Wednesday 7 December 2016

Can Volkswagen recover from this scandal and do Irish drivers really care?

It has cast a cloud over the industry but what will be the long-term impact, asks contributing editor Geraldine Herbert

Published 29/11/2015 | 02:30

A Volkswagen emblem on the back of a Tiguan car in a production line at Volkswagen headquarters in Wolfsburg
A Volkswagen emblem on the back of a Tiguan car in a production line at Volkswagen headquarters in Wolfsburg

As the German car regulators (KBA) announce that they are expanding their investigation of emissions-cheating software to more than 23 car makers, Volkswagen remains firmly in the headlines.

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The latest revelations relate to CO2 emissions declarations for diesel and petrol cars. Manufacturers also have been accused by the US Environmental Protection Agency of having yet another 'defeat device' in their 3.0 litre diesel engines. This is fitted to some Porsche and Audi models, as well as VW, and was expected to affect at least 10,000 vehicles. However, in the last week this has extended to an additional 75,000 vehicles dating back to 2009.

The claim has been denied by Volkswagen but by implicating Porsche in the scandal it threatens to undermine the new CEO of Volkswagen Matthias Mueller - a former head of Porsche.

The continuing scandal is not only damaging the reputation of the brand and customer loyalty but the company's crisis is also taking a heavy financial toll.

VW initially set aside €6.7bn to cover costs, resulting in the company posting its first quarterly loss (€2.5bn) for 15 years in late October.

But this figure does not include losses from discounting cars in some markets. In the US, VW is already offering a $1,000 gift voucher to owners of some diesel models.

In addition, falls in the share price, heavy fines or legal judgments from law suits filed by discontented customers are all likely to put Volkswagen under severe financial pressure.

Meanwhile, investigations continue internally to find the source of the illegal software. It seems unlikely that the claims of a few 'rogue' software engineers will be substantiated. Instead, deficient corporate governance, a poor culture and a strategy focussed almost exclusively on growth are likely to loom large as the root causes.

But what about the implications for Ireland?

The spilling over of the crisis from diesel into petrol and CO2 raises questions about car tax. While Matthais Muller has assured VW customers that the company will meet the cost of any increased motor tax liability, the number of cars on Irish roads affected by this new development is yet to be confirmed.

In the latest UK car sales figures, Volkswagen saw its sales dip by almost 10pc in the wake of the ongoing diesel emissions scandal, but in Ireland it remains the best-selling brand.

So what impact will the scandal have on our car market and the buying preferences of Irish drivers?

Declan Allen, Head of Transport Engineering, DIT

What is the likely long-term impact?

This could be a game changer for the automotive industry; it will be very hard, not just for potential customers but for policy makers, to ever believe anything the industry says in the future.

And the short term?

This will very much depend on how VW handles the situation going forward. Given its actions to date, I am not overly confident that it will recover from this scandal.

Do Irish people care about emissions?

The Irish driver (particularly the rural driver) has had a love affair with the diesel engine for many years and the VW scandal is unlikely to upset this relationship. The younger urban drivers are more concerned with what comes out of the exhaust pipe.

Will it spell resurgence in petrol or merely a switch to hybrid and electric?

The Toyota and Honda petrol hybrids will appear more attractive and the modern engines, such as Ford's Ecoboost, will do well as result. The electric option is a long way off before it becomes a viable/realistic option for the mainstream motorist.

How will it impact the future of diesel cars?

The image/perception of dirty diesels is back in the minds of motorists, governments and lobby groups; perhaps in the not-too-distant future diesel vehicles may not be allowed in city centres. Any tax subsidies or rebates will have to be reconsidered.

What lesson should the industry learn? The truth comes out in the end.

Conor Faughnan, Director of Consumer Affairs for AA Ireland

What is the likely long-term impact?

Probably not that large in terms of sales, although it may make the general public more cynical about marketing claims. From a policy point of view, there is likely to be a sharper focus on things like fuel-economy claims.

And the short term? Again, not as big as you might think. The consumer will have made the new car purchase decision based on other factors so I would be surprised if the effect was noticeable, although I could be wrong.

Do Irish people care about emissions?

Yes, in the broadest sense; the typical consumer will express concern. But that concern may be wide without being very deep. I believe it is lower taxes, rather than lower emissions, that really affect people's buying decisions.

Will it spell a resurgence in petrol or merely a switch to hybrid and electric?

I doubt it, although petrol is fighting back for different reasons. I don't see dieselgate being huge and in fact the relatively low oil price recently probably drags against the sale of electrics and hybrids at the moment. ESB's announcement of charging costs is a blow to electric sales as well.

How will it impact the future of diesel cars?

That sort of depends what happens next. Personally, I think that fuel economy claims need to be scrutinised and standardised as well and that may be a bigger factor. Nowadays, they are treated a little bit like claimed download speeds for broadband; no one fully believes them but they are taken as a reasonable way to compare one car to another. But I do believe that diesel passenger cars will stay very strong, at least in Ireland.

