Fallout from the Volkswagen scandal is hitting consumers and the courts

October 8, 2015, 1:01 PM UTC
The logo of German car maker Volkswagen can be seen as dark clouds hang in the sky over a Volkswagen trader in Hanover, central Germany, on September 22, 2015.
Photograph by Julian Stratenschulte—AFP/Getty Images

The fallout from Volkswagen’s stunning admission that it cheated on diesel emission testing, affecting up to 11 million vehicles worldwide, has hit the market for new and used vehicles—and the courts.

Rival automakers, with their sights set on benefitting from VW’s troubles, have begun to offer special financial incentives to shoppers willing to switch brands. In the U.S., meanwhile, the value of diesel-powered models made by VW and its Audi luxury brand has taken a hit.

Ford Motor (F) and Fiat Chrysler (FCA), through their dealers in Europe, are offering incentives of up to $2,000 to new-car buyers who are willing to trade in their VW or Audi diesel. Ford’s incentives are available across Europe, FCA’s in Italy only.

VW is Europe’s leading brand, in terms of sales. Since the Sept. 18 announcement by the U.S. Environmental Protection Agency of VW’s deliberately-doctored tests, the value of used VW and Audi diesels in the U.S. has fallen an average of 13%, according to Kelley Blue Book.

“Early indications from auctions are that dealers are more hesitant to buy the VW diesel units,” said Tim Fleming, a Kelley Blue Book analyst. The average value of the vehicles fell to $11,160 from $12,830, according to the survey. The average value of gas powered VW and Audi models fell less than 2% during the same period.

Eric Ibara, another Kelley Blue Book analyst, said it’s possible that values could rebound, depending on how the automaker handles the crisis and “what the fix will be for the U.S. market.”

The first German consumer to file a lawsuit against VW has been identified; and many are sure to follow on the continent and in the U.S. West Virginia’s attorney-general also has filed suit against VW on behalf of consumers in that state who were allegedly deceived.

The specifics of a U.S. recall have yet to be announced, pending directives from the EPA. In Germany, new chief executive Matthias Mueller said he hopes the European recall of affected vehicles can begin in the new year and be completed by 2016, once VW’s plan is approved by the German government. Some vehicles can be fixed with a software adjustment, others will need fuel injection equipment and catalytic converters.

Mueller told a German newspaper that VW faces “not three, but thousands” of potential solutions for fixing cars because of the mix of engine calibrations and regulatory differences across different markets.

The uncertainty surrounding the recall and its timetable virtually assure that VW’s emergence from turmoil will be lengthy. However long it takes, recovery also will be expensive: Warburg Research estimates that lost revenue and expenses, including damaged image, could cost VW $39 billion – roughly equal to two-thirds of its current market capitalization.

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