What is Volkswagen accused of?

Cheating to get its 2.0-litre diesel engine through the emissions tests needed to sell a car in the United States. Volkswagen has admitted using a ‘defeat device’ – a software algorithm which makes its exhaust after-treatment system go into overdrive during a test. Outside laboratory conditions, the engine was found to emit between 10 and 40 times more NOx than US emissions standards allow, varied due to urban and highway use.

How does it work?

The device is said to affect the performance of two emissions control systems in the exhaust. Volkswagen uses a Lean NOx trap; a catalytic converter which traps the molecules and periodically purges itself with diesel to form water and nitrogen. Later vehicles also use Selective Catalytic Reduction, which injects a urea solution into the exhaust system, breaking NOx down into water, nitrogen and carbon dioxide.

Because laboratory conditions are controlled, the car is able to use steering, speed and pressure sensors to detect a test is taking place, triggering a specific low-NOx calibration to ensure it passes.

Specific details about how it does so have not yet been released.

How was it discovered?

The discovery stems from a 2014 study by the International Council for Clean Transportation (ICCT) and West Virginia University, which showed some diesel engines emitted significantly higher levels of NOx on a real-world test cycle compared to the laboratory. This caused concern with the United States Environmental Protection Agency (EPA) and the California Air Resources Board (CARB).

Confronted, Volkswagen USA claimed this was the result of ‘unexpected in-use conditions’ and technical issues, but issued a voluntary recall last December to recalibrate the emission control systems. Further CARB testing showed reduced NOx output, but that the vehicles were failing some certification tests and were significantly higher in on-road use.

With CARB and EPA indicating that they would not give a Certificate of Conformity to 2016 model year diesel vehicles until the results could be explained, Volkswagen admitted in September that it had used a ‘defeat device’ on the engines.

What vehicles and brands does it affect?

Volkswagen says the software is present on all of its Type EA 189 1.6 and 2.0-litre diesel engines – fitted to 11 million vehicles globally, built between 2009 and 2015. In the UK, this includes 508,276 Volkswagen, 393,450 Audi, 76,773 SEAT and 131,569 Skoda cars, as well as 79,838 Volkswagen commercial vehicles.

All petrol engines and the V6 and V8 diesels are unaffected.

So far, €6.5bn (£4.8bn) has been set aside to investigate and cure the problem, and a technical solution – possibly involving mechanical as well as software changes – is due to be presented in October and applied before the end of the year. A self-service database and dealer information will let customers check if they are affected using their Vehicle Identification Number.

The news is better for fleets, though.

Volkswagen began using the EA 288 1.6 and 2.0-litre diesels with the latest Golf in 2012, and most updated or renewed models across the Group’s product portfolio have now moved over to this newer engine. Euro 6 has made the EA 189 engines obsolete in new passenger cars since the 1st September this year, the van deadline is a year later, and the remaining vehicles with the old engine – 4,000 units – have been temporarily removed from its UK runout stock.

What is likely to happen next in the USA?

Volkswagen has violated two sections of the Clean Air Act, and faces penalties of up to $3,750 (£2,474) for each vehicle manufactured, and up to $37,500 (£24,740) for each one sold in the United States. It will be required to recall all of the affected 482,000 Volkswagens and Audis sold there, and, as NOx is a proven cause of breathing problems, class action lawsuits for threatening public health are already being filed.

Are any other manufacturers suspected of wrongdoing?

Officially, no. However, the EPA recently announced that it would be carrying out additional testing on other manufacturers’ vehicles, specifically aimed at identifying defeat devices using a drive cycle with conditions said to be closer to normal road use.

The Department for Transport is planning similar multi-manufacturer tests in the UK, and the European Commission is asking Member States to carry out their own investigations. The EC said data gathered during type approval needs to better reflect driving conditions, and a new test procedure will be phased in from 2016 alongside the laboratory-based tests used today. However, EPA NOx limits are lower than in Euro 6, and the test cycle is very different to the NEDC, with more high-load driving.

Emissions Analytics, which supplied some of the data to the ICCT study, said Volkswagen Group models were actually at the cleaner end of those results. It also added that, while there was still a discrepancy between laboratory and real-world results in Europe, this gap is narrowing.

“When the ICCT published their report they found NOx emissions more than seven times above the limit but we are now seeing them average four times higher, so moving in the right direction as new abatement technologies are added,” explained Jane Thomas, the company’s global sales manager.

“Europe is planning to introduce Real Driving Emissions from 2017, and this is something we fully support as the manufacturers will have to prove that their vehicles meet emissions standards on the road as well as in the lab.”

Fleet Analysis: residual values and reputations

Will used prices of diesels, and specifically Volkswagen Group diesels, be affected by the scandal? It seems the guides are divided on the issue. 

KeeResources believes that there will be little or no RV impact from this affair. Denis Keenan of KeeResources said: “Specifically related to the affordability of their purchase, the used buyer is firstly concerned primarily if cars have decent economy, and in this case the reports seem to suggest that the software in question actually improves fuel economy and or performance, albeit whilst affecting emissions.”

