Krüger on Diesels
In his first public interview since the Frankfurt International Auto Show, BMW CEO Harald Krüger told the German weekly Zeit a few things about BMW diesels and how they comply with government mandates.
Naturally, the interviewer was interested in diesels and testing, given the Volkswagen diesel cheating scandal. Krüger was asked. “In its lab tests, your industry seals up the radiator grille, fits low-resistance tires on the car—basically uses every loophole in the regulations to lower standard consumption. That has nothing to do with everyday driving. So the economical diesel with low exhaust emissions that we see in laboratory tests—is that just a myth?”
That was actually a pretty good question.
Krüger replied, “Measurement cycles in bench tests generate different figures than in field tests—and that applies to fuel consumption, as well as nitrogen oxides—simply because actual driving situations and driving styles are very different. But that has nothing to do with manipulation or unlawful interference.”
We think that what Krüger just said was that the real world and testing for compliance with government regulations are different, and that BMW complies with the government laws and regulations and does not manipulate the tests. If that’s what he meant, we totally understand but the obvious next question, which should be directed to government officials and not carmakers, is why are they different?
Krüger made it clear that diesel-powered vehicles are essential to BMW’s well-being, especially in Europe, where 80 percent of the BMWs sold are diesels. That figure drops to just 6 percent in the U.S.
The BMW CEO also said that diesels were not the end game when it came to clean cars, but that “alternative drive forms, such as electromobility or hydrogen are not yet able to fulfill all the applications of the modern diesel engine.”
To punctuate his point about bringing more electric cars on line, he then revealed that a new BMW i car was in the works. Krüger expounded, “The new BMW i model will be larger than the BMW i3, that’s all I will say for now. We want to expand our e-mobility offering to accelerate the transition towards electric vehicles. Today, many buyers still decide against buying an electric car; demand is still low overall.”
Despite intense questioning and even some inaccurate news reporting, BMW’s record on testing its diesel vehicles is clean—for now. That’s good, given its reliance on diesel sales. It also means Krüger can keep using his company car—a 7 Series diesel.
That’s where BMW currently stands on diesels, and emissions testing. But what about the German bad boy that started this whole mess—Volkswagen? Here, drawn from various news sources—and not from the Zeit Krüger interview—is the latest that has been reported about that carmaker in crisis and the VW diesel cheating scandal.
VW: Carmaker in Crisis
The Volkswagen diesel cheating scandal is a little over a month old, and two things are apparent: Volkswagen has taken a huge hit in its reputation, and it will be taking an even bigger hit in its bank accounts.
Let’s sum up what we already knew. To keep from putting more expensive urea-based emission control systems on some of their diesel cars, Volkswagen instead installed software that would activate its emission control system only when the vehicle was being tested on a dynamometer. When the car was traveling on the highway, the emission control system was switched off. Volkswagen saved millions in production costs, but was selling cars that owners thought were clean and getting great mileage, when in fact they were spewing tons of emissions and getting great mileage.
Bottom line: VW was caught and admitted its wrongdoing. It now faces recalls of more than 11,000,000 vehicles, billions of dollars in fines in multiple countries, class action lawsuits out the wazoo, and loss of its integrity, reputation, and many, many potential sales.
The first casualty was Volkswagen Group CEO and former VW division boss Martin Winkelhorn, who resigned even though VW said its internal investigation showed that Winkelhorm was clean.
Since then Volkswagen has suspended Hanno Jelden, head of powertrain electronics, due to his potential involvement in the scandal. The German weekly paper Bild am Sonntag reported that Jelden, a 22-year VW employee who was an expert in engine and transmission electronics and hardware and software control systems, is also being investigated by German authorities as a possible key player in the cheating scandal.
Also suspended was Falko Rudolph who headed the diesel engine department from 2006 to 2010. Suspended does not mean guilty; neither does being in charge of diesel engines during the time the illegal software was installed, but VW is taking no chances.
