VW at risk of additional European fine on top of vehicle recall
Volkswagen's woes deepen, as Die Welt reports today that it will have to recall 2.46 million cars fitted with the illegal emission control software in Germany alone; the carmaker had already announced it would need to fix 8.5 million cars in Europe. VW has set aside €6.7bn ($7.07bn) to help cover the costs of the diesel recalls and another €2bn ($2.11bn) for compensation payments, however, analysts predict that the costs of fines, lawsuits and refits could top €40bn ($42bn). This comes as a report from PA Consulting suggests that European cars are coming under increasing pressure to meet tightening fuel economy rules, with Volkswagen and BMW seen as most at risk from incurring significant fines, which could reach $1bn, if they fail.  Others considered at risk from fines are Jaguar Land Rover, Hyundai of Korea and Kia; Fiat Chrysler Autos, General Motors and Ford Europ, while are considered to be ahead of the game, could still find it difficult to meet targets, says the report.  Furthermore, the report states that Europe will need to see a sharp increase in the number of electric and plug-in hybrid vehicles, which are currently barely visible on European roads.

Neil Winton

Special to The Detroit News

European car makers are coming under increasing pressure to meet tightening fuel economy rules, and BMW and Volkswagen are most at risk from incurring massive fines which would reach up $1 billion if they fail, according to a report from PA Consulting.

Other manufacturers exposed to big fines include British based and Tata of India owned Jaguar Land Rover and Hyundai of Korea and its Kia affiliate. The European subsidiaries General Motors and Fiat Chrysler Autos (FCA) are ahead of the game, according to the report. Ford Europe is on plan currently, but might find it hard to meet final reductions to meet 2021 targets, the report said.

All automotive manufacturers operating in Europe will have to sharply raise the amount of electric and plug-in hybrid vehicles in their fleets. At the moment these vehicles barely feature on European roads.

“If the German manufacturers are to meet their targets they will need to look at bold measures to increase the number of electric, hybrid and plug-in hybrids (PHEVs) vehicles in their fleets. We calculate that to meet the targets, BMW, Audi and Volkswagen will need 25 percent of their European registrations (sales) to be of cars with alternative engines in 2021,” the report said.

Mass market Volkswagen owns premium Audi.

A further complicating factor could be fall-out from the Volkswagen “dieselgate” gate scandal. This could mean that European Union (EU) regulators make it more difficult and expensive to sell diesels which are 20 to 30 percent more fuel efficient than gasoline engines. In Europe, diesels account for roughly half of all new car sales, compared with about three percent in the U.S. before “dieselgate” struck.

All the major manufacturers are spending huge amounts of capital trying to produce more fuel efficient engines, driven by these looming new regulations in Europe and the U.S.

Less aggressive

Europe demands average vehicle emissions of 130 grams per kilometer of carbon dioxide (CO2) – that’s the equivalent of 43 miles per U.S. gallon – by this year, largely achieved. This will tighten to 95 g/km by 2020 and 2021 or 57.4 miles per U.S. gallon. The U.S. requires a slightly less aggressive 54.5 mpg by 2025.

Germany’s Daimler, which owns Mercedes, Peugeot-Citroen of France, Swedish-based and China owned Volvo and the Renault-Nissan alliance are said to be on target.

Hyundai, according to the report, is poorly positioned, the only company with a worsening position between 2013 and 2015.

“As as result they were the only one to move from being close to meet the 2021 target to being forecast to miss it by some margin,” the report said. Their gasoline and diesel engines are not as efficient as competitors and they have no hybrids or plug-in hybrids, although these will start to be produced in 2016.

“The other carmaker facing real challenges is BMW. It has seen a reduction in its CO2 emissions since 2013, but is still forecast to miss its 2021 target,” the report said. Its vehicles are getting heavier. Hybrids accounted for only 0.1 percent of sales in 2014, PHEVs 0.2 percent and electric vehicles 1.3 percent.

Volkswagen, as if it didn’t have enough problems, also remains on a trajectory that will miss the 2021 fuel economy target.

“The stakes are high for the losers. Manufacturers risk penalties of 95 euros ($100) for every gram of CO2 above the limit, multiplied by the number of cars they sell in 2020. These could range from around 100 million euros ($106 million) for BMW and up to one billion euros ($1.1 billion) for Volkswagen,” the report said.

BMW spending frantically

To be fair, investment bank Barclays Equity Research said BMW may look behind in the race now, but it is spending frantically and cars on the drawing board will do the job eventually.

“We think that BMW is the leading (manufacturer) in terms of spending on CO2 emissions standards but that the phasing of their product cycle has masked that advantage until now,” Barclays said in a report.

And Volkswagen and its Audi and Porsche subsidiaries already have plenty of electric and plug-in hybrid vehicles on the road or in the planning stage.

The European Union is planning to adopt new rules for 2017 which will force car makers to review their current fuel consumption system which is heavily tied to the laboratory and computers and make it conform to real world driving conditions. PA Consulting said this could raise current outcomes by up to 10 percent.

If this is coupled with new regulations to clean-up diesels, all bets will be off as the 2021 targets will be impossible to reach. This could lead to massive fines all around and a political confrontation between the industry and the E.U. By then the industry will also be threatened by the looming and surely impossible-to-meet U.S. fuel efficiency demands, conveniently set by politicians and regulators who will be long retired by 2025.