VW scandal could ultimately put diesels out of business

Questions remain over tax implications from the Volkswagen emissions scandal as the German car giant’s cheating software looks set to result in a new focus by the firm on electric and petrol-hybrid versions.

Speaking at the British government's Transport Select Committee hearings on Monday, Paul Willis, VW's UK managing director, admitted that in the test regime "the engine behaved differently to the real-world situation via software".

"The software affected the flow of gas to the engine which reduced the nitrogen oxides (NOx). It seems from what I understand - and I'm not an engineer - that the system of gas regulation in the engine influenced the NOx output in cars that we sell in the UK. These cars are type approved across all of Europe, of course, and they're type approved in Germany, with separate people overlooking it," he said.

His comments raise doubts as to what the results may have been if the system was not in operation.

VW Group Ireland managing director Lars Himmer will appear before the Oireachteas Transport Committee on Thursday to face questions on what the firm is prepared to do to remedy the situation for the 106,752 Irish motorists affected.

Despite promises that engineers working on a remedy have been told to ensure fuel economy and CO2 emissions are unchanged after the fix, motorists still have no idea when exactly their cars will be repaired and whether they will perform at the same level afterwards.

Mr Himmer will also be under pressure to offer some assertion the car giant will cover any lost tax income due to the “cheat devices” if emissions are changed by the repairs.

The European car industry is feeling a chill wind of concern over the potential for the scandal to affect both diesel car sales and the future costs of making those cars.

The outmoded New European Driving Cycle (NEDC) emissions test is due for replacement shortly and there is a real-world testing element expected to be included in a new test in 2017. Car makers, and many of the governments in whose countries there are major car-making operations, have thus far been resisting the implementation of the new testing cycle though. On Tuesday, the umbrella organisation for Europe’s car makers, the ACEA, said that tougher testing, introduced as a knee-jerk reaction to the Volkswagen case, would do huge damage to the rest of Europe’s car industry.

“Without realistic timeframes and conditions, some diesel models could effectively become unaffordable, forcing manufacturers to withdraw them from sale,” said the ACEA’s statement. “ACEA continues to stress the need for a timeline and testing conditions that take into account the technical and economic realities of today’s markets, allowing for reasonable transition time to apply RDE (real driving emissions) to all new vehicles.

“The automobile industry agrees with the need for emissions to more closely reflect real-world conditions, and has been calling for proposals for years. However, it is important to proceed in a way which allows manufacturers to plan and implement the necessary changes, without jeopardising the role of diesel as one of the key pillars for fulfilling future Co2 targets.”

With Europe's car makers lagging behind Japan and America when it comes to hybrid or pure-electric technology, having essentially bet the farm on diesel, any increase in costs for diesel cars (coupled with the bad publicity now surrounding diesel fuel and fumes) could be disastrous for the industry. Renault-Nissan CEO Carlos Ghosn has recently suggested that as little as an extra €300 per unit cost added to diesel cars would make them uncompetitive for a majority of car buyers. Industry analysts LMC Automotive has suggested this week that diesel sales in Europe could plummet from 53 per cent of all cars sold today to 35 per cent by 2022.

France has already moved to reduce its tax breaks for diesel fuel, which are expected to eliminate the 15c per litre price advantage currently enjoyed by diesel there. "It's obvious today that there's an inconsistency between the advantages given to diesel and its drawbacks in terms of pollution," French Environment Minister Segolene Royal told journalists. French car buyers currently choose diesel in two-thirds of purchases, but that figure had already started to dip a little even before the VW scandal broke. It was announced this year that Paris would start to ban older diesel cars from entering the city centre, and that the government would offer cash incentives to get people to switch from diesel to electric cars, following several years of heavy air pollution in the French capital.

Germany though is still looking to politically protect its car industry. Responding to Green Party criticisms of the German car industry in the Reichstag, Chancellor Angela Merkel said "Please don't use this affair to do something that you might do anyway by political conviction, namely to condemn the automobile in general and thereby threaten many thousands of jobs in Europe. We shouldn't do that. We tend to have too few jobs in Europe rather than too many."

With the scandal over emissions test rigging doing terrible things to both VW’s investment budget and its image, the company’s Board of Management has issued a declaration that VW will hasten the development of electric and hybrid vehicles and will, in the future, only sell diesel models fitted with the latest and best exhaust treatment systems.

Interestingly, the board has also confirmed that VW will press ahead with a next-generation Phaeton luxury saloon, but that it will become an all-electric car.

With VW confirming that its investments are to be reduced by €1-billion a year compared to the previously issued plans, it was looking likely that such as the Phaeton, a new Bugatti supercar, the Audi takeover of the Red Bull F1 team and possibly the World Rally Team were all going to be cut.

The Phaeton, however, has been given not only a stay of execution, but a complete re-orientation into an electric car. “The future generation of the Phaeton will once again be the flagship for the brand’s profile over the next decade. In light of this, the Board of Management redefined the current project. The specification features a pure electric drive with long-distance capability, connectivity and next generation assistance systems as well as an emotional design” said the statement from VW. It’s likely that it will be based on the same MLB-platfrom as the forthcoming Audi Q6 e-Tron quattro, an all-electric SUV with a claimed 500km one-charge range.

VW has also said that it will accelerate development of electric cars with one-charge ranges of between 250km and 500km, thanks to a new engineering ‘toolkit’ which will help to integrate electric car technology with the group’s existing brands and platforms.