On today’s show… Volkswagen will probably buy back its diesel cars, and could be interested in buying Navistar, while Bob Lutz describes Ferdinand Piech’s culture of fear. All that and more coming right up on Autoline Daily.
This is Autoline Daily for February 8th, 2016.
MONEY BACK GUARANTEE
Looks like Volkswagen can not figure out how to fix its 2-liter diesels in the U.S. market. Reports out of Germany say the company is going to offer customers “generous compensation” to buy back their cars. That tells us this is going to be one whopping big bill. VW will have to compensate about 600,000 owners, which involves cars from 2009 to 2015. If those cars, on average, are worth somewhere between $15,000 and $20,000, then VW is going to fork out somewhere between $9 and $12 billion. That will erase the company’s net profits for the year and does not include any of the fines and lawsuits that the company faces going forward.
2015 DUMPING GROUNDS
Clearly Volkswagen does not know what the total bill will come to. It is delaying reporting its annual financial results for another month or so and may not hold its shareholder meeting until June. That tells us it wants to dump as much of the bad news as it can into its 2015 results.
VW TRUCKS WANTS IPO
And now we’re getting some hints as to how other business units in the Volkswagen empire hope to protect themselves from this mess. VW’s heavy truck unit, which includes Scania and Man and VW-branded commercial vehicles, wants to do an IPO. That would give it access to capital that it will not be able to get from its parent company. It also wants to buy a heavy truck maker in North America where it currently plays no role. That would pretty much limit it to trying to buy Paccar, which makes Kenworth and Peterbilt trucks, or to Navistar, which is in financial trouble and is owned by investor Carl Icahn. We’re pretty certain that Mr. Icahn would welcome a buyout.
And we’ll be back with more right after this.
READY, SET, GO-CROSS
Nissan relaunched its Datsun brand a few years back for emerging markets and now it’s giving us a taste of what crossovers from the brand might look like. While there aren’t any details about this concept, called the GO-cross, it wears Datsun’s signature grille and was said to be designed to meet the needs and preferences of a new generation of drivers. The GO-cross made its debut last week at the Delhi Auto Expo in India.
AUDI SCORES AT SUPER BOWL
We all know the Super Bowl is a great way for automakers to get their products seen by millions of people and according to Kelley Blue Book, Audi saw the biggest spike in searches on its site. In case you missed it, Audi’s commercial is about a retired astronaut who just can’t seem to find the same thrills in life as he experienced taking off in a shuttle, until, that is, he drives the new R8. Searches for the R8 rocketed up nearly 7,800% on KBB’s website, far exceeding the Kia Optima and Hyundai Genesis which saw the next biggest jumps.
Coming up next, Bob Lutz blames describes the culture of fear created by former VW chairman Ferdinand Piech.
VW’S CULTURE OF FEAR
One of the big mysteries that still hasn’t been answered in the VW diesel scandal is whether top management knew about the cheating. The company is blaming rogue engineers but not a lot of people are buying that, including former auto executive Bob Lutz. On last week’s Autoline After Hours he discussed why he believes the culture created by former VW chairman Ferdinand Piech is responsible for the cheating.
(Clip from ATW #318 can only be viewed in the video version of today’s show.)
Bob shares a lot of great insight into the hot topics in the industry right now and you can watch that entire discussion right now on our website or on our YouTube channel.
But that wraps up today’s show, thanks for watching and join us again tomorrow for the latest news in the global automotive industry.
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Comments (65)
February 8th, 2016 at 11:58 am
VW handled this affair as poorly as they could. They are on the hook for a $9-12 billion cost, AND still on the hook for tons of legal liability. There was a way to spend the same $9-12 billion dollars, while simultaneously mitigating most litigation AND keeping customers loyal to VW AND making VW look like a hero corporation.
Instead VW has opted for the instead package. Instead of all of the above, they’ll spend more than $12 billion (I suspect it will be close to $35 billion when all is said and done). AND will be despised by owners who loved their cars. AND will it’s brand dragged through high profile State suits, and potentially criminal charges as well. Ahhhhh, arrogance, what it bestows.
February 8th, 2016 at 12:07 pm
The R8 commercial was so well done I have to give it “two thumbs up” to the ‘ad’ agency; my only lament would be that this would have been even better had it been a Corvette commercial. (Corvettes were well revered back in the day by the astronauts.) Opportunity lost I suppose (but that’s 20/20 hindsight on my part)
February 8th, 2016 at 12:07 pm
VW, buy buying back the cheating diesels may seen like a good way out but for many it will be the start of some real trouble I fear. Who will put the value on the cars? Will it be like an insurance company who low-balls you on the value of your car expecting you to be a head nodder and agree? And if you are the original purchaser of the car will you get more or less of an offer. Not to mention those who will buy a diesel for little or nothing just to get a check from VW. This tactic occurred during the “cash for clunkers program”. People bought $300 cars only to get $2-3000 for them from Uncle Sam.
