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Volkswagen To Offer Cash To Diesel Car Owners After Engineers Admit To Emissions Manipulation

In the aftermath of the Volkswagen emissions manipulation scandal, things for the giant German car maker appear to be going from bad to worse with every passing week.

The latest revelation comes from Bild am Sonntag which, following last week's news that even gasoline engines are now getting dragged into what until recently was exclusively a diesel issue, reports that several Volkswagen engineers have admitted manipulating carbon dioxide emissions data, saying the ambitious goals set by former Chief Executive Martin Winterkorn were difficult to achieve. As Reuters reports, VW engineers tampered with tyre pressure and mixed diesel with their motor oil to make them use less fuel, a deception that began in 2013 and carried on until the spring of this year.

"Employees have indicated in an internal investigation that there were irregularities in ascertaining fuel consumption data. How this happened is subject to ongoing proceedings," a Volkswagen spokesman said, declining to comment on the Bild report.

Bild adds that former CEO Winterkorn declared at the Geneva auto show in March 2012 that VW wanted to reduce its CO2 emissions by 30 percent by 2015 and the engineers did not dare to tell him that this would be difficult to achieve.

Volkswagen has declined to comment on whether the firm's culture or the management style of Winterkorn, who resigned in September, had been a factor in the cheating - perhaps not surrounding himself with "yes" men would have prevented the dramatic fallout which according to analysts could result in a bill as high as $38 billion for fines, lawsuits and refits.

The revelation took place at the end of October when an engineer at VW's headquarters in Wolfsburg, who works in the Research & Development department, broke his silence and told his superiors about the large-scale deception, Bild said citing only what it said was information it had received.

It said the engineers used several illegal measures to manipulate the emissions values, including through a higher tyre pressure of 3.5 bar. They also mixed diesel in the motor oil so that the vehicle ran more smoothly and used less fuel.

The paper said VW was examining which employees to suspend following the revelations but said the engineer who made the deception known would be allowed to stay. "We can't punish someone who has taken such a brave step," Bild quoted a person in VW's top management as saying.

Again, if only the "brave step" had been taken three years ago, then all of the imminent unpleasantries, not to mention a historic plunge in the stock, could have been avoided.

And speaking of the upcoming unpleasantries, the NYT reports that Volkswagen is expected to offer cash to the owners of diesel cars in the United States this coming week "as it steps up an effort to recover some of the good will it lost after admitting in September that the vehicles were programmed to cheat on emissions tests."

Volkswagen officials said the company would make an announcement on Monday but would not confirm a report on an automotive website that diesel owners would be offered up to $1,250. The site, The Truth About Cars, said the owners would get a cash card worth $500 that they could spend any way they liked, and another $500 to $750 that they could spend at a Volkswagen dealer.

The company faces lawsuits from owners seeking compensation for the decreased resale value of the roughly 500,000 Volkswagen and Audi vehicles that were equipped with illegal software. It was not clear whether owners would have to give up any rights to sue if they accepted the cash.

 

Volkswagen has promised to make changes to cars so they comply with emissions limits. But the repairs are likely to be costly and complicated, and Volkswagen has not said how they would be carried out. Two dealers said on Saturday that they were aware that Volkswagen was planning something but did not know specifics. “There is a program in the works with VW, that I do understand,” said Alan Brown, head of an association of Volkswagen dealers.

Among the car owners to benefit from the cash handout would likely be those of Golf, Jetta, Beetle and Passat models sold since the 2009 model year, as well as Audi A3 cars.  The Environmental Protection Agency said on Monday that some larger Volkswagen, Audi and Porsche diesel vehicles, all of which are produced by Volkswagen, also had software that was not allowed. But Volkswagen has denied that the software in those cars was designed to cheat on emissions tests, and they would probably not be eligible for the cash compensation.

Yet the emissions scandal may be just the tip of the iceberg for the company which, like most of its peers, has bet its future growth on China.

Because while Volkswagen's emissions fines may be ultimately contained, it is its primary growth market where the biggest risks lie for western automakers. Case in point Jaguar Land Rover, which under Indian Tata Motors ownership since 2008, reported a second-quarter net loss which revealed a very unpleasant picture.

As the FT reports, Jaguar and Land Rover three-month sales plunged 32% in China. The company has put in place a freeze on hiring new white-collar employees, according to two people familiar with the matter. More:

Taken together, the lacklustre results and the austerity drive mark a stinging correction to the wave of optimism that has accompanied JLR’s rise as Europe’s fastest-growing large carmaker on the back of rampant Chinese demand for products such as the Range Rover Evoque.

 

 

“If cash flow is reducing because of the market conditions, they need to find...efficiency savings and trim operating expenditure wherever they can,” said one of the people familiar with the matter.

 

...  despite a new plant in China, which opened in October last year, the company has suffered a sharp decline in sales in the country. China accounted for about a quarter of JLR’s retail sales last year.

So far the reality of China's hard-landing has been largely contained, with the Volkswagen scandal drawing the spotlight away from the troubles of other global carmakers who rely largely on China as the marginal source of global growth. This will change.

For now, however, one country has remained largely isolated from either the Volkswagen scandal or the Chinese slowdown: the US, where annualized car sales just hit a whopping 18.23 million in October, the highest since July 2005, topping September’s 18.17 million figure.

The reason for that is simple. As we showed in Friday's record jump in consumer debt, driven by non-revolving (auto and student debt) debt, car loans have now surpassed the total amount of consumer credit card debt at the peak of the last credit bubble...

... thanks to government generosity. There is just one thing that can possibly stop this runaway debt-funded, car spending spree: rising interest rates.