The Volkswagen debacle could cost $25 billion

The diesel emissions scandal is going to be very, very expensive for Volkswagen. How expensive? We won't have final figures for months, if not years, but we can do a little back-of-the-envelope math.

Axel Schmidt/Reuters/File
The Volkswagen logo is seen at a power plant in Wolfsburg, Germany in this September 22, 2015 file photo. German public prosecutors said they had searched Volkswagen premises at its headquarters in Wolfsburg and other places on Thursday.

Volkswagen's slowly unfolding diesel emissions scandal is many things to many people:

  • To the public, it's a page-turning whodunnit of deception.
  • To regulators, it's a wake-up call and a kick in the pants.
  • To lawyers, it's a guaranteed source of future income.
  • To the Environmental Protection Agency, it's a vindication of the 2025 fuel economy guidelines against which Volkswagen loudly railed, while proclaiming the importance of its "clean diesel" vehicles.
  • To owners of affected VW, Audi, Porsche, and Seat cars, it's the final scene of Seven. (Poor Gwyneth.)

And, of course, to Volkswagen itself, "Dieselgate" is an earth-shattering legal, logistical, and political nightmare that could tear the company apart -- or, at the very least, ruin Volkswagen's reputation and its chances of becoming the world's largest automaker in the immediate future.

It is also going to be very, very, very expensive for Volkswagen.

How expensive? We won't have final figures for months, if not years, but we can do a little back-of-the-envelope math:

HARD FIGURES

Fixing cars: $7.3 billion+
Repairing 11 million vehicles won't be easy. Each affected make and model is different, with additional tweaks required to account for variants and model years. A software upgrade can likely enable full emissions controls, though it's just as likely that some kind of physical device will need to be installed on the vehicles, too. The time, labor, and materials needed to implement those repairs won't come cheap.  

Fines: $18 billion+
In the U.S., Volkswagen could face civil penalties of $37,500 for each vehicle that fails to comply with federal clean-air rules. Multiply that by 482,000 vehicles, and you've got a very spicy meatball. And of course, that's just fines from the EPA. It doesn't include fines from other U.S. agencies, and it certainly doesn't account for the 10.5 million other vehicles in other countries.

Return of tax incentives from U.S. government: $50 million
The United States Senate has launched an investigation of federal tax credits that Volkswagen shoppers received for purchasing "environmentally friendly" diesel vehicles. As we now know, though, Volkswagen's sneaky software helped those cars cheat on emissions tests, allowing them to spew more than 40 times the stated limit of pollution into the atmosphere. Depending on the Senate's findings, Volkswagen could have to repay those Alternative Motor Vehicle Credits itself. 

Return of cash and incentives from Tennessee: $485.5 million
Volkswagen's U.S. homebase is in Chattanooga, Tennessee, and the state has worked long and hard to keep it that way. But in light of the Dieselgate revelations, Tennessee legislators are reconsidering some of the tax incentives they shelled out to convince Volkswagen to stay put.

SOFT FIGURES

Loyalty bonuses: $$
Volkswagen has begun issuing $2,000 incentives to VW owners in the hope of encouraging them to buy another VW. Will it work? Maybe for those who own gas and hybrid models, but for those who own diesels, it could be a tough sell, since VW isn't currently offering its 2.0-liter diesel vehicles to consumers. 

Loss of brands: $$
Volkswagen's new CEO, Matthias Mueller, told reporters this week that the company is planning for a financial crunch, and part of that planning involves thinking strategically and honestly about each brand in the Volkswagen family. Smaller brands like Bugatti could get the axe, or at least get mothballed, which would reduce expenses but also cut potential sales at a time when the world's auto markets are doing well.

You've read  of  free articles. Subscribe to continue.

Dear Reader,

About a year ago, I happened upon this statement about the Monitor in the Harvard Business Review – under the charming heading of “do things that don’t interest you”:

“Many things that end up” being meaningful, writes social scientist Joseph Grenny, “have come from conference workshops, articles, or online videos that began as a chore and ended with an insight. My work in Kenya, for example, was heavily influenced by a Christian Science Monitor article I had forced myself to read 10 years earlier. Sometimes, we call things ‘boring’ simply because they lie outside the box we are currently in.”

If you were to come up with a punchline to a joke about the Monitor, that would probably be it. We’re seen as being global, fair, insightful, and perhaps a bit too earnest. We’re the bran muffin of journalism.

But you know what? We change lives. And I’m going to argue that we change lives precisely because we force open that too-small box that most human beings think they live in.

The Monitor is a peculiar little publication that’s hard for the world to figure out. We’re run by a church, but we’re not only for church members and we’re not about converting people. We’re known as being fair even as the world becomes as polarized as at any time since the newspaper’s founding in 1908.

We have a mission beyond circulation, we want to bridge divides. We’re about kicking down the door of thought everywhere and saying, “You are bigger and more capable than you realize. And we can prove it.”

If you’re looking for bran muffin journalism, you can subscribe to the Monitor for $15. You’ll get the Monitor Weekly magazine, the Monitor Daily email, and unlimited access to CSMonitor.com.