February 8th, 2016 at 12:11 pm
Will VW TDI owners who don’t want to sell their cars back, be forced to do so? In states and localities with emissions testing, it may not be possible to renew registrations, but in many places, like Florida, there is no testing.
February 8th, 2016 at 12:14 pm
Please edit the above second paragraph, third sentence: AND will have its brand dragged through…criminal charges as well.
Culture of fear: Lutz is one hundred percent correct. But, the blame can’t be laid at Piech’s feet alone. VW culture is a reflection of a broader German style of business management culture. It works very well, until it breaks, and when it breaks no one is equipped to fix it, because it was never anticipated to break.
February 8th, 2016 at 12:17 pm
#4 Yet another piece of the puzzle. There is no precedent for a mandated sell back. Most likely most of the cars would move to states that have no testing. So, there would be no net gain for EPA in its goals (though CARB, would succeed).
February 8th, 2016 at 12:20 pm
2 …and a Corvette costs barely over a third as much as an R8. I thought it was a great ad, though, and the R8 is a really cool car.
February 8th, 2016 at 12:25 pm
6 If the cars move away from urban areas, the worst of the harm from the high NOx emissions would be gone.
February 8th, 2016 at 12:41 pm
VW seems to be another classic example of how corporations attract sociopaths to high positions and reward them for their behavior.
February 8th, 2016 at 12:42 pm
#8 Interesting point, and doubtful those smaller markets could absorb so many cars. Basically, VW will just have a bunch of angry customers, who will never again give VW a second look.
February 8th, 2016 at 12:57 pm
If VW was smart they should have been sending out offers to diesel owners to receive some crazy pricing on the purchase of a new (non-diesel) car with the extra money for their trade in of their exsisting VW. Sell a bunch of cars just barely over cost to keep sales up and customers happy with a new car. They would have removed the diesels and potentially kept customers real happy. If it is a special pricing for diesel owners only, they might actually feel privileged and not being forced to do something.
February 8th, 2016 at 12:58 pm
2 . . Love the R8 and the ad was well done. I agree that the concept would have been better suited to the Corvette. I get a little exasperated with foreign car companies that use pure Americana or American accomplishments to sell their cars. The Japanese brands have done this a lot over the last 5+ years, pulling at our national heartstrings while the profits go back to Japan. Grrrr! Why don’t they exploit their culture to sell their Japanese cars?
February 8th, 2016 at 1:02 pm
There certainly seems to be a difference in the way executive mistakes are viewed compared to blue collar mistakes are viewed, especially if it involves the UAW. VW executives have caused immense damage to the company in dollars and reputation and yet it seems like it’s not that big of deal. If it was found out that UAW workers were taking some sort of short cut on the line and were responsible for the huge recalls that VW is looking at people would be fired, many, many people. The public would be calling for the end of unions and for criminal charges and burning at the stake.
I don’t that kind of reaction here, for something that actually deserves it. It’s more like, yea they f’s up, they are going to get fined, oh and everyone else is probably doing it so what’s the big deal.
February 8th, 2016 at 1:08 pm
#12 I agree as I watch commercials and see foreign car companies set the stage of a 4th of July party, American flag, apple pie, and their vehicle. Which may or may not be assembled here in the states. I cant help but still feel a bit violated.
February 8th, 2016 at 1:15 pm
VW getting their hands on Paccar would be a tragedy for Management and it’s workers. They’ve made great vehicles and should stay independent. Navistar is on the right track, but may run out of time.
February 8th, 2016 at 1:17 pm
Former VW chairman Ferdinand Piech was too interested in VW becoming the world’s largest automobile manufacturer at any cost. This probably drove his managers and engineers to do anything and everything to please this power hungry dictator! I hope VW has learned it’s lesson and dedicates itself to the “Pursuit of Perfection”.
February 8th, 2016 at 1:33 pm
R8 ad
It ticked me off to see an astronaut in the R8, but reasonable me knows that it was Werner von Braun’s german engineering team which made great contributions to the US space program. Voluntarily, of course.
Our friend here, Bob Wilson of Huntsville Alabama, likely knows what I’m talking about.
