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article imageVolkswagen cuts $1 billion in spending amid scandal

By Scott Huntington     Nov 24, 2015 in Technology
Still reeling from the Dieselgate scandal, Volkswagen had set aside $7.3 billion to recover. That may not be enough. The company recently decided to cut its capital investments by $1.1 billion, or about 8 percent of the total.
Volkswagen has been facing severe repercussions after researchers at West Virginia University discovered that some vehicles were emitting nearly 40 times the legal limit of nitrogen oxides during road tests. The vehicles were equipped with software that allowed the vehicle to reduce those levels temporarily during emissions testing. In addition to the new $1.1 billion budget cuts, development of a new electric-only vehicle will be delayed, as will the construction of a new design center in Wolfsburg, Germany.
Growing Numbers
Initial reports by the Environmental Protection Agency (EPA) stated that roughly 500,000 American vehicles were affected, most built within the last few years. However, that number has been growing steadily. Most recently, the company revealed that all Volkswagen and Audi vehicles with 3-liter diesel engines since the 2009 model year violated emissions standards. That covers approximately 85,000 additional vehicles.
The emissions-cheating software could have been installed on up to 11 million vehicles, although it’s not yet clear how many of them used it. Volkswagen also said it has understated carbon dioxide emissions from as many as 800,000 cars and SUVs.
Growing Consequences
Volkswagen already faces hefty fines in the U.S., which could reach more than $20 billion if the EPA seeks to impose the maximum fine per vehicle. Other countries are taking legal action as well. A class-action lawsuit in Australia is demanding that Volkswagen pay damages of more than 100 million Australian dollars, or $71.1 million USD. More than 10,000 people have already signed on.
In the U.S., dozens of lawsuits have already appeared, and lawyers are seeking to consolidate them into a single piece of multidistrict litigation, bringing all the lawsuits together before a single federal judge. No estimate for total damages has yet been reached.
The company posted a quarterly loss for the first time in at least 15 years, totaling $1.84 billion. Stock prices also plummeted, losing more than 30 percent of their value in just a few weeks.
Complicated Solutions
Volkswagen will be forced to repair or buy back all the affected vehicles, a process which will consume an enormous amount of time and money. This new $1.1 billion budget cut plans to reduce some of that cost. In Europe, the company may have an easier time. Germany is requiring the automaker to issue a software update to the vehicles to remove the offending program and bring emissions back under control. In the U.S., stricter regulations may require significant hardware changes as well.
The company is also attempting to offer a goodwill package in an attempt to appease current owners of the diesel cars. The package includes a $500 Visa Gift card which can be used for whatever the consumer wants and is good at any location that accepts Visa. Volkswagen also includes a $500 gift card just for use at the dealership, and three complimentary years of roadside assistance.
As for the emissions problem, the company has two main options. It could install a larger exhaust system to reduce nitrogen oxide emissions. However, this could also reduce performance and fuel efficiency. The other option would be to use a chemical process, which would have less effect on the engine but would require more space and more extensive changes to the vehicle.
Whichever route they go, they are looking at a costly 2016 that will start a budget cut of $1 billion.
More about Volkswagen, Cars, Diesel, dieselgate
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