VW Scandal: Everything you need to know from Week Two

From early warnings to cost-cutting to how it affects dealers, this is the fallout from the second week of the VW scandal.

It is barely possible to keep up with the fallout from Volkswagen's diesel engine scandal, in which the automaker admitted to subverting emissions tests with software in 11 million of its cars sold since 2009. For those who have just returned from under a rock, here is a primer.

This week, more revelations have been pouring in. In the wake of VW CEO Martin Winterkorn's resignation, Porsche head Matthias Muller has been tapped for the job, though Winterkorn is reportedly leaving with a $32 million (possibly more) retirement and severance package. Other executives departures have been announced as well. Meanwhile, the EPA and at least 27 states are promising to take swift action.

Early Warnings

Automotive News cites a report in Germany's Bild am Sonntag that reveals VW supplier Bosch had provided the automaker with some of the software used in the deception. Bosch, however, says it warned VW as early as 2007 that the diesel engine management software and modules were for testing purposes only. Some of that code ended up in the fraudulent cars, despite Bosch's claims that it cautioned VW it would be illegal to put that code in cars meant for the street.

A second German paper, the Frankfurter Allgemeine Zeitung, published a story in which a VW engineer is said to have cautioned higher-ups against illegal emissions practices involving exhaust valves as well. No explanation was offered for why management did not follow up with the concerns.

Costly Decisions

Bild am Sonntag further reports that scandal began in 2005, when the TDI diesel engines in question were in their planning stages. Then-head of VW Wolfgang Bernhard and Audi engineer Rudolf Krebs determined that the only way to pass emissions tests was with a urea-injection system similar to what BMW, Mercedes-Benz and VW (on larger models) use.

However, VW was under a massive cost-cutting program and it was decided that the urea solution would be too expensive to implement. It would have added 300 euros to each car. When Bernhard left in 2007, he was replaced by Martin Winterkorn, who moved to new engineers from Audi onto the TDI engine project, and development continued.

From Above

VW USA employees have been vocalizing their lack of say when it comes to the company's corporate structure, claiming that power is too centralized in the VW headquarters in Wolfsburg. The scandal, however, has prompted the automaker to reshuffle its North American hierarchy, giving the Americans more clout.

This week it was also revealed by Automotive News Europe that the subversion of emissions tests came from managers in Germany. US testing was conducted in-house by VW in Westlake Village, California, but with criteria sent from Germany. If a car failed the test, VW would fly engineers to California to work on the car for about a week. The reason cited for this was that VW did not employ any engineers in the US that had the necessary knowledge.

Once the cars passed, the results were sent back to Germany before being submitted to the EPA for certification. The revelation of VW's cheating has prompted the EPA to re-evaluate the self-testing policy in which automakers submit their own results.

Ad Lock

Meanwhile, VW has pulled nearly all of its advertising on national media in the US. A big push was on the boards for the launch of VW's 2016 AppConnect technology package, but that has been shelved.

"Ongoing press coverage and negative consumer social sentiment in the marketplace has effectively drowned out any positive messaging from our national App Connect campaign,” said VP of marketing Vinay Shahani in a memo obtained by Automotive News.

Dealer compensation

In tier-two marketing, which targets specific regions around the country, VW has replaced all its diesel ads with an "alternate message." VW says that they did not want to confuse customers, as dealers have been ordered to stop selling any VW cars affected by the scandal, new or used.

In another memo, sent to dealers on Friday, VW said that it will compensate them for product that is taking up inventory. For the months of September and October, VW will pay dealers $70 for each new diesel vehicle and $50 for each used diesel vehicle affected by the stop-sale.

Further assistance to dealers come in the form of $300 per car sold in September, $600 if it's a Passat. A one-percent-of-sticker-price kickback is also being offered for each car sold for the remainder of 2015.

Meanwhile, Volkswagen of America has just launched a dedicated website, VWDieselInfo.com, informing customers about the ongoing scandal. In includes the video by VoA boss Michael Horn embedded below. LeftLane News will have more updates as information becomes available.

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