VW Scandal: Six Things You Should Know

Volkswagen
Volkswagen's logo is seen on a TDI diesel engine of its EOS car in Zurich, Switzerland, September 22. Arnd Wiegmann/Reuters

Volkswagen (VW) is currently embroiled in the biggest crisis of its history, and one of the biggest scandals ever to hit the automotive industry.

The world's largest automaker has admitted to rigging its vehicles during environmental testing in the U.S. in a scandal that has caused outrage in Germany, where the company is based, and has led to the resignation of its CEO, Martin Winterkorn.

Amid the talk of defeat devices and the diesel dupe, here are six things to know about the story.

How big is the problem?

Really big. VW admitted on Tuesday that 11 million of its cars had been fitted with a defeat device—a piece of technology that detected when the vehicle was undergoing testing and tweaked the engine to produce less nitrogen oxide emissions. However, when the vehicle hit the open road, nitrous emissions rocketed to 40 times the legal standard provided by the U.S. Environmental Protection Agency (EPA).

VW could face up to $18 billion in penalties, according to the EPA—substantially more than VW's 2014 net profit of $12.3 billion. Meanwhile, German public prosecutors have launched a preliminary criminal inquiry into the company, AFP reported, raising the possibility of VW executives facing legal action for their role in the debacle.

I didn't buy my VW in the U.S., so my car is fine, right?

The geographical distribution of the problem is not yet clear. Almost half a million VW cars in the U.S. have been recalled, but the 11 million figure suggests this is not simply an American problem. The European Commission has said it is in close contact with VW and the U.S. authorities regarding the issue, while Italy, Switzerland and France have all said they will probe the company's cars in their countries. Leading U.K. legal firm Leigh Day said it is investigating whether the scam applies to cars in Europe, and the U.K. in particular, and if it proves to be so, one of the largest group claims in U.K. history is likely to follow. Elsewhere, the South Korean government announced on Tuesday that it was opening investigations into three of VW's diesel models.

Are any other companies involved?

Several automakers have strenuously denied any malpractice since the accusations against VW emerged. The Telegraph reported that BMWone of VW's major German rivalsdenied using any software that could greenwash cars during emissions testing. Renault, Toyota and Honda also denied any impropriety in regards to their testing procedures. Daimler, the German company behind Mercedes-Benz cars, told Reuters that the EPA's case against VW does not apply to its cars. However, the EPA said on Monday that it is widening its investigation to include other automakers.

Is this the death of diesel?

Maybe. Wall Street research and brokerage firm Alliance Bernstein warned that the additional costs of making diesel engines comply with future emissions standards in Europewhich are likely to tighten in light of the scandalcould make diesel engines vehicles unprofitable, The Guardian reported.

Diesel holds much greater sway in Europe than in the U.S.; diesel cars have around 50 percent of market share in the former, compared to less than 5 percent in the latter, according to The Independent. Carsten Menke, commodities research analyst at Swiss private banking group Julius Bauer, believes that this starting base means that demand for diesel won't be massively affected in Europe, though it could be hit further in the U.S., The Independent reported.

Should I scrap my Volkswagen?

Perhaps not right away. The energy costs of manufacturing cars can be vasta medium spec Ford Mondeo can create a carbon footprint of 17 tonnes of CO2e (carbon dioxide equivalent), according to The Guardian. While the potential damage caused by the Volkswagen scam is massiveaffected cars could be responsible for an extra one million tonnes of air pollution each yearthis suggests that a better solution might be to upgrade to a greener vehicle when the time is right.

And finally...what has VW said about it?

The company itself has been very apologetic. Aside from Winterkorn stepping aside, the company has set aside $7.3 billion to cover the costs of the scandal. Before his resignation, Winterkorn issued a video apology for the issue, saying he was "deeply sorry" that the company had broken the trust of its customers. Michael Horn, the chief executive of the VW Group in the U.S., also apologized, saying the company had "totally screwed up."