Emissions scandal worldwide unlikely to affect PH sales

THE DIESEL emissions deception scandal that has engulfed Volkswagen, the world’s top-selling automaker, in the United States and Europe is unlikely to affect the sales of diesel-fueled motor vehicles in the Philippines.

This is because diesel emissions standards in Asian countries are less stringent than those in the United States, where the Environmental Protection Agency (EPA) ordered Volkswagen on Sept. 18 to recall nearly half a million diesel-fed cars for intentionally programming  software to switch engines to a cleaner mode during official emissions testing.

The software then switches off afterwards, enabling cars to drive more powerfully on the road while emitting as much as 40 times the legal pollution limit of the US Clean Air Act.

The EPA said that the illegal software was made and installed in vehicles with 2-liter diesel engines during the model years 2009 through 2015, and includes the Audi A3, VW Jetta, Beetle, Golf and Passat models.

Volkswagen finally acknowledged its scheme and pledged to cooperate with regulators on Sept. 3 after disputing the EPA’s findings for one year.

Drop in shareholder value

The scandal went global on Sept. 22 when Volkswagen admitted that 11 million diesel cars worldwide have the same software, called a “defeat device,” that was used to manipulate emission tests in the United States.

As a result, the company lost about $26 billion in shareholder value in the days after the news broke.

Volkswagen faces as much as $18 billion in fines aside from class-action lawsuits, and had to halt US sales of the affected vehicles. VW marketed the “clean diesel” cars as being environmentally friendly.

The German government has begun an investigation, ditto the French, Italian and South Korean governments.

Volkswagen will have to set aside $7.3 billion, the equivalent of half a year’s profits, to cover the cost of repairing more than 482,000 affected cars in the United States to comply with pollution standards.

In Germany, Transport Minister Alexander Dobrindt  said German authorities had asked Volkswagen whether it could eliminate the emissions manipulators, and said they expected “a binding timetable” for finding a technical solution and implementing it.

Reduced performance

But whatever the technical solution, it will most likely reduce the performance, drivability or fuel economy of diesel cars to meet emission standards.  More than any other automaker, Volkswagen has tried to win American consumers back to diesel cars with advances in systems that reduce tailpipe emissions, engine noise, clatter and harshness.

Passenger cars that run on diesel make up only 1 percent of new car sales in the United States, compared to about half of new car sales in Europe, most of which are made by Volkswagen.

As expected, Volkswagen’s chief executive, Martin  Winterkorn, resigned under pressure on Sept. 23, and was replaced by Matthias Müller, the head of VW’s Porsche unit, on Sept. 25.

Müller stated he would “do everything to bring back the trust of our customers, our employees, our partners, investors and the whole public…. We stand by our responsibility.  Occasionally, our and your patience will be tested, but carefulness is even more important than speed…. It is decisive that nothing like this could ever happen at Volkswagen again.  So we will introduce even tougher compliance and governance standards in the company.”

He pledged to make Volkswagen “an even stronger company.”

In  Manila, J.P. Orbeta, president and CEO of Ayala Automotive Holdings Inc., the distributor of VW vehicles in the Philippines, said that they have no statement to make on the emissions issue since they have not received any advice thereon from Wolfsburg, the Volkswagen head office.

He said that “We know only as much as you know,” nonetheless adding that Volkswagen Germany is conducting an investigation into the matter and fully cooperating with regulators.

At present, VW Philippines sells three models with 2-liter common rail TDI (turbo direct injection) diesel four cylinders-in-line engines: the Jetta, Touran and Tiguan. There are two other diesel models, the Polo notchback sedan and the Touareg Sport, but they have 1.6 TDI and 3.0 TDI V6 engines, respectively.

In the VW Philippines website, the Jetta is described as “Euro 4 emission standard.”

Euro 4 is the emissions standard that was phased out in Europe in 2009, which is now enforcing Euro 6, while the United States implements Tier 3, one of the most stringent emission standards in the world.

Euro 4 will be mandatory in the Philippines, however, only starting Jan. 1, 2016, despite the Clean Air Act of 1999.  Since Jan. 1, 2008, the Department of Environment and Natural Resources (DENR) has been implementing the Euro 2 emissions standard which allows 500 parts per million (ppm) of harmful smog-forming pollutants.

Target date reset

The Euro 4 standard (50 ppm) was supposed to be enforced starting Jan. 1, 2010, but the DENR reset the target date to 2012, and then to 2016, which was rumored to be because of lobbying by the oil and automotive industries.

Emissions testing facilities in the Philippines are generally perceived as unreliable and dubious. In some cases, a car owner can get an emissions clearance certificate, which is required for the renewal of registration of cars at the Land Transportation Office, without having to subject the vehicle to actual testing.

Given the lax air pollution regulatory system in this country and the obsolete emissions standard plus the subsidized pump price of diesel fuel that makes it at least P5 cheaper per liter than unleaded gasoline, the Volkswagen emissions scandal is unlikely to affect the marketability of diesel vehicles.

Volkswagen Philippines, for one, can declare that all the vehicles it sells are Euro 4-compliant, just like Honda Cars Philippines did recently, to show that it is operating within the purview of the law.

But the seeming indifference of Asian markets like the Philippines, India and China to Volkswagen’s rigging of nearly half a million cars in the United States and 11 million cars worldwide to dupe smog tests will not reduce the outrage of consumers who feel betrayed.

After all, Volkswagen has long been a symbol of the efficiency and engineering acumen that makes Germany one of the most formidable economies in the world.

Bail out

On the other hand, despite the serious financial and reputational damage, the consensus is that Volkswagen will survive. “They’ll get through this eventually, but I wouldn’t be surprised if the German government ends up having to bail them out,” a professor of finance and corporate governance at the University of Delaware said.

 With reports from the Associated Press and The International New York Times