Right, what's all this about then?
Well, sad to say, Volkswagen has been caught cheating on its tests. Far more serious than having to re-sit the Leaving Cert, the German giant has been nicked by the US Environmental Protection Agency (EPA) for using cheat-code software in its cars.
Cheat codes? I thought that was for PlayStation.
It would seem it's for road cars too. Volkswagen has been doctoring the software on its diesel engines, so that the car's electronic brain can recognise when it's being put through an emissions test (certain things like switching off stability controls and anti-collision systems creates the digital trapdoor) and alters the way the engine runs. In the EPA's tests, that has dramatically reduced the amount of nitrogen oxides (NOx) that the cars emit, allowing them to pass the ultra-strict Californian Air Resources Board (CARB) regulations.
What's NOx?
It's a particularly nasty set of gases that all engines, but diesel engines in particular, produce in abundance. Although not a greenhouse gas, it is known that NOx causes severe respiratory illness in humans. Systems such as AdBlue (a urea injection system used in many modern diesel cars) are supposed to virtually eliminate NOx emissions. Volkswagen had claimed that it could meet CARB regulations without expensive and heavy urea systems, but it now seems that it could only meet them by cheating the system.
Wow. Is Volkswagen in big trouble over this?
The biggest you can imagine. Initially, this was limited to 500,000 or so diesel-engined car sales in America, plus a few in Canada. That was bad enough, but earlier today Volkswagen admitted that 11 million diesel engined cars worldwide have been subject to cheat coding. The company simultaneously announced that it was setting aside €6.5 billion for the next quarter of the year to deal with the problem.
Volkswagen's CEO Martin Winterkorn, a man previously highly praised for his running of the Volkswagen Group and who had earlier this year seen off a boardroom challenge from former Volkswagen chairman of the board Ferdinand Piech, said in a statement that: "I'm very sorry, I'm utterly sorry. The violations of these diesel motors by our company go against everything that Volkswagen stands for. I'm utterly sorry that we have damaged trust in this way. I apologise to all our clients and to the public authorities for all of the mistakes."
"At this point, I don't have the answers to all the questions. But we're in the process of ruthlessly investigating the issue, and to that end everything will be put on the table as fast, thoroughly and transparently as possible."
Either way, Winterkorn is in big trouble. He either knew about this and is culpable or didn't and is incompetent - that's certainly how the lawyers will argue it.
Lawyers?
Oh yes, and lots of them. Volkswagen is already being brought before a court in California, accused of breaching federal law in the state. A major US-based legal firm, Hagens Berman, has already launched just such a suit. "The EPA determined that the software installed in these vehicles - called a 'defeat device' - only turns on full emissions controls when the car is being tested, but otherwise shuts down emissions controls during normal operation. The tinkering that Volkswagen will have to do by law to fix these vehicles will almost certainly degrade the performance to less than what Volkswagen claimed when it originally sold these cars," Steve Berman, managing partner of Hagens Berman, told Yahoo.
On top of that, Volkswagen will be investigated both by the US Department of Justice and a congressional committee. US Congress House Energy and Commerce Committee Chairman, Fred Upton, and Oversight and Investigations Subcommittee Chairman, Tim Murphy, issued a statement saying that: "Strong emissions standards are in place for the benefit of public health. Manufacturers throughout the United States, and across the world, have developed leading technologies to reduce airborne emissions within the limits set by EPA and state environmental agencies. However, reported EPA allegations that certain Volkswagen models contained software to defeat auto emissions tests raise serious questions. We will follow the facts. We are also concerned that auto consumers may have been deceived - that what they were purchasing did not come as advertised. The American people deserve answers and assurances that this will not happen again. We intend to get those answers."
Crikey. Volkswagen is not going to be popular in America any time soon.
Certainly not, and Europe is going to provide a rough ride too. The German government and the EU have both launched investigations into whether Volkswagen breached European law with its 'defeat device' software. German Transport Minister, Alexander Dobrindt, has ordered an examination of all of Volkswagen's diesel emissions test results, while Jochen Flasbarth, the German state secretary in charge of pollution enforcement said that: "We are facing a case of blatant consumer deception and environmental degradation."
Europe's emissions testing regulations are very different to those of the US and there is a chance that Volkswagen might not have breached the (admittedly lax) rules surrounding the NEDC emissions and fuel economy tests on this side of the Atlantic. That test does say that the car can be specifically prepped for the test, as long as it's representative of what's on sale.
Asia is now in on the act too though, with the South Korean government announcing an investigation and it surely can't be long before the all-important Chinese government reacts too.
Does this mean I'll have to pay more road tax on my Volkswagen?
No, certainly not. The cheat Volkswagen has been pulling relates to NOx, not carbon dioxide (CO2). CO2 is the greenhouse gas around which all of our current motor tax and Vehicle Registration Tax systems are built, so as things stand at the time of writing, there's no change. The only change could come if Volkswagen is found to have been cheating on its CO2 emissions here in Europe. Either way though, there will likely be repercussions in Europe - the Euro6 emissions regulations, long gestating, came into official force on the 1st of September this year, after which point, any car that doesn't meet that standard cannot be sold within the EU. The regulations include strict NOx limits.
