VW – Page 2 – The Burning Platform

Five Months In…

Guest Post by Eric Peters

It is almost halfway through 2016 and – still – no (new) diesels for you.

Not from VW, at any rate.

Uncle has still not given his permission for the sale of any 2016 model year TDI (diesel) powered VW cars. The entire inventory sits and waits.

Perhaps forever.

But another couple of months will be enough. Then it will be summer – with fall in sight, new model year-wise.

The 2017s will begin to appear.

At which point, the 2016s become like yogurt approaching its sell-by date. Good for buyers, perhaps – assuming they are allowed to buy. But terrible news for VW and its dealers, who will take an epic haircut that – by itself – could cause catastrophic financial damage to the German automaker. On top of that, there is the other problem – what to do about the roughly half-million “affected” TDI-powered VWs already in circulation.

News reports say that Uncle and VW have come to an agreement of some kind. Very much in the way one comes to an “agreement” with the cop who “asks” you to buckle up. The details of this “agreement” will not be made public for months, however. Not until June 21 will the “agreement” be made public.

Some details have leaked, however.

It looks like VW will be forced (whoops, agreed) to buy back – and crush – some of the “affected” cars… and perform (it appears) software tweaks to the remainder, such that they are brought into compliance with Uncle’s edicts.

It will be interesting to see just how many of the half-million cars will simply be crushed – with VW eating the cost.

It comes down to whether a given car can be brought into compliance via the relatively painless (and not-too-pricey) reprogramming or even outright replacement of its computer, which controls the operation of the engine. Some cars will need to have major physical work done to them – for instance, installing a urea injection system in the exhaust, which also requires modification to the fuel system, as well as software/computer work). This looks to be too painful and expensive to be worth doing and so those cars will – apparently – be destroyed and their owners cut a check.

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VW Says: Thank You Sir! May I have Another?

Guest Post by Eric Peters

So why did VW “cheat”? Uncle?

That question hasn’t been asked enough. It ought to be.

Now we have the answer – confirmation of what I suspected and wrote about earlier when this “scandal” broke last year.

VW “cheated” because it had to.

Because “cheating” was the only way to keep on selling diesel engines that delivered the mileage buyers expected at a cost that made economic sense to them.

Satisfying Uncle – passing his Rube Goldberg-esque emissions tests, which among other defects don’t measure the totality of a vehicle’s output – grams per mile – but rather sample parts per million (PPM) with the vehicle in a stationary test rig, would have entailed a noticeable reduction in fuel efficiency and a very noticeable uptick in the cost of the vehicle. Or rather, the cost of the additional hardware necessary to placate Uncle.

Now there’s proof of this.

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No Dividends For You!

Guest Post by Eric Peters

First, it was (cue the Soup Nazi voice) no affordable diesels for you!

Now, it’s no dividends for you.

If you’ve invested in VW stock, it looks like you’re out of luck. The stomping Uncle has been giving VW over the diesel emissions “cheating” scandal is having the not-surprising consequence that the company’s losing money.

Which means you lose – if you’re a shareholder.

Yesterday, the industry publication Automotive News reported that VW Group (which includes Audi and Porsche) may suspend dividend payouts due to the crippling fines and other costs (including the likely prospect of VW having to buy back – and destroy – almost 600,000 “noncompliant” cars) levied by Uncle and his acolytes ,including the Little Uncles operating at the state level.

“There is no sign that shareholders might even be able to hope for a single cent,” Automotive News quoted a VW board member as saying.

Ach, mein Gott.

How catastrophic is this?

The final tab could exceed $50 billion.

VW could be doomed.

Because it’s more than just the money – though the money we’re talking about is an Everest-like, almost inconceivable sum. How to quantify what we are talking about? Put it in perspective? $50 billion is more net profit than Toyota (a much bigger company) earns – globally – in an entire year.

Volkswagen’s annual net profit is around $10 billion … and falling.

Said another way, the hit VW is looking at is such that it could wipe out the company’s ability to turn a profit for years.

Which not only means shareholders may not get a cent for years to come (which is lethal enough) it also means VW may not have das gelt for product development for years to come. That is, to update its car lineup. In a market that demands New and Improved at least every third year (and lately, every other year) not being able to change up one’s cars is as bad as selling crappy cars.

See, for example, the sad case of Mitsubishi.

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Uncles Great and Small

Guest Post by Eric Peters

The assault on VW for “cheating” Uncle is metastasizing.

The little Uncles – state governments – are piling on.

Five of them (New Jersey, Texas, New Mexico, Kentucky and West Virginia) have formally filed civil lawsuits over the TDI diesel emissions “scandal,” seeking millions of dollars in fines.

48 state-level attorney generals are “investigating” VW.

This on top of the federal witch hunt launched by the U.S. Justice (sic) Department in January that hopes to milk $46 billion out of VW AG (which includes Audi and Porsche).

Even for a major corporation, that’s a lot of coin. If the Feds are successful, it will likely mean der untergang for VW.

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Atlas Shrugging

Guest Post by Eric Peters

It may be that Atlas is beginning to shrug.

You remember Atlas. The mythical giant who struggles to support the world on his mighty shoulders. One day, his strength gives out. Or his will. His desire to bear the burden.

So, he shrugs.

Volkswagen just did exactly that.

The automaker says it cheated on federal emissions tests because company engineers considered it “impossible” to pass them.

Italics added.

Read that again.

A major-league automaker, with an entire engineering staff at its disposal, found it impossible to comply with the federal government’s emissions fatwas. It would have required unacceptable (to VW’s customers) functional compromises – or unacceptable costs.

So, VW elected to shrug.

