As Michael Horn, the CEO of Volkswagen of America, testifies before Congress on October 8, a senior executive from another major auto manufacturer describes the potential repercussions for the German automaker as “devastating.”
“The resolution for these engines will likely involve locking the software so it is compliant with EPA standards,” the unnamed executive stated to The Drive. “It’s very likely that owners will no longer want their cars, leading to the application of lemon laws, which would require VW to buy back every car sold in the U.S. Just considering global buybacks, the total cost could easily exceed $100 billion right from the start, not to mention additional fines.”
“The end result is uncertain. However, this might signal the end of Audi’s participation in the Le Mans series, along with any aspirations for entering Formula 1.”
Prior to the resignation of former VW CEO Martin Winterkorn last month, following the revelation that the company had illegally manipulated its diesel engines to deceive emissions tests, he allocated $7 billion to cover potential recall and EPA penalties.
“That amount will likely fall short,” the executive warned. “The European economy relies heavily on the German economy, which is fundamentally tied to the auto sector. One out of every six items exported from Germany is a vehicle, and Volkswagen is the largest manufacturer among them. The uncertainties surrounding this issue could jeopardize Audi’s Le Mans program and any hopes of entering Formula 1.”
Will either the German or U.S. governments step in to support this massive company, which employs half a million people and recorded $226 billion in revenue last year?
“VW is akin to Lehman Brothers,” the executive noted. “Just as Lehman Brothers triggered a bank crisis, this scandal is clear-cut, involving a crime that is undeniable. This situation presents a villain that people can easily understand. How can politicians justify defending that?”
“Horn will take the fall,” the executive predicted. “Congress will thoroughly interrogate him.”
In the U.S., approximately 482,000 Volkswagen TDI diesel vehicles are affected, each averaging $15,000 in costs. If litigators pursuing compensation for the emissions scandal succeed (which seems likely), there could be a complete buyback mandated under state lemon laws, derived from the federal Magnuson-Moss Warranty Act. Under the worst-case scenario, the total U.S. buyback cost could reach an estimated $7.23 billion—entirely consuming VW’s global emergency fund. This figure does not account for fines.
Horn, who is presenting before the House Energy and Commerce Oversight and Investigations, acknowledged that he first learned of discrepancies in emissions between the TDIs in the spring of 2014—a full year before the public became aware.
“Horn is going to be the scapegoat,” the executive remarked. “Congress will scrutinize him closely, but this isn’t likely to stop there. Winterkorn will face similar questioning. Many will be held accountable. The ramifications of this scandal are just beginning to surface.”
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