Volkswagen dieselgate one year later: What have we learned?

 Since the EPA's announcement last year, the VW diesel scandal has expanded in ways perhaps inconceivable that first day, and it continues to ricochet around both Volkswagen and the auto industry.

Michael Sohn/AP/File
Volkswagen ornaments sit in a box in a scrap yard in Berlin, Germany.

It's now a year and nine days since the EPA broke the news that Volkswagen had admitted to including "defeat device" software in almost half a million so-called "clean diesel" vehicles sold in the U.S. from 2009 through 2015.

That software detected when the cars were undergoing laboratory tests, and kept their emissions within legal limits during those tests, only to bypass the routines when the cars were on the open road.

The result was massive noncompliance with U.S. emission laws, and emissions of nitrogen oxides up to 38 times the legal limits.

Since that time, the VW diesel scandal has expanded in ways perhaps inconceivable that first day.

And it continues to ricochet around both the VW Group and the industry, with two pieces of news last week illustrating that point.

First, Stefan Knirsch, the head of R&D at Audi, was implicated in the scandal. His immediate departure from the company was announced this morning.

According to the internal investigation conducted by law firm Jones Day, the report said, he knew about the use of "defeat device" software in the company's 3.0-liter V-6 diesels, fitted to Audi, Porsche, and Volkswagen models in the U.S.

Then, on September 18—the actual one-year anniversary of the EPA announcement—the European group Transport & Environment issued a damning report on the real-world emissions of European diesels.

Its analyses showed that every diesel brand in Europe emitted more pollutants in real-world use than do the very latest VW Group models.

But even as news continues to arrive, it's a good time to look at what we've learned from a year of the VW diesel scandal.

At six months, we asked the same question, and many of those lessons remain the same—though their relative importance has shifted considerably.

The most important one, we think, is a topic we didn't address at all six months ago.

(1) The future for diesel in Europe appears to be drawing to a close

Volkswagen's blatant cheating has focused public attention not only in North America, but also in Europe, on the gaping differences between real-world emissions and those derived from known laboratory tests.

At first, many Europeans blamed the cheating on unrealistically low U.S. emission limits. But roughly those same limits arrive for the EU next January, bringing its cars down to the same level as that in effect in the U.S. since January 2008.

And over time, the VW diesel results coalesced with simmering discontent among European buyers over the far lower fuel efficiency of their cars in real-world use compared to the publicized test results.

In some cases, the difference was as much as 30 percent—far higher than the 10-percent leeway most consumers are willing to accept. And the same tests are used to measure both fuel efficiency and exhaust emissions.

Disparate news items from around the world, on manufacturers cheating or misrepresenting test results (Mitsubishi in Japan, various makers in Europe), brought VW's actions into focus as simply the most extreme in a widespread industry pattern of complying with the rules but not the intent of emission limits worldwide.

Europe is to require real-world testing of emissions starting in 2019, and that has already led to the startling admission by Renault that it will be too expensive to make diesel engines comply in mass-market vehicles.

In other words, diesels may stick around for larger and pricier vehicles, but for the smaller sedans and hatchbacks sold by Volkswagen and other European makers in their home markets, the writing is on the wall.

(2) Diesel will remain an outlier, if it survives at all, for passenger cars in the U.S.

We wrote six months ago that "diesel will survive in the States, but maybe not for passenger cars." It's now clear that VW Group brands—Volkswagen, Audi, and Porsche—won't offer diesels in their U.S. lineups for many years, perhaps never again.

That leaves an unlikely U.S. champion for diesel engines in smaller vehicles: General Motors.

It has long planned a 1.6-liter diesel option for its 2017 Chevrolet Cruze sedan and hatchback. Last week it announced that the same engine will be offered in the new 2018 Chevrolet Equinox compact crossover utility vehicle.

