Motor Vehicles

VW Emissions cheat Scandal May Cost More Than BP Oil Spill

VW consumer fraud 375x210 VW Emissions cheat Scandal May Cost More Than BP Oil SpillVolkswagen officials said the company has set aside 6.5 billion euros ($7.3 billion) to fix the damage from its emissions cheat scandal, but that amount may be less than 10 percent of what the fallout will actually cost, according to an analysis by multinational financial services giant Credit Suisse.

In the worst-case scenario, Zurich-based Credit Suisse sees VW paying 78 billion euros ($87 billion) to deal with the disaster. That’s about 60 percent more than the 2010 Deepwater Horizon oil spill cost BP.

Credit Suisse analysts predict that a lot of expenses will ride on how well the affected diesel-powered vehicles perform after the emissions cheat is removed from the vehicles.

“The outcome for recall costs and fines is unclear and largely depends on the engine performance post repair,” Credit Suisse stated in a report to bank clients.

VW said it has plans to recall about 11 million of its TDI vehicles worldwide to eliminate the emissions cheat, which company engineers had written into the proprietary code that governs the electronic brains of its vehicles. The cheat is programmed to detect when the vehicle is undergoing an emissions test and turn emissions controls on. The cheat turns emissions control off once the vehicle returns to normal operation, allowing it to belch up to 35 times more air pollution than legally allowed.

To calculate the costs VW will likely incur, Credit Suisse considered the cost of eliminating the cheat from the vehicles, reimbursing owners, and settling civil and criminal complaints.

Lawsuit seeking compensation for financial losses will be VW’s biggest expense, according to Credit Suisse. Eliminating the cheat will likely diminish fuel efficiency and possibly lead to poorer performance – two problems that could lower the value of the vehicles and make them harder to sell. Damage to the brand name could also result in significantly lower sales.

VW’s most recent earnings report says the company has 21.5 billion euros ($24.3 billion) cash on hand.

Volkswagen seemed offended by the Credit Suisse figures. “The numbers … are pure speculation. The calculations are nonsense,” a VW spokesperson said in a statement.

Sources:

CNN
Reuters