Volkswagen shares tumbled Monday morning on the heels of news last week that the U.S. Environmental Protection Agency’s announcement that it was initiating a class-action lawsuit against the German automobile manufacturer. The suit alleges that Jetta sedans sold in in North America were equipped with emissions “defeat code” software: If the car’s Electronic Control Module detected a hook-up to an emissions testing device, it would adjust its emissions control system to conform to existing emissions regulations. Once the system was disconnected, the cars would revert to emissions performance not in compliance with EPA regulations — the car’s default operating mode.
Defeat software is nothing new in trucking. Flash back to 1999 when several truck OEMs were busted by the EPA for the same offense: Coding engine software to detect test devices and boost emissions performance while in test mode.
[related-post id=”99003″/]Ironically, one engine manufacturer — Navistar — was found to be in in complete compliance with the regulations then in place. Indeed, the EPA found that Navistar was actually ahead of the game and already exceeding the threshold set for coming emissions regulation rules. As a result, Navistar began receiving EPA emissions credits as a reward for being a good-faith player and company officials apparently decided their emissions technology path was infallible; two developments that would have unforeseen — and profound – consequences a decade later.
This is not welcome news at all for VW, should these allegations be proven. If that’s the case, the company is looking at a scandal that affected more than 10 million cars, according to the latest reports, and the in-house costs of repairing those vehicles will be tremendous. On top of that, the EPA could slap them with an $18 billion fine.
The long-term repercussions of this story could send shockwaves across the global automotive pond that could eventually lap up on the shores of the heavy-duty truck market.
As I’ve noted before, VW is on record saying that its goal was to surpass Toyota and become the No. 1 automobile manufacturer in the world by 2020. Making a move into the North American truck market was widely seen as a vital step in that process. And the industry buzz for years now has been: Is Volkswagen coming? Will they try to buy a North American Truck OEM? If so, which one?
[related-post id=”99122″/]If the allegations prove to be true, then it’s reasonable to think that any North American trucking dreams VW has will have to be put on hold — perhaps indefinitely. Any scenario for VW coming into the U.S. truck market is wholly dependent on the company’s access to huge cash reserves. Obviously, VW may soon have to spend that money on cleaning up this alleged emissions mess and paying massive EPA fines.
Looking into the crystal ball, it’s tough to see how this will play out in the long run. One the one hand, if you’re a fan of American-owned truck companies, it appears the last two men standing, Paccar and Navistar, will remain so for the near future. On the other hand, Volkswagen’s vast global resources and access to the latest European safety and powertrain technology could have dramatically altered the competitive marketplace in North American trucking today.
Who knows what will happen next? Perhaps VW will be able to explain these allegations away, or cut a deal that saves them some cash and keeps their American trucking dreams alive.
But above all else, this scandal proves two things: One, that getting cute with emissions systems and stealth software is a bad idea. And second, that in the hyper-connected world of automotive and truck manufacturing, a bad decision in one business unit can have devastating consequences in markets and countries far, far away.