2016, May - Jun

Windfall for TDI owners? 

By Cliff Leppke

Diesel agreement only hints at what’s to come in June

If this were vintage daytime TV, VW’s executives would be host Monty Hall and its engineers would replace the lovely Carol Merrill standing next to boxes hiding possible pollution-control prizes. Their goal: Let’s Make a Deal with the EPA and the California Air Resources Board, which are like contestants wearing bizarre rule-making or breaking costumes. 

That deal was necessary because the Justice Department had drawn an April 21 line in the sand involving about 480,000 polluting VW and Audi models powered by 2.0-liter diesel engines. And on that date, VW, the U.S. government and CARB reached an agreement with multiple moving parts: VW will buy back the affected TDIs or cancel leases, repair them and offer “substantial compensation” for the affected owners regardless of which option they choose, U.S. District Judge Charles Breyer said in San Francisco.

As part of the agreement, the judge said VW will establish a fund to address environmental damage caused by the excess nitrogen oxide emissions — up to 40 percent above the legal limit — in addition to promoting green vehicle technologies. 

In a statement, VW says it “intends to compensate its customers fully and to remediate any impact on the environment from excess diesel emissions.” It added: “Volkswagen is committed to earning back the trust of its customers, dealers, regulators and the American public. These agreements in principle are an important step on the road to making things right. As noted today in court, customers in the United States do not need to take any action at this time.”

The agreement in principle only teased owners, leaving many to speculate over what they can except in payback from VW. More details will be made public after a June 21 court date. But TDI owners will have ample time to decide their cars’ fate — perhaps as much as two years. Vehicle values are considered to be fair-market numbers pre-dating the scandal. Obviously, many devils comprise the details.  

About 80,000 3.0-liter V-6 diesels with VW, Porsche and Audi badges are excluded in the agreement. A resolution on those vehicles has yet to be agreed upon, and VW still faces hefty government fines for its emissions violations.

Many believe that older TDIs will be treated differently because of their original emission setups. The 2009-2014 Jetta, for instance, has a lean-burn trap, while the 2012 Passat has selective catalytic reduction or AdBlue.

So the early 2.0-liter TDI is expected to require a completely new selective catalytic reduction exhaust system. Installing that and its cost will be very high, plus there’s talk that VW has a new larger catalyst that would require body modifications to install. This is what led to the speculation that VW would rather buy back these cars. 

Cars with SCR such as the Passat and 2015-and-newer TDIs, should require less fiddling. They have the current standard in diesel emission systems.

Before the agreement, CARB enforcement official Todd Sax said the board might accept an incomplete repair of the 2.0-liter TDI mills in exchange for some other form of environmental remediation. Roughly 82,000 cars are affected in California. Some other states also use CARB rules. Whether VW’s remedy doesn’t meet the oxides of nitrogen limits or the onboard diagnostics systems don’t meet specs isn’t clear. 

Thus, at this juncture VW’s dirty diesel saga is far from over. But we do know that it will be the subject of at least one movie. And documentary filmmaker Steve Kalfer, a three-time Oscar nominee, is working on a VW diesel emissions crisis project called “Backfire: The Volkswagen Fraud of the Century.” Kalfer, who is also a VW dealer, says his film will present the view of the participants he interviews. He says VW’s American dealers have been hurt by the automaker’s deception, as if “they’ve been thrown in the gutter.”

Who’s getting the “zonk” — that goofy gag gift that sometimes befell “Let’s Make a Deal” contestants could be anyone who has a stake in VW’s not-clean diesel vehicles.

In Europe, VW’s 2.0-liter TDI Passat recall ground to a halt. It turns out that the fix doesn’t meet carbon dioxide rules, which in layman’s terms means the Passat TDI’s fuel economy dropped. Therefore, VW must devise another fix. Other snags include who’s doing the repair work and whether engine noise remains the same.

After setting aside $18.32 billion to fund the recall of millions of diesel cars, legal claims and related costs, VWAG posed the firm’s worst-ever operating loss of $4.65 billion for 2015. The amount set aside to cover costs related the firm’s emissions-cheating is more than double its earlier provisions and nowhere near the maximum it could face in U.S. penalties.  

As ugly as it sounds, some investors see a bright spot—VW’s future fate might be better than thought. Its April 21 deal and the amount set aside, for instance, hint that VW might not face the worse-case fine scenario. VWCA

Cliff Leppke | leppke.cliff@gmail.com 


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