Das Scandal: Volkswagen's Wheels Are Still Spinning Out of Control

[Update, 10/23/15 11:10: VW CEO Winterkorn resigns]

Volkswagen now says that it outfitted 11 million diesel autos with software that mislead owners and regulators about emissions and enabled the company to assert false claims about performance.

The world’s largest automaker — before all this anyway —  says it has set aside about $7.3 billion to “comply with pollution standards and to cover other expenses, which are likely to include fines as well as responses to civil lawsuits from angry customers,” reports Jack Ewing for The New York Times.

The astonishing 11 billion figure was VW’s first admission that it had engaged in what is unmistakably a enormous, global scam — the EPA disclosure concerned only 482,000 vehicles sold in the US. As the FT puts it (paywall), “No one accidentally installs software designed to fool the regulator.”

It’s difficult to imagine the ultimate cost of this episode won’t be a multiple of $7.3 billion, and easy to imagine this as a truly existential problem for VW. “There is no way to put an optimistic spin on this — this is really serious,” Max Warburton, analyst at Bernstein Research, tells Reuters.

VW CEO Martin Winterkorn began the long trip back with a video statement (in German) in which (per the NYTimes) he promised: “Everything will be laid on the table, as quickly, thoroughly and transparently as possible,” adding: “And, to be clear, manipulation and Volkswagen — this must never happen again.’’

But the Watergate era question — “What did he know and when did he know it?” — has no satisfactory answer. Either the deception was sanctioned from the top, or Winterkorn can run unopposed for Most Clueless CEO of the Year. He has announced he won't step down, which doesn't mean he won't be out of a job by the end of the week.

And, indeed, about 15 hours after I wrote that sentence VW announced that Winterkorn had stepped aside. 

Besides being a mortal threat for the 78-year-old company, there is potential for fallout through the entire car industry, which already has trust issues. Cars are, for many, one of life's most expensive and emotional purchases. Automakers persist in a self-serving dealership model, which makes it difficult to shop around for new cars from different vendors, and for disrupters like Tesla from competing.

And now carmakers want to put software in "connected cars" they assure us will operate transparently, and only in the owner's interest. Talk about a tough sell.

Volkswagen shares plunged another 20% Tuesday — it has lost about ⅓ of its market cap in two trading days. It’s not yet clear how customers will react, but if Jad Mouawad and Christopher Jensen are even close to accurate in their reporting for the Times, the answer is “not well.”

“I feel totally ripped off,” says John Decker, who owns a 2013 Jetta SportWagen with the diesel engine.

As Marianne Griebler puts it in a post here on LinkedIn: “To car buyers looking for the sweet spot between performance and clean energy, Volkswagen's diesel line almost seemed too good to be true. And sadly, it was.”

*****

Cover art: Volkswagen CEO Martin Winterkorn attends the company's annual press conference on March 13, 2014 in Wolfsburg, Germany. Winterkorn announced on September 22, 2015 that he will not step down following the diesel emissions scandal that Volkswagen has admitted could affect up to 11 million VW cars. (Photo by Sean Gallup/Getty Images)