Screw the tests. Screw Uncle. We are in the business of building cars that must be appealing to our customers, such that they are willing to part with hard-earned money in exchange for them. If that means the cars are not “compliant” with the government’s endless laundry list of demands … well, so be it.

How long before others do something similar?

It is inevitable. Something has got to give.

Because the well is not bottomless. All the things demanded by government, someone’s got to pay for. And when there are no longer enough someones willing (or even able) to do so, the American economy will go the way of the Soviet economy.

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The VW “Fix” Just Got a Lot More Expensive

Guest Post by Eric Peters

Better hide your diesel VW.

Turns out that some of the “affected” models will require more than just a quick, easy (and free) software adjustment to placate Uncle.

Actually, it is most of them.

Of the 482,000 diesel-engined VWs identified (so far) for the High Crime of end-running Uncle, 325,000 of them may require physical alterations; that is re-engineering of their hardware. Specifically, they will probably have to be retrofitted with urea injection – a “feature” VW diesels up through the 2014 model year uniquely lacked – and which was probably among the reasons why people chose to buy a VW diesel.

The VW “Fix” (Or: Don’t Take Any Wooden Nickels)

Guest Post by Eric Peters

Never take a wooden nickel.

Or a “credit card” from VW.

Reportedly, the under-siege automaker is going to send out prepaid credit cards (see here) to people who own one of the diesel-powered models VW adjusted to “cheat” government emissions tests.

But the catch is that you have to bring the car in to a VW dealer in order to “validate” the card.

The card – the lure of cash, that is – is kind of like the piece of cheese you place on the business end of a mousetrap. Both serve the same purpose.

In the case of the card, the whole object is not to give VW owners “free” money – or to regain their confidence.

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The C02 Trump Card

Guest Post by Eric Peters

It had to happen – and now it has.

VW – and soon, everyone else, inevitably – is under the gun over “emissions” that aren’t even pollutants.

Carbon dioxide.

This inert gas (look it up if you missed it in high school chemistry) doesn’t contribute to smog, cause acid rain, deplete the the ozone layer, irritate the lungs, or harm babies. Plants breathe it and by breathing it, produce the oxygen we need to breathe. If C02 is a “pollutant” then according to the same logic, so is water vapor (oy, don’t give them ideas).

But carbon dioxide is a “greenhouse gas” that contributes to “climate change,” the new (and pope-approved!) catch-all phrase that encompasses warmer and colder weather, neatly pathologizing both of them.

Cows produce it; we produce it and cars produce it.

VW is in the crosshairs because of this.

A couple of days ago, the company issued another apologia (here) for “understating” the “emissions” of this inert gas by its gasoline-powered (note italics) powered cars. The “affected” vehicles (about 1 million of them, so far) this time aren’t U.S. models but they aren’t diesel models.

In Europe, you see, they already treat carbon dioxide – an inert gas – as a motor vehicle exhaust subject to government regulation. This is not yet the case in the U.S., but it is only a matter of time.

As they used to say in Germany before the war – der tag kommt.

The Europeans have fully embraced the climate change tar baby – which means they’ve accepted the idea that the inert gas, carbon dioxide, is something that must be “controlled.”

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Dirty Laundry

Guest Post by Eric Peters

Remember that old Eagle’s tune about the bubble headed bleached blonde who comes on at five? She can tell you about the plane crash, with a gleam in her eye.

The song neatly describes the vacuous but vicious nonetheless media feeding frenzy over the VW diesel “cheating” scandal.

What could be better than raking a car company over the coals for having tried to give its customers a better car as opposed to a government-compliant one?

Now the same finger-wagging is being directed at other car companies – among them Mercedes-Benz, Mazda and Honda. The accusation isn’t “cheating” per se, but it amounts to the same thing.

According to the Guardian – a British paper/web site – diesel-powered models sold by these manufacturers emit more than they’re supposed to (see here).Or rather, they emit more when driven in – muffled cough, now – “realistic” conditions.

This is interesting because it ties into the VW debacle.

Here’s how:

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It’s Not Just VW’s Problem Now

Guest Post by Eric Peters

It’s not just VW’s problem now.

The company may go the way of the Dodo because of brutal fines and crippling lawsuits and media demagoguery that’s turning the VW brand into the automotive equivalent of NAMBLA.

But if you think it’ll stop there… .

So, where will it stop?

How about real-time monitoring of the emissions output of all cars, all the time? This would certainly put the kibosh on “cheating” – by owners as well as car manufacturers.

And it’s already in the works.

Has been, for some time. This VW debacle will simply provide the necessary justification for implementing it – much in the same way that a school shooting becomes the justification for taking everyone’s guns away.

It’s called OnBoard Diagnostics III (OBD III). The successor to OBD II – which your car already has, if it’s newer than circa the ’96 model year.

OBDII cars all have a universal plug-in “diagnostic” port – like an iPod’s USB hook-up – that’s used to connect the car (its computer controller, actually) to an external computer. The two electronic brains talk to one another, exchanging information. If your car has an issue with its emissions systems, a code (or codes) that have been stored in the onboard computer’s memory will be flashed over to the external computer, so that a technician can be made aware of the problem and – ideally – repair what’s wrong.

But, the OBD II system has a weakness. It can only transfer the information about a “fault” with the emissions system if it is physically hooked up to a testing computer (as at a repair shop or a smog check station). The most an OBD II-equipped car can do if you don’t take it in is illuminate the yellow “check engine” light in the dashboard. Which of course, you are free to ignore for as long as you like. Or at least, until the time comes to have the car smog checked – which might be only once a year or once every several years, depending on where you live. In some areas, those few that don’t (yet) have mandatory smog checks, a person could drive with the “check engine” light on indefinitely.

Enter OBD III.

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