_____
vw
Does vw get to decide on its own how to compensate owners? The company violated EPA regs and will surely require govt approval for any buybacks or other compensation. If I were an owner of a ’06 diesel, I wouldn’t be too happy to lose a well maintained car for a few thousand dollars. Now I’d have to go get something else more expensive.
February 8th, 2016 at 1:36 pm
R8
who goes to KBB’s website after seeing that ad, anyway? Weird.
February 8th, 2016 at 1:36 pm
Where are all of the buy back TDIs going to be sent? The crusher….I think not. And the added cost to handle these buy backs will be huge as well. The VW dealers have to be pleased.
February 8th, 2016 at 1:44 pm
@19 Since they aren’t EPA complaint and can’t be where else would the cars go but the crusher?
February 8th, 2016 at 1:46 pm
On the other Super Bowl auto ads, the one I’m still puzzled by is the Buick Cascada. With the tag line, “I can’t believe that convertible’s a Buick”. I have to agree. The front end looks like a Chrysler 200 to me. What is GM thinking when they have spend so much effort to “brand” the look of Buick grille, only to not put it on their “halo” car. I realize this is just a re-badged Opel, but surely they could have spent a little more time and effort to put a “real” Buick front end on the car.
February 8th, 2016 at 1:48 pm
VW can probably sell all of these buy back TDI’s in developing countries. Should be able to recover a good percentage of cost.
February 8th, 2016 at 1:53 pm
#11 Given that 60% of TDI owners have owned more than one TDI, I’m not so sure a gasser would make them all that happy. When it comes to gassers there are a lot of options, better than VW.
February 8th, 2016 at 1:56 pm
#17 06 model year car would not be subject. It’s only 2009-2015 2.0 liter cars. But, you hit the nail on the head how it’s not going to be an easy sell.
February 8th, 2016 at 2:01 pm
#19 and #20 There are several options. Ship to markets that don’t have such restrictions. Modify and rebuild the cars with effective emissions equipment and resell as used (you avoid expectation losses as what you are buying is fully disclosed). Donate to shops and tech schools. And finally the crusher.
February 8th, 2016 at 2:05 pm
23 yeah. a booboo with the year.
February 8th, 2016 at 2:07 pm
I suspect that VW is envisioning buying back the US diesels, then shipping them out of the US (e.g., Mexico, Cuba, south America) to resell and recover part of their expense. However, I would not be surprised if the EPA requires VW to crush the cars, or at least destroy the engines, as was done with the Cash-for-Clunkers buy-back program, so you are simply not shifting the “polluters” to somewhere else in the world. I think the EPA will have control over what VW does with the buy-back cars using the potential fines as the hammer to follow their guidance. That is, if VW ignores the EPA and simply exports the cars to Mexico to resell, the EPA fines could be much higher, compared to VW crushing the cars, truly resolving the emission problem in the EPA’s eyes, where the EPA might issue lower fines for cooperating.
February 8th, 2016 at 2:09 pm
#24 Pull the motors and convert them to plug-in EV’s lol
February 8th, 2016 at 2:13 pm
Re: Yesterday’s discussion of RPMs; my wife’s ’97 Explorer idles around 600RPM! It has done this as long as I’ve known her (and it), over 16 years. I had never known a vehicle to idle that low, but it has never caused any problems and the engine never faulters or dies. It has been serviced several times and this was never brought up as an issue. I like it, as I assume it gets better gas mileage due to lower RPMs. Does anyone know if this was intentional at Ford, or if we have a freak SUV?
February 8th, 2016 at 2:20 pm
On VW potentially spinning off their heavy truck divisions and then buying the struggling Navistar as a strategy for success, is that just more arrogance/cluelessness on the part of VW’s management of not accepting the financial situation they are in? Perhaps they are following the lead of Marchionne trying to make something successful out of the Fiat/Chrysler merger that is not sustainable in the long run, but perhaps buys time to look for a Plan B.
February 8th, 2016 at 2:23 pm
There are a lot of places they could sell the VW’s, like Somalia, North Korea, Cuba, Syria, for a few.
February 8th, 2016 at 2:31 pm
#17(HtG) – On deciding on the compensation to VW owners, VW supposedly hired attorney Kenneth Feinberg (the go-to guy on such matters) to be an independent resource on determining the appropriate compensation. Now whether VW follows those recommendation is another thing, as so far they have not made good decisions in handling this fiasco.
February 8th, 2016 at 2:34 pm
28 I suspect around 600 rpm is about the right idle speed for your Explorer. Even 4 cylinder cars now have idle speeds of ~700 rpm. The more precise fuel control with EFI allows lower idle speed than with older cars.
