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The recall orders have finally begun.
The government of Germany, one of Volkswagen’s most crucial markets, has directed the company to recall 2.4 million of its diesel vehicles which the automaker acknowledges it equipped with software that makes the engines appear to pollute less than they actually are.
German Transportation Minister Alexander Dobrindt also said that Volkswagen must provide the Federal Motor Transport Authority, known under its German initials KBA, with a detailed report on how it plans to remedy the problem in its 1.2- and 1.6-liter EA 189 diesel engines by the end of November.
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“The KBA believes that the software used in the diesel engines constitutes an illegal defeat device,” Dobrindt said on Oct. 15. “The Authority has demanded that Volkswagen remove the software and take all steps necessary to ensure that the emissions regulations are met.”
In September, officials in the United States discovered that some Volkswagens equipped with EA 189 engines were equipped with software that cheats emission testing. The company later acknowledged that the programs were being used in as many as 11 million of its vehicles, including about 8 million sold in Europe and 2.4 million in Germany alone.
The company is now being investigated by authorities in both Germany and the United States.
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The admission has brought close scrutiny not only on Volkswagen but also on diesel technology in general. Germany’s environment minister, Barbara Hendricks, is seeking stricter testing and regulations for all diesel vehicles. Diesel engines are considered cleaner than gasoline engines because they emit less carbon dioxide, but they also produce more of the pollutant nitrogen oxide.
But Hendrix said she was reluctant to condemn diesel technology. “Demonizing diesel power would be a false consequence of emissions manipulation,” she said, and added that she wasn’t suggesting penalizing diesel owners with higher taxes on their vehicles.
“This is about ensuring realistic testing and controls so that diesel’s undisputed environmental advantage doesn’t come at the expense of the health of people in big cities,” Hendricks said.
Managing the crisis is expected to be extremely costly for Volkswagen. Some observers estimate that the scandal could cost it as much as $40 billion to cover the cost of the recalls, software refits, fines and lawsuits. At worst, according to Credit Suisse, it could cost $87 billion, nearly seven times greater than the company’s net profits in 2014.
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Volkswagen has set aside only $7.3 billion to cope with the scandal.
The recall was announced the same day the automaker said it had suspended Falko Rudolph, the director of Volkswagen’s components factory in Baunatal outside Kassel, Germany. Rudolph had been in charge of development of the company’s diesel engines, including the EA 189, from 2006 to 2010. He is the fourth employee to be suspended as part of Volkswagen’s internal investigation.
That followed the Oct. 14 resignation of Winfried Vahland, the CEO of Volkswagen’s Skoda Auto division and the CEO-designate of a new division encompassing all of the automaker’s North American operations. The automaker said Vahland quit because of “differing views on the organization of the new group region.”
By Andy Tully of Oilprice.com
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Andy Tully is a veteran news reporter who is now the news editor for Oilprice.com