What lesson should the automotive industry learn? Stop lying to us. Honestly, dieselgate has been a disgrace. Collectively the industry needs to look at its conscience and stop making technical, fuel and crash test claims which do not stand up to scrutiny. It should get itself a step ahead of regulators because US, EU and other governance bodies will now be looking at every claim the industry makes with a much more cynical eye.

Michael Rochford, Managing Director of Motorcheck.ie

What is the likely long-term impact on the market?

Certainly, manufacturers will come under huge scrutiny regarding the claims they make about the technical performance of their vehicles, not only in relation to CO2 but also covering other NOx gases and additional metrics, such as MPG etc. We may see the establishment of an independent body (like NCAP) responsible for auditing such metrics.

And the short term?

The short-term impact on the wider car market will be relatively minor. VW and other brands still produce exceptionally good cars that will be desirable in the used market for years to come.

Locally, the shortage of good used vehicles means that residual values won't suffer hugely. It's true to say that the trust of VW customers has been damaged greatly but they will be working exceptionally hard to put this right over the months and years to come.

Do Irish people care about emissions?

The relatively recent changes to the VRT and road tax regimes by the Government has meant that emissions have become one of the primary concerns when buying a car. This concern is probably led more by price and running costs, rather than by environmental issues.

However, this was a commendable strategy and it has been successful in bringing emissions to the forefront in the buying decision.

Will it spell a resurgence in petrol or merely a switch to hybrid and electric?

Diesel is still by far and away the biggest seller (72pc in 2015). However, in 2014 the growth in the petrol sales outstripped the growth in diesel sales and this trend has continued in 2015, with a 26pc growth in diesel, compared to a 40pc growth in diesel. The emissions scandal will probably accelerate the growth of petrol sales further, but the market has been swinging that way anyway.

How will it impact the future of diesel cars?

This remains to be seen. If the pricing and running costs of diesel engines are adversely affected by new legislation (or a tightening-up of existing rules), it could lead to a greater acceleration in the growth of the petrol sector and may even see further acceleration of the move to electric and hybrid alternatives.

What lesson should the automotive industry learn? Obviously, cheating the system doesn't pay. The automotive industry needs to refocus attention on the fact that it is actually not the bad guy when it comes to emissions when compared to industry at large.

In Germany, for example, automotive accounts for only 12pc of emissions. Automotive has taken enormous strides in recent years, so it doesn't need to cheat to show the good work that it has done and continues to do in reducing the impact on the environment.

Teresa Noone, PR and Marketing Manager, SIMI

What is the likely long-term impact on the market?

It is difficult to say at this stage as a variety of factors can have an impact on the market such as economic growth, consumer sentiment, external economic factors etc. Really, the long-term impact of the car market has seen some move slightly towards petrol in the last couple of years.

Consumers who do lower mileage are benefiting from petrol as VRT and road tax are not as high as they once were. We also now see better choice in relation to petrol, with new technologies emerging.

And the short term?

All the forecasts for next year will actually see an increase in the new car market in Ireland - both independent and industry analysis suggest that.

In Ireland, of the new cars sold to date, diesel accounts for around 71pc of the market. There may, however, in the short term be some move towards non-diesel cars but diesel will still account for the majority of the new car market 2016.

Do Irish people care about emissions?

Yes. If you look at the change to C02- based taxation, in 2008, we saw cars in CO2 Band A account for 3.64pc, while in 2015 cars in Band A account for 71.94pc.

Undoubtedly, part of the reason for the change was the taxation benefit of having a lower CO2 car, but also people are becoming more environmentally aware.

As we see changes in environmental legislation coming into effect in various aspects of the consumers' lives - for example, the recycling of electrical equipment, greater use of green bins, bottle banks, reuse of plastic bags etc - all of these environmentally focused actions are replicated in the buying patterns of consumers for cars.

Will it spell a resurgence in petrol or merely a switch to hybrid and electric?

As I mentioned, there was already a slow move towards petrol, as petrol cars with better CO2 profile have become available in recent years.

It's too early to predict what the extent of this move is, but there is no doubt there will be a bigger mix of petrol as well as hybrids and electric in the next few years.

How will it impact the future of diesel cars?

The future of diesel passenger cars was going to be impacted in any event, with the increased tariffs from the EU and the move towards real driving emissions.

In addition, Euro 6 emissions regulation requires improved NOx performance and NOx emissions, so it has already happened.

Diesel cars continue to become more CO2- and NOx-friendly. Certainly over next decade, diesel will continue to play an important role in both Ireland and the EU.

What lesson should the automotive industry learn? It underlines the importance of transparency in dealing with both regulators and customers.

If the industry is going to retain the confidence of its customers, than it is important that the information provided to them is both accurate and up to date.

Geraldine Herbert is also editor of WheelsforWomen, Auto Ireland, motoring correspondent, Irish Country Magazine, Good Housekeeping (UK).

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