VW's Emissions Fixes Approved for 90% of Cars in Europe

AG Dealerships As Company Pledges To Finish Diesel Recalls By End Of 2016
Photographer: Akos Stiller/Bloomberg
  • VW CEO Mueller says repair cost, complexity to be `manageable'
  • Affected 1.6-liter diesel engines won't need new engine parts

Volkswagen AG said it is nearing approval to repair about 70 percent of its rigged diesel engines and will resubmit questionable software in other vehicles to U.S. regulators for review, potentially easing two key trouble spots in its emissions crisis.

German automotive regulator KBA has approved a software update for 2.0-liter diesel motors and agreed in principle to a plan for 1.6-liter engines, Chief Executive Officer Matthias Mueller told about 1,000 company executives Monday in Wolfsburg, Germany. The shares rose the most since Oct. 7.

Meanwhile, Volkswagen’s Audi division will resubmit a revised version of software that the U.S. Environmental Protection Agency and California Air Resources Board has targeted in its latest probe. If approved, the fix for 85,000 Audi, Volkswagen and Porsche cars with 3.0-liter diesel engines should cost roughly 50 million euros ($53 million). EPA and CARB will review and test the revised software.

Both steps show progress toward overcoming the scandal Volkswagen is facing on three fronts: cheating software installed in about 11 million vehicles worldwide with 1.2-, 1.6- and 2.0-liter diesel engines; irregular carbon-dioxide ratings on about 800,000 vehicles; and questionable software in the larger diesel engines in the U.S. Because the simpler fix approved by the KBA applies throughout Europe, the recall may cost 10 billion euros instead of 16 billion euros, said Stuart Pearson, a London-based analyst with Exane BNP Paribas.

“VW is far from out of the woods yet, however,” Pearson wrote in a note to investors Tuesday, citing potential for customer compensation payouts and class-action lawsuits. “A technical fix for the U.S. is yet to be agreed with regulators, and VW may yet need to buy back a portion of the U.S. vehicles.”

The shares rose 5.5 percent to 115.90 euros in Frankfurt. The company has lost 15.4 billion euros in market value since the scandal broke on Sept. 18.

European Fix

While the European fix won’t apply in the U.S., it does show a path forward for most of the cars that had cheating software worldwide. Europe is chiefly affected, with a recall planned for as many as 8.5 million vehicles.

The 1.2-liter diesel probably only needs a software update, with the plan to be presented to the KBA by the end of the month, Mueller said. The repair for the 1.6-liter engine is less complex than initially suspected. In addition to upgraded software, the cars will need “relatively simple changes” to the air-filter system, according to the CEO. 

The costs and complexity of the fixes, which apply to more than 90 percent of the affected vehicles in Europe, are “manageable,” he said in excerpts of the speech obtained by Bloomberg. He didn’t elaborate on expected regulatory fines and lawsuits in the U.S. and Europe.

“Our assumption that substantive changes to the motor would be necessary have not come true,” Mueller said in the speech. He didn’t comment on what affect the fixes may have on the vehicles’ acceleration and fuel economy.

New Strategy

Starting the European recall would be a step forward in resolving the crisis that’s engulfed Volkswagen for more than two months. The company has provided few answers even as new revelations come to light.

On Friday, the EPA and CARB said they were investigating Volkswagen, Audi and Porsche models with 3.0-liter diesel engines as far back as the 2009 model year, after initially focusing on newer versions. VW had rejected the initial claims, straining its relations with the regulators.

Three pieces of software installed to help control the cars’ emissions systems weren’t properly declared in an application for approval, and one of them “is regarded as a defeat device according to applicable U.S. law,” Audi said. A defeat device alters emissions-control systems in a way that violated clean-air laws.

Mueller, appointed in the wake of the scandal, said he plans to present an interim report on the status of the investigation in mid-December as the final results will still take several months. Ultimately, he plans to present a new strategy by mid-2016. The goal is to shake up the company’s autocratic structure and re-focus on three topics: digitalization, sustainability and integrity.

Watch Next: How Much Will Rigged Emissions Scandal Cost VW?

How Much Will Rigged Emissions Scandal Cost VW?

“We need a bit more Silicon Valley,” said Mueller.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE