Can Audi avoid succumbing to the toxic fumes of Dieselgate?

Noxious clouds surround the VW subsidiary, but its brand seems healthy for now.

by Matthew Gwyther
Last Updated: 17 Mar 2017

At Audi’s annual media fest yesterday in Ingolstadt the line-up of shiny, new vehicles was added to by a few with flashing blue lights on the roof. Whether by awkward coincidence or devilish intent, German prosecutors conducted 7am raids on Audi offices as the world's media gathered to hear from the Bavarian premium car manufacturer. The home addresses of some Audi executives were also thought to be among those venues searched. The company chairman, Rupert Stadler, when asked if anyone had been rummaging through his sock drawer, said he didn’t know as he had left home way before seven in the morning.

Until now the authorities in Germany have been accused of toothlessness compared to those in the United States. It’s now a year and a half since the Dieselgate scandal broke and since then Audi’s owner VW has agreed to pay huge sums to compensate customers in the United States who bought cars fitted with illegal software which dramatically reduced the levels of harmful nitrous oxides produced by the engine when it sensed it was undergoing formal emissions test.

The American settlement agreed by the Federal Trade Commission amounts to a total of about $10 billion, although the total cost will reach around $21 billion. The costs of the scandal have severely dented VW’s profits for the last year. Audi’s annual pre-tax profits were down 37% to 3 billion Euros. In Europe, however, VW (and Audi) show no signs of budging when it comes to offering compensation. The company maintains it has done nothing illegal in its home continent and has noted that it ‘does not accept that a defeat device prohibited under UK law was fitted to any of the UK affected vehicles.’

This is strictly speaking true as legal emissions levels are very different in the Uk when compared to those in the US and especially in California. (The very reason Europeans began the dash for diesel was that it emits less carbon dioxide per mile covered. A full explanation of the dilemma with diesel is here)

Board member Dietmar Voggenreiter continued adhering to this line when questioned by MT yesterday. Voggenreiter has been mooted as a possible replacement for Stadler if and when such a move proves necessary. However such dancing on the head of a legal pin hasn’t impressed the European Commission which last week hosted a meeting of 22 consumer protection authorities from across the EU and has said it will now prepare collective action against the company.

Still under dispute is whether the ‘field fix’ offered by VW and Audi, which adjusts the electronics in the combustion process and thus alters emissions levels, actually affects both fuel consumption levels and performance. The company says it will not but many expert observers are sceptical. So far there has been no evidence that critical re-sale values of Audis have been reduced. If this were to occur considerable damage would be done to profitability because the whole scale of leasing costs would be altered.

The raids by the prosecutors come at a difficult time for Stadler, who has consistently claimed he knew nothing about the cheating until the late Summer of 2015. (We interviewed him shortly after the whole affair erupted here). This was recently disputed in an industrial tribunal held in Heilbronn to hear the case of engineer Ulrich Weiss who was suspended in September 2015 shortly after the scandal blew up. He has stated in his testimony that Stadler and others knew about the devices for years. Audi and VW strongly denied this allegation and were forced to issue a statement expressing confidence in Stadler in late February.

The German newspaper Handelsblatt added to the discomfort when it reported recently that Audi was in fact the ‘technological cradle’ of emissions cheating and had developed the ability to circumvent increasingly arduous test standards for its 3 litre diesel way back in the late 1990s.

In the meantime rumours swirl about further consolidation in the global car market. The current kite being flown is a possible alliance between Fiat Chrysler and the VW Group. The former’s boss, Sergio Marchionne, is fond of mischief-making.

It’s notable that at a time of huge change in the industry - as electric vehicles come to the fore and autonomous driving steps up a gear - the decisions of the past cannot be shaken off. Although Audi had positive forward news about a new self-driving car division and three new battery-driven models by 2020, Dieselgate still looms large.

And China, Audi’s largest market by sales, is showing signs of having caught a serious cold. Sales have dropped off badly as disgruntled Audi dealers protest a newly proposed joint venture with another Chinese car company, Shanghai Automotive.

Certainly in the UK Audi sales have not been affected by Dieselgate. Sales here for 2016 were 177,566 cars, a rise of 6.4% on 2015. Here the premium brand of VW - which still operates on a margin of around 8% compared to less than two at the mothership - has managed to keep its name untarnished despite using the same engines as the guilty VW cars. (Indeed Audi staff protest that they were ‘forced’ to buy the smaller 1.4 litre engine at cost price from Wolfsburg.)

Likewise in the US market, where most of the Dieselgate soot has stuck, Audi appears to remain miraculously unaffected. It has managed to keep its brand damage separate from that endured by VW its parent group.

Rupert Stadler has survived thus far because he is a protegee and retains the protection of Ferdinand Piech, the patriarchal figure who has endured his own battles with the board of the company he once chaired. It was Piech, the ruthless perfectionist grandson of the creator of the Beetle, who grew Audi from a dull also-ran to be one of the leading premium car manufacturers in the world. Having now badly fallen out with other members of the Porsche clan, by May Piech may have been expelled from the company he once ruled.

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