To help clean up the mess, VW has created a new management board position of chief of compliance for integrity and legal affairs. Filling that spot will be Daimler’s most-recent compliance officer and former judge Dr. Christine Hohmann-Dennhardt. She has a reputation for being tough, which is just what the Volkswagen Group needs right now.
Volkswagen also has a new head of strategy, and it’s former Opel CEO Thomas Sedran. This is the person who devised the “Drive Opel 2022” turnaround strategy for the money-losing General Motors European subsidiary. Sedran will report directly to the new Volkswagen Group CEO Matthias Muller.
Former Skoda CEO Winfried Vahland was named to head Volkswagen Group’s North American operations. Just before he was to assume the post, the 25-year VW veteran quit, reportedly over disagreements about the structure of the North American VW unit. The resulting void and uncertainty can’t be giving U.S. dealers a good feeling.
Unrelated to the diesel scandal, but still capable of embarrassment, it appears possible that Volkswagen has been underreporting deaths and injuries to the U.S. National Highway Traffic Safety Administration (NHTSA) that could have led to more recalls. The company has agreed to an independent audit of these figures. Over the past ten years, the average reporting rate of the eleven biggest automakers was nine times higher than Volkswagen’s, according to Stout Risius Ross, Inc., a financial advisory company. With VW’s growing reputation for being less than honest, the company seems eager to open its books and let the chips fall where they may in an attempt to rehabilitate its image.
Volkswagen—the corporation—is not the only one that will be paying for its deception. Sales of VW diesels have been suspended in Europe. This has to hurt the VW dealers there. The dealers are also not looking forward to the inevitable recall to replace software and sometimes hardware on 11,000,000 Volkswagen diesel vehicles, which in Germany averages about 1,100 recall cars per dealer.
The decline of prices of VW diesel vehicles at auction has accelerated. Analysts say the price of used VW’s will continue to jump up or down until everyone knows how Volkswagen will fix the problem and what effect those fixes will have on emissions and fuel mileage.
According to Kelley Blue Book, average auction prices for the VW diesels that were down 13 percent are now down 16 percent.
Presumably to help spur sales of new cars and to mollify existing customers, VW may be considering a plan to give diesel owners a substantial discount on new Volkswagens if they turn in their diesels. This would also help reduce the waiting time for owners who want to bring in their diesel VWs to dealers for the recall.
The Volkswagen Group’s latest estimate of the cost of the scandal will exceed $33,100,000. The Group says the Volkswagen division will take the hit, leaving the Audi and Porsche divisions intact. Outside analysts say that figuring in the recalls, the fines, and the lawsuit awards and settlements, the total bill could run as high as $97,000,000,000. Yes, that’s almost a tenth of a trillion dollars. Not even Volkswagen has that kind of jack laying around. It will have to tighten its belt.
Actually, it already has. Promotions for Volkswagen managers have been frozen. The team designing the next-generation Golf reportedly has been told to re-use as many parts as they can from the previous model, saving the company the development costs of all those new parts. The cost benefit could reach hundreds of millions of euros. This is probably the tip of the cost-saving iceberg.
In a totally expected development, Toyota has regained the global sales lead, which Volkswagen had wrested from the Japanese carmaker last year. Year-to-date, Toyota has sold 7,490,000 vehicles versus VW’s 7,430,000. Keep in mind that the diesel cheating scandal was only two weeks old by the end of September, so there very well could be a much bigger drop in VW deliveries in October and the rest of 2015.
In what will almost certainly not be the last such operation in Europe, French police raided Volkswagen’s main office near Paris and another VW office. Almost a million potentially affected VW diesels were sold in France.
The situation for Volkswagen seems dire and we feel for innocent dealers and owners and even company executives who didn’t have a clue the cheating was going on. We also hope that BMW and the other carmakers—but especially BMW—played by the rules while VW was cheating, and have kept good records to prove it—Scott Blazey
[Photos courtesy of BMW AG.]
