

In between, authorities in California, with the support of the US Environmental Protection Agency, harshly rejected the company’s original proposal for fixing its polluting diesels, calling it "substantially deficient."

“It hasn’t been the best of weeks for VW,” said Akshay Anand, an analyst with Kelley Blue Book in Irvine, California. “It’s clear there’s a gap in communication or understanding somewhere, and they need to fix that.”

Mueller met with EPA Administrator Gina McCarthy for about an hour Wednesday. The company presented new proposals, after which the agency issued a two-sentence public statement: "We appreciated the conversation with Volkswagen. We will continue to work toward a solution."

The shares fell 2.5 percent to 117.50 euros at 9:51 a.m. in Frankfurt. Volkswagen has lost nearly 15 billion euros ($16.3 billion) in market value since the scandal broke in September.

Auto show

Earlier in his US trip, when he was attending the Detroit auto show, Mueller touched off a media storm when he said in a National Public Radio interview that Volkswagen “didn’t lie” when first asked about irregularities between test and real-life emissions in its diesel cars. He blamed it instead on a technical problem that came from a misinterpretation of US law. Mueller apologised in a follow-up interview, citing noisy surroundings in the first conversation.

"This is beyond stubbing a toe, it’s tragic comedy," said Eric Noble, president of the CarLab consulting firm in Orange, California.

In fact, Volkswagen has admitted that since 2009 it had been rigging its diesel cars so they would pass US emissions tests. Outside of the testing lab, it emitted nitrogen oxides at up to 40 times permitted levels. Volkswagen obfuscated for nearly a year before admitting what it had done, the EPA said in September. Its relations with the agency have been strained since then.

Now Europe’s largest automaker is struggling to get approval for its engine fixes in the US, which has tighter standards on nitrogen oxides - the emissions in question - than Volkswagen’s home European market. With the company’s diesels pulled from the US, Volkswagen-brand sales have slumped, falling 17 percent in the past two months while the market rose by 5 percent.

CARB rejection

If Volkswagen succeeds in getting approval for a recall plan relatively soon, the damage will probably be minimal. But the longer it takes, the worse it gets, Anand said.

On Tuesday, the California Air Resources Board blasted Volkswagen’s initial recall proposal, saying it lacked sufficient detail and that Volkswagen’s plan would fail to correct the problems in an expeditious manner. EPA said it agreed with CARB that VW hadn’t submitted an “approvable” proposal.

The US Department of Justice sued Volkswagen last week, outlining penalties that could reach $46 billion, according to a Bloomberg Intelligence estimate. The actual figure isn’t likely to be anywhere near that high, though Justice Department officials said they expect a multibillion-dollar outcome. The automaker is also facing lawsuits from state attorneys general in the US, hundreds of private lawsuits and investigations in at least seven countries.

"We had another week of activity, a fairly important one - Mueller was here, there were new models at the show, activity with regulators - and we’re apparently no closer to a solution than we were at the start of the week or at the start of the scandal," said Karl Brauer, a senior analyst with Kelley Blue Book. Surveys done by the firm showed that VW owners were cautiously optimistic about how Volkswagen would handle a fix. "But the longer it takes, the more nervous owners might get."

Settlement programme

Volkswagen’s inability to get an agreement from the EPA and California on a recall and to make up for the excess pollution also means that it can’t advance on a settlement program being designed by lawyer Ken Feinberg that aims to convince consumers not to sue the company, and could help reduce government penalties.

The settlement program, aimed at compensating consumers and convincing them to bring in their cars to be fixed or bought back, can’t begin until the EPA and California regulators approve a recall, Hans-Gerd Bode, a Volkswagen spokesman, said when he stepped out of a lunch Mueller had with US lawmakers in the Capitol on Wednesday, after the EPA meeting.

That lunch discussion focused on conservation and talk of the scandal was very limited, said Congressman Henry Cuellar, a Texas Democrat. "They do understand that there is a challenge and they are working hard on that," Cuellar said afterward.

Mueller spent much of his time in Washington speaking with lawmakers. He dined on Monday with Republican Senator Bob Corker of Tennessee, where VW has a manufacturing plant that is undergoing a major expansion. On Tuesday, he met with Democratic Senator Richard Blumenthal of Connecticut and Representative Tim Murphy of Pennsylvania, the House Republican leading a congressional inquiry into the emissions cheating.

"We know that Volkswagen is putting together a plan to repurchase vehicles, to offer some compensations, to fix cars, etc. It’s quite a bit," Murphy said after meeting with Mueller. "It’s going to be costly for them."

Volkswagen set aside 6.7 billion euros in the third quarter to help pay for the crisis and has acknowledged this won’t be enough.

f t # e