My new Corvette idles at about 600, with a fairly highly tuned engine. I suspect the similar, but lower powered versions of the same engine in trucks idle even lower.
February 8th, 2016 at 2:37 pm
22 VW has only one gas car that I’d consider, the Golf Sportwagon, which has exactly zero direct competition in the U.S. market.
February 8th, 2016 at 2:48 pm
17 At KSC, I’ve seen a photo or two of astronauts with their Corvettes. I think Jim Rathmann, 1960 Indy 500 winner, and Melbourne Chevy dealer provided the cars to the early astronauts.
If I had one of the TDI’s, and liked it, I’d want a lot more than “market value” for my car. I make it a point to keep my cars in perfect condition, both mechanically and cosmetically, but “market value” doesn’t reward that as much as it should.
February 8th, 2016 at 2:51 pm
#31 As the article mentions Kenneth Feinberg can’t provide a settlement fund disbursement as yet. “My hands are tied as long as VW and the authorities have not overcome their differences,” Feinberg said.
Feinberg goes on to say: “Look at my prior cases: 97 percent of the victims of September 11 accepted my offer. At GM and BP it was more than 90 percent, too. That has to be my target for VW,” Feinberg said, adding that the car maker had granted him full authority to decide on the compensation.
“It is a purely business transaction, less emotional.”
At GM and BP the fund was established to deal with loses that can only be remedied financially, since a life can’t be restored, and losses in income can only be replaced.
I think some, not all, owners of TDI’s might be a bit more emotional than Feinberg estimates. And this focal group could be quite difficult and cause a good deal of unwanted drama, further adding to the disruption of brand’s recovery.
February 8th, 2016 at 3:34 pm
35 But settling with Feinberg is quick. He cuts you a check without you hiring a lawyer and waiting through years of legal process.
Ken carries a stick too. (I read he likes opera, so this kind of melodrama is nothing new to him)
February 8th, 2016 at 3:34 pm
…through years of an uncertain legal process… I should have written.
February 8th, 2016 at 3:42 pm
Yes, but if you give up your car, and get a check that doesn’t allow you to buy a new car you like half as much, what kind of settlement is that? Certainly not one, you’ll tell people about while extolling the appreciation you have for the brand.
February 8th, 2016 at 3:51 pm
Maybe Feinberg intends to pay out more than the cars were worth before the scandal. vw may be willing to pay some “good will” money to get this crap behind them. I guess the key is the US authorities; what do they want to achieve?. Some executive heads on spikes, perhaps?
February 8th, 2016 at 3:53 pm
The one recent (2011 or 2012) TDI owner I know plans to keep, and “run out” the car, unless forced to do otherwise. That could change, if the buyout offer is good enough, but he likes the car.
February 8th, 2016 at 3:58 pm
39 I’d think the EPA would want them cleaned up, or out of the country. Is that your thought, HtG?
The Passats may be clean-upable, since they have urea injection.
February 8th, 2016 at 4:00 pm
#40 You might not be far off with the heads on spikes, I suspect that’s their desire, more-and-more as this drags out. If VW pays more than value, then I go back to my first comment here, why not spend the same money and end the dispute entirely?
February 8th, 2016 at 4:06 pm
42 I don’t know what EPA wants. But I think the situation is very complex. Didn’t Dept of Justice lawyers travel to Germany to talk to their counterparts? Aren’t suppliers to vw being investigated?
But I’d like to hear how Kim Jung Un spins 500,000 diesels into a great victory over the capitalists aggressors.
February 8th, 2016 at 4:10 pm
43 because vw lied to the US EPA for a year until confronted with insuperable evidence. That’s a big deal for law enforcement that relies on industry self regulation.
February 8th, 2016 at 4:15 pm
At this point I do think EPA wants a pound of flesh. DoJ filed suit against VW in January to open the doors for fining in coordination with EPA. Here’s one sticky point that a buyback doesn’t resolve:
Every state’s Attorney General could file a claim under state laws for violations of advertising fraud/deception. Customers were sold a car with specific specifications (namely a “clean diesel”), and were delivered a car substantially different.
Many moving pieces to the puzzle, and VW is trying to put pieces in place in the wrong order, or is trying to ignore the existence of pieces all together.
February 8th, 2016 at 4:43 pm
Can one of you automotive Big Brains explain to me why Datsun’s “signature grille” looks exactly like everyone else’s?
Maybe Infiniti should bring back their giant WWE championship belt logo that they launched with years ago. Now THAT was a signature.