Is this purely a Volkswagen problem?
Other car makers have been rapid to distance themselves from the issue. BMW, Mercedes-Benz and Fiat-Chrysler have all issued statements saying that they're not cheating on their figures, EPA or otherwise. Nevertheless, all of Europe's car makers have been caught up in a dramatic shedding of corporate value. Some 37 per cent of Volkswagen's stock market value has been wiped out in just 48 hours as a result of this scandal, and most other car makers have been hit as investors worry about the potential spread of the problem.
So what happens next?
A rumour ran around today that Herr Winterkorn was going to step down this evening as CEO and be replaced by current Porsche boss, Matthais Mueller. That didn't happen, but it's probably the eventual end game - it's almost impossible to see how Winterkorn can keep his job.
Beyond that, it depends on just how Volkswagen manages to argue its case, but the total cost for this in terms of recalls and fines will easily run into the tens, potentially even hundreds of billions. And that's before you take into account the potential showroom exodus of Volkswagen customers. Car buyers don't like being lied to.
Is Volkswagen going to go bankrupt then?
No, we don't expect it to. Volkswagen Group is a massive and financially healthy company, so there's no danger of that for now. Any fines can be paid off on the long finger, so realistically that's not going to happen. It will certainly stymie product development within the Volkswagen Group though - expensive projects like a new Bugatti, a proposed buyout of Formula One team Red Bull and a rash of new Bentleys and Lamborghinis could all be facing the chop now.
Some perspective is helpful though - Volkswagen has cheated, and admitted to the fact and it's possible that other car companies will, in the next few weeks, have to admit something similar. Plus there's the fact that politicians on both sides of the Atlantic know that Volkswagen can only be pressed so far before precious high-value jobs start getting shed, so although the regulators will doubtless enjoy turning the metaphorical thumbscrews, they know the limits of such actions.
On top of which, there have been no fatalities. You can argue the toss about air quality and respiratory disease, but Volkswagen's actions haven't directly killed anyone. In recent years, other car companies have endured recall scandals that involved actual deaths - Volkswagen's crime was a bit of sharp-practice software coding.
The difference is though that the others were all able to point to accidental incompetence for their woes - Volkswagen's actions were without question premeditated and deliberate. We will now have to wait and see exactly how hard and heavy the punishments will be.
Update: 23rd September 2015
Martin Winterkorn, CEO of the Volkswagen Group, has officially announced that he is stepping down. This is perhaps the least surprising thing to come out of the whole Volkswagen scandal so far. Clearly, the buck stops with the man at the top, and Winterkorn's position had become untenable.
That stands in stark contrast to a few brief months ago. Winterkorn, earlier this year, saw off a boardroom push by the former chairman of the Volkswagen board, Ferdinand Piech. Piech, for so many years the hand at the tiller of the Volkswagen Group, had wanted to oust Winterkorn, blaming the company's poor performance in the American market on his management decisions. Somewhat surprisingly, given Piech's once-unassailable power, Winterkorn won the duel, and Piech was forced to step down.
The scandal over rigged emissions tests has proven too big a hurdle to climb even for an engineer of Winterkorn's talents. His career began at electronics giant Bosch, before a move to Volkswagen as head of group quality assurance in 1993. He was instrumental in the growth of Audi as a brand, including the buyout of Lamborghini and the development of the first-generation Q7 SUV.
Now though, his once-glittering career lies in tatters. In a terse statement he said that: "I am shocked by the events of the past few days. Above all, I am stunned that misconduct on such a scale was possible in the Volkswagen Group. As CEO I accept responsibility for the irregularities that have been found in diesel engines and have therefore requested the Supervisory Board to agree on terminating my function as CEO of the Volkswagen Group. I am doing this in the interests of the company even though I am not aware of any wrong doing on my part.
"Volkswagen needs a fresh start - also in terms of personnel. I am clearing the way for this fresh start with my resignation. I have always been driven by my desire to serve this company, especially our customers and employees. Volkswagen has been, is and will always be my life. The process of clarification and transparency must continue. This is the only way to win back trust. I am convinced that the Volkswagen Group and its team will overcome this grave crisis."
Volkswagen has not yet indicated a successor to Winterkorn, although Porsche's Matthias Mueller (the preferred choice of Piech before his departure) is the most likely candidate. Certainly, Porsche has flourished under his leadership, but Volkswagen's board has already intimated that further heads are likely to roll. Mueller may well decide to stand back a while, and let someone take on the roll of caretaker CEO until this crisis can be resolved.
Another potential candidate is Herbert Diess, formerly of BMW, but his engineering background may not be considered the right one for someone to lead the company out of crisis.
And the crisis continues. More and more authorities, from the US to Europe to Korea and beyond, are announcing investigations into Volkswagen's alleged malfeasance. With 11 million cars currently on the hit list, worldwide, for 'cheat-code' software, a figure of €400 billion has been bandied about as a total final cost to Volkswagen for its emissions rigging. Even for what has become the world's biggest car maker, that could be a financial pill too bitter to swallow. Winterkorn's departure may turn out to be the easiest decision he's ever made.