The first iteration of the Cruze Diesel sold poorly, but GM is pressing forward with its diesels nonetheless—and a larger diesel has proven very popular in its Chevy Colorado and GMC Canyon mid-size pickup trucks.

Still, with fuel prices remaining low, we remain skeptical that buyers of small passenger cars are asking for diesels, or will be open to them given the substantial cost differential of the emission aftertreatment systems that make them legal in the U.S.

(We would observe, however, that we're pretty confident that any diesels offered in the U.S. will in fact comply with emission limits in real-world use. The EPA will likely make sure of that.)

(3) Modifying VW's diesels will be lengthy and difficult, if not impossible

The terms of the preliminary settlement for about 450,000 of VW's 2.0-liter 4-cylinder diesels include an outright buyback from owners by Volkswagen and Audi, but they also give owners the chance to wait for modifications to their cars.

The problem is that no such modifications have yet been approved, nor will they necessarily apply to all of the affected vehicles.

In particular, it seems unlikely that the majority of the 2.0-liter diesels, which were not fitted with a selective catalytic reduction (or "urea injection") system, can be made to comply at all.

Owners, however, have until the end of 2018 to decide whether to take the buyback or have their cars modified. (VW will suffer additional financial penalties if fewer than 85 percent of owners fail to do one or the other.)

Early indications, however, are that a majority of VW and Audi diesel owners have already said that they intend to take the buyback.

If that continues, any modifications may well be moot, or at least apply to so few cars that the effect will be lessened.

(4) Volkswagen's attempts at a U.S. comeback may have suffered less than expected

We said six months ago that VW's attempts to raise its U.S. sales "have been deeply damaged," and that may well be the case.

But the same data could be interpreted to say that while VW has been damaged, the Volkswagen brand hasn't suffered as much as it might have.

VW continues to sell cars in the U.S., though at levels below the rest of the industry, and the company appears to be on the verge of a separate settlement with its dealers, whose bottom lines have suffered over the last year.

Diesels were always a minority of sales in the U.S. for Volkswagen—roughly 30 percent at best, usually less—and its sales are suffering as much from product cadence and mix as the diesel scandal.

The hottest segment in the industry today is compact crossovers, and VW's current Tiguan is now more than a decade old. A new model, to be built in Mexico, will finally launch in the U.S. next year.

Meanwhile, the company's long-delayed seven-seat mid-size crossover, rumored to be named the Teramont, will make its debut at the Los Angeles Auto Show later this fall.

Those two vehicles together will help fill yawning gaps in the Volkswagen lineup that will at last let it compete in growing segments, versus its current lineup of aging small and mid-size sedans.

Neither new crossover, however, will come with the planned TDI diesel offering as its range topper.

(5) There's a known crisis management playbook; VW has ignored it

We said this six months ago, and stand by it.

From Exxon Valdez to the Tylenol poisoning scare, the playbook and steps to take to reassure customers, regulators, and the general public that a company is acting immediately and transparently to address a crisis are by now well known.

Volkswagen ignored pretty much every single one of them.

Its response will likely be taught as a case study, but it will be of what not to do, rather than how to cope successfully and stave off damage from a crisis.

The fact that this site continues to get questions about what the settlement terms are, and complaints that VW has not communicated with owners willing to sell back their cars, indicates that communications failures remain.

The extent of those failures can only be assessed in retrospect, but they will likely provide rich fodder for management analysts and automotive journalists for years to come.

(6) This will cost VW Group far more than it's budgeted so far

We said this six months ago as well, and it likely remains true.

But it's now apparent that the indirect costs—to executive bench strength, product continuity, and brand image—will outweigh the direct financial impact of settling the various crises and lawsuits around the world.

VW's diesel obsession has ended, and it has said it will move forcefully into fully electric vehicles and has shaken up its product plans to do so. That's all to the good.

But whether the wholesale replacement of many top-level executives, let alone any future prosecutions any of them may face, will change the culture at VW Group very much remains to be seen.

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