Keenan continued: “The negativity surrounding diesel is being hugely overblown, as even EU5, let alone EU6 diesels are up to 50 times cleaner than sixyear-old cars. The technology simply works, is viewed as well-proven, and as the parc renews and gets younger with increased new volumes over the last couple of years, the impact lessens year-on-year.

“The cars still drive extremely well, and have a decent operating cost (and tertiary used values), and that is what rules all.”

Dylan Setterfield, senior forecasting editor of CAP Black Book reckoned: “The overriding view is that diesel vehicles are more economical than their petrol equivalents (even if this is not always the case), and the torque characteristics of diesel engines are generally popular with drivers,” he added.

His colleague Derren Martin, CAP Black Book editor said: “It really is too early to be making any substantive calls on the market. Our team of experts has seen no discernible change to values.

“Our team of seven Black Book editors are monitoring values in real-time. We have spotted some weakness on Golf diesel 1.6 TDI 105, but this can be attributed to higher volumes in the market over the last few months, and we have reflected this in our values.

“Any naysayers in the market seem to be jumping the gun. It’s important to remember overall values across the industry are likely to decrease in the last months of the year due to seasonal supply and demand trends.

“We are not discounting there may be some short term impact on prices across the marques in the Volkswagen Group over the coming weeks, due to the amount of negative media coverage. However, we haven’t seen it yet.”

Rupert Pontin, head of valuations at Glass’s, is less sanguine. He said: “Whatever the final truth, this is potentially very damaging for the Audi and Volkswagen brands. Essentially, the company has deliberately set out to mislead legislators and customers.

“If you are a fleet who has chosen a Volkswagen or Audi, with the emissions performance of that vehicle being a major benefit, then you are going to feel cheated. No question.

“Exactly how this plays out is very difficult to predict but it could affect the used values of Audis and Volkswagens.

These are brands built on decades of credibility and that credibility has been badly damaged.”

Pontin added that it did not help that Volkswagens and Audis had, in his view, started to reach a saturation point in the UK market in recent years.

“Our view has been for a while that Volkswagen sells too many cars for a semi-prestige brand and Audi too many for a prestige one. The volumes are large enough that they are creating downward pressure on RVs.

“The emissions scandal is obviously not going to help this situation. If buyers lose trust in the brands, then there is inevitably less demand and values suffer.”

Until the full impact of the issue understood it is very difficult to for fleets to plan around the problem, said Dylan Setterfield.

“It is always worth keeping a close eye on residual values and plan de-fleet and remarketing strategies accordingly. Black Book Live reports movements on a daily basis, keeping fleets updated real-time. If there were to be any impact on used values, our Black Book Live customers would be the first to know.”

Professor Colin Tourick thinks the strength of the brand will see it through: “Volkswagen is one of the great brands of the UK fleet industry, and is hugely respected. This will come as a shock to 99% of their employees and I suspect 100% of those in the UK.

“I believe the average used car buyer is just happy to get the fuel economy that diesel delivers. So I don’t think the used prices of diesel Volkswagens will be affected by this news.”

Testing procedures

The testing procedures in Europe have come under scrutiny as a result of this scandal. It seems that the general public’s dissatisfaction with the difference between real-world and official economy figures has spiked due to this episode, and it seems many people are demanding more stringent testing, without realising that it could result in higher official CO2 figures, and higher tax bills as a result.

But as fleets know from extensive running of vehicles, it is the realworld figures that ultimately count for whole life costs.

Paul Hollick, commercial director, The Miles Consultancy thinks fleets should be immune to surprises such as this, because they generally have much more information than the average consumer, but it shows the importance of real-life data: “What happened in the USA was primarily about NOX but it could easily have implications for taxable CO2 emissions in markets like the UK in the long run,” he said.

“TMC holds real-world data on hundreds of thousands of vehicles, giving our clients a fact-check of their performance against official data obtained under test conditions. Roughly speaking, the lower the official CO2, the more widely the ‘reality gap’ varies according to usage patterns and driving style. Fleets need to be aware of how this impacts whole life fuel costs and CO2 emissions.”

The fleet industry has long believed the current tests to be outmoded. But while real-world economy will be worse, buyers are aware of the discrepancy, reckoned Denis Keenan.

“As the average car buyer is now more informed than ever, the great majority know full well that the figures they will achieve are not those stated by the manufacturer. The manufacturers are simply, and naturally, maximising their overall positioning within the regulations.”

Gerry Keaney of the BVRLA thought it is time for an overhaul of the system. He said: “In recent years, the UK’s tax regime has encouraged fleets to choose vehicles based on official emissions figures, and while our emissions test is a fundamentally different system to the US, these revelations reinforce the need for a more accurate testing regime.”

Keenan continued: “As it stands, the car industry is simply creating ECU maps to best-fit what are very out-dated standards. The standards need changing to being a more real-world test style such as the US EPA, where most reasonable drivers should achieve the stated numbers quite routinely.

“The manufacturers cannot be held responsible for quoting numbers based upon ‘the standard’ imposed upon them, and we don’t believe that once all the facts are in the open it will tarnish either the broader industry or diesel any further. The overall impact in the EU of this affair should be negligible, albeit with a degree of tarnish attaching to any manufacturer who gets discovered ‘cooking the books’.”