VW’s U.S. Diesel Fix Remains Work in Progress

DETROIT – Everything’s on the table, Volkswagen executives here say, referring to proposals for remedying a diesel-emissions scandal that is forcing the automaker to recall some 600,000 vehicles in the U.S. and work overtime to repair its tarnished image.

Top management, in the U.S. for the North American International Auto Show this week, is expected to meet with EPA and California Air Resources Board officials Wednesday to discuss a fix for the diesels, which exceed allowable smog levels due to software VW engineered to purposely bypass emissions equipment other than during certification testing.

U.S. regulators have expressed frustration with the pace of negotiations over a fix in the U.S., and on Tuesday CARB turned down a recall proposal put forth by VW. However, the automaker says the rejection was of a plan submitted in December and does not reflect its current thinking.

VW executives here contend they are cooperating fully with the agencies, but they decline to detail any potential remedies for the defective 2.0L 4-cyl. and 3.0L V-6 TDIs, saying they want to firm up a plan with regulators before going public.

In the process they’ve ruled out almost nothing as part of its mea culpa, including buying back certain vehicles, applying carbon-dioxide credits to compensate for the excess emissions spewed by the defective models and making environmental contributions in unrelated areas.

“I think we will be more intelligent in a couple weeks,” Volkswagen of America CEO Michael Horn says, declining to confirm the accuracy of reports the automaker could repurchase up to 115,000 of the defective vehicles.

VW CEO Matthias Mueller, in Detroit for the first time since replacing an embattled Martin Winterkorn in the top job last fall, is among several group executives expressing regret this week for the emissions-certification subterfuge.

“I would like to apologize once again for what went wrong at Volkswagen,” he says at a pre-auto show media reception on Sunday. “I fully understand the severity of the emissions issue. Our most important task in 2016 is to win back trust. It’s not only our cars we have to fix, we know we have to repair our credibility too.”

But remarks made later to reporters in a scrum got Mueller into trouble, as VW’s credibility was questioned when he indicated the company simply misunderstood U.S. regulations in engineering its deceptive diesel-emissions system, a soundbite carried by broadcast news service NPR.

The automaker later said the CEO misunderstood the question due to the crush of reporters and ambient noise at the event, and Mueller apologized once again. But other than brief scrums with reporters on NAIAS stands, VW kept officials away from the media; there were no typical one-on-one or group interviews conducted away from the crowded show floor.

Audi CEO Rupert Stadler, whose brand also is affected by the diesel scandal, took the time to apologize ahead of unveiling a new fuel-cell concept vehicle at the show.

“It’s been an inflection point at Audi and within VW,” he notes. “And we’re 100% committed to getting it resolved.”

Unlike VW, which saw sales in the U.S. dip 4.8% last year, Audi has escaped relatively unscathed, posting record volumes of 202,202 units last year, a testament to the marque’s strength.

“The brand is holding up quite well from a business metrics point of view,” Audi of America CEO Scott Keogh tells WardsAuto. “When you have a strong brand, people tend to give you the benefit of the doubt. But I don’t want to take that for granted. There were 14,000 (U.S. Audi) customers impacted (by the diesel scandal). And we’re going to make it right.”

Road Tougher for VW Brand

Not as well-positioned in the U.S., the VW brand will have a tougher road. It already has doled out two $500 debit cards as compensation to owners. It also has hired attorney Kenneth Feinberg, fresh from overseeing defective-switch lawsuit settlements at General Motors, to oversee potential additional compensation for disgruntled vehicle owners threatening to sue.

But those moves are just the beginning, as executives agree it will take considerable time for VW to dig out of the scandal. Fixing the vehicles will range from quick – ’16 models will require only a software flash – to highly complex procedures.

Horn says VW’s goal is to ensure the solution doesn’t erode fuel economy or power outputs, both of which benefitted from the emissions-system override. Working to achieve that target is complicating the task for some 250 German engineers trying to solve the problem.

“This is a very intensive and good discussion, because it’s not just changing a switch here and a part there,” Horn says of the brainstorming under way to repair the diesels. “Because it is going into the entire aftertreatment of the car, with diesel particle filters and catalyzers, and you have to manage the entire onboard electronics differently.

“This is not the normal recall process. You have to put the reliability in the cars, you have to test the whole thing. And this takes more time than just to exchange a part.”

One solution could be a new catalyst for some 430,000 of the vehicles that would better clean the exhaust before it exits the tailpipe, according to a report from German newspaper Bild am Sonntag.

Horn also doesn’t rule out negotiations that would allow VW to avoid massive fines – the Justice Dept. has filed a $48 billion suit against the automaker – in return for pledges to invest in electric vehicles or provide financial backing to other environmental-improvement projects, as some have suggested. However, he stops short of saying whether the company is proposing such solutions.

“I love the creativity in this market,” he says. “I love everybody who is thinking about this and being innovative. I think everything we can do right for the environment using e-mobility and the rest is a good idea, rather than paying fines that end up in some unknown funds and pockets.”

Whatever the plan, VW expects through the end of next year to make repairs, but Horn says there’s evidence customers will be patient.

The automaker has been polling 1,000-3,000 owners and other U.S. consumers every two weeks to gauge ongoing reaction to the scandal, he says, and “this has been very positive.

“After we brought out this ($500) customer (debit-card) package, this improved significantly,” Horn says. “We also polled whether customers would buy TDI again, and this too was very positive.”

On Sunday, Mueller made it clear Volkswagen no longer will make becoming the world’s biggest automaker by volume its primary target, saying “headline-making records are not how we measure ourselves. For us, size is not an end in itself.”

VW’s efforts to be the No.1 seller are blamed in part for creating pressure within the company that led to the emissions-cheating scandal.

Instead, Mueller says VW now will focus on “value-creating growth” in its 2025 objectives to be detailed this summer, vowing the diesel crisis will lead to the automaker becoming “a better company in terms of structure, strategy and culture.”

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