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Volkswagen cuts its first €1 billion, starts technology overhaul

Volkswagen - Dieselmotor vom Typ EA189Volkswagen - Dieselmotor vom Typ EA189
An expensive can of worms.Photograph by Julian Stratenschulte — AP

Scandal-plagued Volkswagen AG (VKLAY) said its flagship VW brand will roll out more environmentally-friendly electric and hybrid cars and switch all of its diesel ones to new and cleaner technology, in what appeared to be an effort to refocus public attention on a green future, rather than a gray smoky past.

However, at the same time, it also announced the first billion euros ($1.12 billion) of painful investment cuts that chief executive Matthias Müller had warned of last week. VW didn’t explain how it was going to roll out the clean vehicle range faster on a lower development budget.

In a statement, the company said that in Europe and North America, where the uproar over its doctoring of emissions data is greatest, it will migrate all its diesel vehicles to an emissions-reduction technology known as ‘selective catalytic reduction’.

It singled out the AdBlue system, which adds a mixture of urea and deionized water to exhaust fumes to cut the amount of harmful nitrogen oxides (NOx) put out by the engine. Those NOx emissions that have been the center of a scandal that exploded when the Environmental Protection Agency announced that VW had programmed its cars to mask the fact that they were putting out up to 40 times the legal limit under normal driving conditions.

AdBlue was pioneered some 10 years ago by a Japanese company and introduced to Germany by VW’s biggest rival, Daimler AG (DDAIY).

The Financial Times claims that Volkswagen had trialled the technology as early as 2006, but that corporate pride led it to persist in developing an in-house alternative instead. When the company failed to produce a diesel engine that could meet the EPA’s new Tier 2 standards for emissions, it resorted to installing ‘defeat devices’ designed to detect when the cars were running in test mode, allowing them to switch to an operational mode that met the EPA’s standards, according to the FT.

“Diesel vehicles will only be equipped with exhaust emissions systems that use the best environmental technology,” the VW brand board said after a meeting at its headquarters in Wolfsburg.

The company didn’t give a timeframe for making the switch across the millions of VW diesel cars across the globe. It has said in the last couple of weeks that over 5 million VW brand cars–mostly in Europe–will have to be recalled between now and the end of next year to be fixed.

Elsewhere in its statement, VW promised to roll out a new all-electric version of the Phaeton, the sedan that has in recent years been the brand’s premium product, as well as a new “Modular Transverse Toolkit” that will allow it to make a plug-in hybrid with a range of up to 300 kilometers (180 miles). It also promised to work on a new range of all-electric vehicles with a range of 250-500 km.

Finally, it said it would focus on developing connectivity and driver assistance systems, an area where tech specialists like Apple Inc. (AAPL) and Google Inc. (GOOG) aim to make inroads against traditional carmakers over the medium term.

“Together with my Board of Management colleagues and the entire team we are working at top speed on these issues,” VW’s brand head Herbert Diess said. “Time and again, the Volkswagen team has proved it stands united and is fully focused on shaping the future, particularly when times are tough. We have now laid the further foundations for that.”