February 8th, 2016 at 5:00 pm
Well there are alternatives revealed during the Super Bowl (link on my name.)
As for von Braun and his team, they brought a lot of engineering excellence. One thing I quickly learned is the difference between engineers who have access to the engine test areas and everyone else. It is the difference between pro-football and the rest.
Bob Wilson, Huntsville AL
February 8th, 2016 at 5:06 pm
48 I need to be careful with the way I drive my red Prius when there is big police presence. Mine is a gen 3, though.
February 8th, 2016 at 5:23 pm
@29 My 2012 Jeep Liberty with the 3.7 liter V6 idles when warm at 500 RPM, so 600 for your Exploder doesn’t seem odd to me.
February 8th, 2016 at 6:30 pm
As a result of the VW fiasco I wonder if they will try to place more emphasis on more expensive brands to increase profits, thus worsening VWs future in the American market.
And with the same idea, FCA purchase of pollution credits is forcing them to produce more Eco-friendly small cars in the future, yet no one wants them. And to add confusion, they are building a new Jeep truck plant in Toledo. I can’t make sense of it!
I don’t think I’ll put my money on either company in the near future.
February 8th, 2016 at 6:54 pm
Unless Fiat has some competitive cars that can be Americanized in the future, FCA’s long-term prospects look dim. For now, the idea of making only trucks, and big, aging cars might make sense, but today’s cheap gas won’t last forever.
February 8th, 2016 at 6:58 pm
51 Europe is where damage control will be most important for the VW brand. They are a very small niche brand in the U.S. They need to deal with the lawsuits and criminal actions, though, even if they exit the U.S. market.
February 8th, 2016 at 6:59 pm
After hearing Bob Lutx’s comments about that VW Chairman Ferdinand Piech being a dictator type gives credence to what I’ve said all along. That is that VW has too many ‘Adolf’ types in the Company. Anything to achieve ‘Volkswagen uber alles.
February 8th, 2016 at 7:05 pm
Regarding the Super Bowl ads:
I think the best ad was from Honda, for thge Honda Ridgeline.
The one with the sheep singing the Queen song only when the truck owner wasn’t near them.
Very clever ad. I enjoyed it so much I looked it up on-line and found the on-line version to be better due to the sheepdog talking more at the end of the commercial.
It was very good and caught my eye and ears.
February 8th, 2016 at 7:05 pm
Yes, I hope the wrong people don’t take the fall. Like Lutz, I was also saying that there was a problem in the vw culture, beginning from the top. We’re seeing M. Mueller take some steps to change things, but that’s a big company.
February 8th, 2016 at 7:06 pm
VW has to be generous because they’re still vulnerable to a potential class action lawsuit for fraud where they may need to repay full price of their cars and litigation fees.
February 8th, 2016 at 7:07 pm
55 ditto. I liked that Ridgeline ad. Who represents those sheep?
February 8th, 2016 at 7:29 pm
OK, How about buying a VW diesel and putting plates on it from a junker that is never driven and not worrying about it. I knew a lawyer that had plates on his Porche that were for an 60 something olds station wagon, he saved hundreds in fees and if he were to get caught the fine would be small compared to what he saved. so much for honest lawyers.
February 8th, 2016 at 7:46 pm
There are probably now “TDI futures” being traded, gambling based on speculation about buy back values.
February 9th, 2016 at 7:10 am
For the idle speed posts (above): if you have a code reader that can list you engine operating parameters, plug it in and check your rpm’s digitally; your dash tach may not be representing you actual rpm. 600, though, is not unheard of; though 650 is a generally accepted value (depending on vehicle, number of cylinders and also whether the a/c compressor is on/off).
February 9th, 2016 at 8:31 am
60 Would you like to speak to a salesman at Goldie, Kit? They’ll be happy to sell you some risk.
Really though, you know there’s derivative products being traded in vw so people can gamble on the path of this scandal. Deutsche Bank is prolly the biggest player.
February 9th, 2016 at 8:42 am
So 20 years from now after the VW’s have been rounded up destroyed or at least shipped ouot of the country. If I lied and said I sold it but stashed it in a garage I wonder if it would be worth anything if for nothing else but being rare?
February 9th, 2016 at 11:34 am
Thanks, Kit, Ziggy, & Chuck.
February 9th, 2016 at 11:43 am
I bought an 09 Jetta TDI new out the door for $25,500. I love it, they can have it back for $25,000 I’ll eat the $500. It’s only 1/3 used at 140,000 miles.