The problems that Volkswagen faces should serve as an object lesson to everyone about the cost of cheating.
Matthias Mueller, the German automaker’s new chief executive, said Tuesday that $7.3 billion was set aside the cover the cost of getting 11 million diesel cars in compliance with emission standards. Those vehicles had purposely been rigged to cheat on the tests so that they appeared to give off reduced emissions of nitrogen oxide, a gas that is a major contributor to smog and is linked to an array of respiratory ailments including asthma, emphysema and bronchitis.
Meeting the emissions standards would have reduced the power, performance, fuel efficiency and marketability of the vehicles, which would have hurt Volkswagen and Audi diesel car sales. But now the costs of cheating — and getting caught — have come home to roost for one of the world’s largest carmakers.
Mueller, who took over the company after Martin Winterkorn resigned last month from the job after the cheating scandal surfaced, explained at the company’s Wolfsburg, Germany, factory that the cost of getting the millions of vehicles in the U.S. and Europe to comply with emissions standards in could climb higher, and the recall of the affected vehicles isn’t to start until 2016.
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That won’t make VW and Audi car owners happy. Some consumers already have filed lawsuits against the company, which has seen its stock plunge dramatically after the cheating scandal was revealed. That hasn’t make VW shareholders happy either.
In addition to the massive costs from consumer lawsuits, Mueller warned of penalties that Volkswagen was expecting from governments in Europe and the U.S. for installing the so-called defeat devices on Volkswagen and Audi cars with four-cylinder diesel engines. The company could face up to $18 billion in fines from the U.S. Environmental Protection Agency alone and is under investigation by the Justice Department.
VW has admitted putting the defeat devices on cars with diesel engines to switch on pollution controls when they are being tested but turn them off when the software determines that the cars are back on real roads. Consumers had been unaware that they were getting duped.
Mueller said that because of the cheating scandal and its incredible unbudgeted costs, the company had to cancel new investments that were planned and VW workers may even face job cuts as Volkswagen tries to stay afloat.
It’s a perfect example of the real cost of cheating unfolding. Most schoolkids know that the best plan is to not cheat at all.
Some corporate executives, who are under investigation at Volkswagen, are learning that lesson now the hard way. Unfortunately for short-term gains, they are dragging the carmaker down in the long-run with them.