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11 MILLION VW cars used Dieselgate cheatware – what the clutch, Volkswagen?

Sets aside over US$7bn for fines and mass recalls

Volkswagen Beetle

Volkswagen is getting hammered on world stock exchanges after it was revealed the number of VW cars using software to cheat on pollution tests is far greater than first thought.

On Friday, the US Environmental Protection Agency revealed that the German car firm had been using engine management software that detected when official emissions testing was being conducted. The software would make the engine conveniently run cleaner than usual during these tests, and switch back to normal when an examination is over – cheating, in other words.

Initially, just 500,000 cars were thought to be affected – but the automaker today admitted 11 million worldwide are going to need to be recalled and reprogrammed.

"Discrepancies relate to vehicles with Type EA 189 engines, involving some eleven million vehicles worldwide," Volkswagen said in a statement on Tuesday.

"A noticeable deviation between bench test results and actual road use was established solely for this type of engine. Volkswagen is working intensely to eliminate these deviations through technical measures."

Quite what those technical measures are remains to be seen. The software detected by the EPA reduced the fuel efficiency and performance in order to bring nitrogen oxide emissions down for testing. Once the testing was complete, the engine shifted to better performance, but at a cost of barfing out up to 40 times the permitted levels of nitrogen oxide.

That's potentially hundreds of thousands of tonnes of extra air pollution pumped into the atmosphere a year, globally.

If Volkswagen alters the engine management software to make the cars run cleaner, then fuel economy and the cars' speed will be affected, and owners aren't going to be happy about that. The company would be open to class action lawsuits all round, and in the statement said they were preparing to take a major financial hit.

"To cover the necessary service measures and other efforts to win back the trust of our customers, Volkswagen plans to set aside a provision of some €6.5bn (US$7.2bn) recognized in the profit and loss statement in the third quarter of the current fiscal year. Due to the ongoing investigations, the amounts estimated may be subject to revaluation."

To put that in perspective, Volkswagen's profits for the last financial year were €10.85bn (US$12.1bn), so the firm is banking on having to pay out at least half of its profits, and possibly a lot more. The EPA has already said that the company could be liable for up to $18bn in fine and fix costs, and that was when only half a million cars were thought to be dodgy.

As a result, the wheels have fallen off the company's stock price. Shares have nearly halved in value since the firm admitted using the emission-control software, and they are likely to fall further as the scandal unfolds.

Volkswagen's CEO Martin Winterkorn has already issued a public apology for his firm's conduct, and his position is looking increasingly untenable. Rumors of his forced retirement are already circulating, although these are being denied at present.

The case could also have an interesting knock-on effect in the software field. Technically, Volkswagen's software was covered under the US Digital Millennium Copyright Act, meaning tinkerers couldn't have examined and altered the code.

The EPA has been lobbying with car companies to make sure the DMCA continues to make engine management software off limits to tinkerers. But based on its experience with Volkswagen, the agency may be changing that stance.

Meanwhile, New York State Attorney General Eric Schneiderman has vowed to probe Volkswagen. "No company should be allowed to evade our environmental laws or promise consumers a fake bill of goods," he said today. "That is why my office is investigating troubling reports that millions of Volkswagen cars carried software designed to cheat emissions tests that protect our environment." ®

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