VW Scandal: What’s At Stake For Volkswagen As Talks With US Environmental Regulator Over ‘Dieselgate’ Continue

Nearly four months after taking the helm of the world’s second-largest car company, Matthias Müller had his most important meeting Wednesday since he became Volkswagen Group’s chief executive. He traveled to Washington for a closed-door conversation with U.S. Environmental Protection Agency head Gina McCarthy to address fixing nearly 600,000 diesel cars in the United States that emit far more than the legal limit of nitrogen oxide, a smog-producing catalyst and public-health hazard.

The meeting in Washington, which was requested by Volkswagen, comes a day after the California Air Resources Board (CARB), the nation’s most powerful state pollution watchdog, rejected Volkswagen’s plan to recall affected diesel Jettas, Beetles, Passats, Golfs and Audis. CARB accused VW of obfuscation and said its plan, submitted in November, lacks “sufficient detail” and doesn’t adequately address the impact fixing the cars will have on their performance, emissions and safety.

Rectifying the problem will be costly, and complicated.

Volkswagen has already set aside about $7.1 billion to cover repair costs to as many as 11 million of its cars worldwide, and it’s shaving about $1.1 billion a year off of its previously mapped investments. Though it hasn’t made any announcement, speculation abounds that the Wolfsburg, Germany-based auto group could sell assets such as supercar-maker Lamborghini, commercial vehicle manufacturer MAN and Ducati motorcycles to cover its emissions-scandal costs. In the U.S., where the company faces the biggest problem, fines could be as high as $48 billion, not counting the price for a raft of lawsuits.

Meanwhile, VW requires a more technical and expensive mechanical fix for the affected cars in the U.S. because of more stringent emissions standards than Europe's where the bulk of small VW diesel cars are sold. It also faces investigations in South Korea and the European Union.

Whether Wednesday morning’s meeting in Washington yielded progress toward rectifying EPA's concerns is unknown. Müller declined to talk to the press after the meeting ended at around 11 a.m. Both sides issued statements saying they’re working toward a solution. U.S. environmental officials said talks with VW will continue.

“What Volkswagen is trying to do here is better understand the process and penalties it faces, and specifically what they need to continue working with the agencies to address their concerns,” said Dave Cooke, vehicles analyst for the Union of Concerned Scientists, a nonprofit advocacy group. “Part of the complaint that CARB has is Volkswagen’s plan to fix the vehicles that was submitted in November lacks sufficient detail to convince them that it’s genuine and technically feasible.”

Volkswagen admitted the vehicles contain software designed to comply with emissions standards during controlled lab testing. But to improve fuel economy and performance, the system used to clean the diesel exhaust is disabled during normal driving conditions.

"Volkswagen made a decision to cheat on emissions tests and then tried to cover it up,” CARB Chairwoman Mary Nichols said in a statement Tuesday. “They continued and compounded the lie and when they were caught they tried to deny it. The result is thousands of tons of nitrogen oxide that have harmed the health of Californians. They need to make it right.”

Last week, the Department of Justice announced civil charges against the company for Clean Air Act Violations and has not ruled out criminal charges against individuals for allegedly conspiring to fool the federal government and Volkswagen customers.

While the software that disables the exhaust-cleaning system can be easily removed, most of the vehicles in question — Golfs and the Jettas dating as far back as the 2009 model year — require significant and costly technical changes to the mechanics of the system in order to meet U.S. emissions requirements. And those changes will likely reduce fuel economy and performance, angering the car owners. Volkswagen also has yet to outline publicly how it plans to lure these American car owners to have the repairs made. Since the defect isn’t related to occupant safety, it’s questionable that every owner will bother to have the fix made.

“It’s important that we hold companies accountable for the environmental damages they inflict,” Cooke said. “But from an environmental perspective is also very important to fix the problem. That’s what I think CARB is saying.”