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Dirty money

30 September 2015 By Olaf Storbeck

Cheating on emissions tests has left Volkswagen with criminal investigations, potentially massive fines, and a corporate governance crisis. One might think the rewards for behaving badly must have been very high indeed. Not so. Skimping on state-of-the-art emissions technology between 2009 and 2014 probably saved VW a measly 4.3 billion euros, according to Breakingviews estimates, less than it has so far set aside to meet recall costs.

Some 10.8 million diesel-powered cars were implicated in the emissions-test cheating scandal that came to light on Sept. 18. Of those, 2.1 million were Audis, which on average generated 3,200 euros of operating profit per vehicle during the six years in question, based on data from company reports. The rest came from lower-priced volume brands and other vehicles, whose operating profit per car averaged 576 euros – ranging from almost 1,000 euros for VW commercial vehicles to a loss at SEAT. Add those up, and the total operating profit involved hits 12.1 billion euros, or 30 percent of all VW’s non-truck automotive operating profit over the six years.

Getting those cars fit for U.S. emissions tests would have come at a cost. Most carmakers rely on one of two main technologies for stripping out nitrogen oxides, according to the International Council on Clean Transportation. Meeting tough American standards probably means using both, as BMW does in America. That typically adds around 400 euros per car for the more sophisticated technology, according to ICCT data.

Apply that cost to all of the 10.8 million cars that VW says were implicated in its emissions-dodging scandal, and it suggests that the carmaker saved no more than 4.3 billion euros over six years by neglecting to make its diesels clean. If only the 482,000 cars actually sold in the United States legally required this extra technological boost – since permitted nitrogen oxide levels in Europe are higher, tests less stringent and fines lower – the saving is less than 200 million euros.

Since VW’s misdeeds were uncovered, the company’s shares have plunged, wiping almost 29 billion euros off the company’s market capitalisation. Simply put, shareholders have lost more than 140 euros in market value for every single euro that VW saved by cutting corners on its diesel engines in the United States. It’s hard to think of a better reminder that cheating doesn’t pay.


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