Money Mondays: The Latest On The VW Recall

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Tom: You are joining us this morning to talk about Volkswagen?

Mellody: That is right, Tom! I figured with the size of this recent recall, and the size of your audience, we are bound to have some people impacted by this story, and by other recalls that will inevitably pop up from other companies. But this recall is a huge deal for Volkswagen. As you may know, nearly 500,000 vehicles were affected here in the U.S. If the maximum fines were levied, they would total more than $18 billion. The CEO who was in charge at the time resigned and the company’s stock price took a big hit. Now, they have to execute a massive recall that will be global in scope, all while under the watchful eye of regulators in various countries.

Tom: What will happen to me if my Volkswagen is recalled?

Mellody: That really depends on the model and model year. The company’s new CEO has said that in order to address the issue, the company will have to work out “thousands” of solutions, since the diesel engine in question has been used in several models, many of which had country-specific variations. That said, Volkswagen has said that it believes that a software update will be sufficient for most cars. However, other vehicles would require hardware as well, and this may be difficult because some models do not have sufficient physical space around the engine. Because of this, it will depend on the model that you are driving, and it could mean a simple software fix to considerable work on the engine block.

Tom: How will Volkswagen’s recall proceed in the us?

Mellody: This is a tough one, and we actually do not know the answer yet. Usually a recall is initiated when unknown defects are found within the manufacturing process that could potentially impact the safety of automobiles. However, that is clearly not the case in this instance, as this was an intentional piece of software installed by what Volkswagen calls rogue employees. Because of this, it complicates the fix somewhat, as it affects numerous models for numerous reasons. We do not yet have a timeline for the recalls here in the United States. The company has said it will begin recalls in Germany in January of 2016, but no timeline has released for the U.S. at this point. However, some have said it could take years to get the recall fully implemented, if they ever managed to completely address the problem.

Mellody: There is an interesting wrinkle here, Tom. The answer to the question is yes, and it is throwing a wrench into VW’s plan to fix the polluting diesel cars. Why? Some people may not want to bring their cars in for a recall, and they can’t be forced to. The reason? The owners of the 482,000 affected Passats, Golfs and Jettas sold in the United states, like their cars, say they are peppy and fun to drive, and by fixing the cars they will likely lower performance and not have the same fuel economy. So, even though these cars emit 40 times to allowed level of some pollutants, drivers may decline, and in many states there is nothing that can be done about it. For example, of the three states with the most cars affected, only California withholds registration renewals from cars that don’t comply with recalls. In Texas and Florida, there are no emission standards in place for diesel vehicles.

Tom: Are there other outstanding issues for consumers to know about? 

Mellody: There is one more thing to note here, Tom, and that has to do with the value of these cars. Kelley Blue Book sales data show that the average values of the 2009 to 2015 diesel models have fallen by 13% since the scandal erupted, an average of nearly $1,700 in value per vehicle. On top of that, there is really no way to repair these vehicles that would make them meet the specifications that buyers believed they had previously, and the head of VW’s U.S. division said as much, stating that he believed the fixes would be able to achieve the fuel economy ratings, but not the performance ratings, that were initially promised. Because of the loss of value caused by the recall, and the possibility that the performance of the vehicles could possibly be determined to be harmful to the consumer, the company is likely to see lawsuits and they may be pressured to compensate owners for this loss, so if you are affected, follow the developments closely. You can start at the Volkswagen website for the U.S.

Tom: Thanks for joining us this morning, Mellody.

Mellody: Have a great day, Tom!

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