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Volkswagen Sets Aside $7.2 Billion to Pay for Emissions Cheating Scandal

It's a figure that could be eclipsed by potential penalties and lawsuits facing the German automaker in the U.S.
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Volkswagen said Tuesday it is setting aside more than $7.2 billion to cover the anticipated cost of resolving its diesel emissions cheating scandal, a figure that could be eclipsed by potential penalties and lawsuits facing the German automaker in the U.S.

The issue, meanwhile, now is spreading to other markets, with VW confirming it used the same illicit software – dubbed a “defeat device” by U.S. regulators – on 11 million diesel vehicles sold worldwide. That has triggered calls for new investigations in markets from South Korea to the European Union.

The money that VW is setting aside, 6.5 billion euros, is part of the company’s efforts to “win back the trust of our customers,” VW said in a statement Tuesday.

Related: Volkswagen's U.S. Chief Says 'We Have Totally Screwed Up'

Meanwhile, it noted that it is “working intensely” to find a technical solution to removing the software without reducing the performance of affected VW products. A total of 488,000 VW and Audi brand vehicles equipped with four-cylinder engines were recalled Friday, while the automaker ordered dealers to stop selling products equipped with those diesels.

Concerns about the mounting costs and potential impact to VW’s reputation have led to a panic among the company’s investors. On Monday, the value of VW shares plunged by 17 percent, and the sell-off was continuing midday Tuesday on the German exchange.

The crisis could lead to a shake-up in management at Volkswagen AG, industry analysts have warned.

The U.S. Environmental Protection Administration announced Friday that the automaker had surreptitiously equipped its diesel vehicles with software designed to recognize when those products were being tested on a dynamometer, essentially an automotive treadmill. In such a situation, the full complement of emissions controls systems would operate at their maximum, bringing the vehicles into compliance with U.S. – and even tougher California – emissions standards.

But once the testing would be completed, according to the EPA, the vehicles would revert to a different mode, effectively allowing emissions levels to increase by as much as 40 times.

Related: U.S. Orders VW to Recall 482,000 Cars for Tricking Emissions Tests

In its new statement, VW gave more details, admitting that "discrepancies" related to vehicles with Type EA 189 engines and involved some 11 million vehicles worldwide.

"A noticeable deviation between bench test results and actual road use was established solely for this type of engine," the VW statement said. "Volkswagen is working intensely to eliminate these deviations through technical measures."

While the maker acknowledged the computer control systems on 11 million vehicles contain the code, it also claimed that the "majority of these engines the software does not have any effect."

The U.S. has the world’s toughest diesel emissions standards, largely focusing on levels of micro-fine particulates and smog-causing oxides of nitrogen. In Europe, where the emphasis is on global warming gases like CO2, diesels handily meet test standards because they are so energy efficient.

Even so, there are mounting calls in Europe for a full investigation of the VW diesel test scandal, and CEO Martin Winterkorn has told Germany’s transit ministry the company will fully cooperate with its investigation. Officials in South Korea also have called for an investigation.

Meanwhile, the U.S. Justice Department has reportedly taken the preliminary steps to open a criminal investigation.

Whether the $7.3 billion set aside is enough to cover VW’s costs from the scandal remains to be seen. According to EPA rules, VW could be fined up to $37,500 for each vehicle not in compliance with emissions regulations, or a total of around $18 billion. California regulators could issue their own fines.

Several law firms also have taken initial steps of their own to bring class action lawsuits against Volkswagen on behalf of owners.

But perhaps the biggest question concerns the impact the scandal will have on VW’s image and sales. The maker overtook Toyota to become the world’s best-selling automaker during the first half of 2015. But it has been struggling to build momentum in the critical American market where about a quarter of its sales are diesel-powered vehicles. For now, VW has halted the sale of those models until it can come up with a fix for the faulty software.

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