Last week’s rumor became true Monday as Volkswagen has moved to pull the plug on its World Rallycross Championship participation at the end of the 2017 season. It is all part of an across-Volkswagen bid to find areas to save money in the wake of one of the most expensive self-inflicted problems in business history.
When Volkswagen admitted that it had knowingly cheated emissions testing for six years, few could have envisioned the toll that the admission would take. Of course, there were the usual sacrifices, the chief executive officer – Martin Winterkorn – and other key executives who stepped aside. And, there were the mid-level execs and managers who lost their positions, as well. That was to be expected.
EPA Notice Of Violation
Few realized when the Environmental Protection Agency (EPA) slapped the Notice of Violation on VW just how wide-ranging the damage would be. Criminal investigations were launched in the U.S., Germany, Italy, France, India and South Korea. At least 44 state attorneys general in the U.S., joined in their action. The EPA has yet to announce its fines and penalties against the automaker. And there are reports that at least four or five individual states are launching suit against the automaker.
And, don’t forget probes by consumer authorities in some countries.
In the U.S. alone, 250 major consumer lawsuits were folded into one class-action suit. Other pieces of civil action against the automaker were also rolled into the same jurisdiction so that they effectively became one court case. A decision, in that case, was reached last June and finalized late last month. It was not an easy finding as it involved rather intense negotiations. The washout was the $16.5 billion Dieselgate class-action suit settlement that provided for buybacks of the affected vehicles – 475,000 – in the U.S. VW agreed to pay $10.033 billion to remove the vehicles from owners’ driveways. There’s another $1.2 billion in there for dealers, $400 million for the states and $4.7 billion to take care of mitigating environmental problems caused by VW’s rigged emissions, as well as contributing the development of zero emissions vehicles.
While this is not the biggest settlement in corporate history, it is the largest individual settlement. And it is not done as criminal investigations are ongoing.
Huge Costs Expected
Some have estimated the entire cost of what has become known as the Dieselgate Affair could be more than $25 billion when the time comes to total the damage. Indeed, it could be much more. If VW wasn’t the world’s number one automaker – a position it earned only last month – it is doubtful if it could survive the expense. But, even number ones have their limits. So, VW’s executive board ordered wide-ranging internal cuts to not only fund current and potential future settlements but also to ensure the automaker’s survival.
One area that won’t survive is Volkswagen’s World Rallycross Championship race effort. Already, Audi has made the decision to pull out one of the world’s toughest race series the World Endurance Championship (WEC), a series that VW has dominated for 13 of the last 18 years. The problem for Audi is that the engine they have campaigned is diesel, which is not exactly something an automaker wants to be known when it has been accused of the biggest diesel emissions scam in history. Audi Formula E Effort Will Impact Future Electrics
Instead, Audi will concentrate on Formula E (electric) racing.
Meantime, Volkswagen announced on Tuesday that it would drop out of WRC campaigns. “The VW brand is facing tremendous challenges,” said Frank Welsch, chief of VW brand research and development. The automaker is pushing heavily into zero-emission technology which means that though VW was running gasoline, not diesel engines, the racing effort is finished.
Volkswagen’s move away from the WRC championship series is in line with, as noted, the automaker’s cost-cutting plans. The cost-cutting has already cut two great – almost storied -- racing efforts. VW leaders will gather at the end of the week to look for more cost-cutting and on Nov. 18 there is a meeting scheduled of the carmaker’s supervisory board to ratify all cost-cutting and spending plans.
Silver Lining Appears
You can understand, then, why Volkswagen racing fans may have seemed somewhat depressed lately. However, there is hope for their favorite racing team. A piece appeared on the issue in the publication Autocar. Volkswagen announced to the magazine that it would keep its entire motorsport staff – 200 employees – working. That would have been altruistic, in itself, but, it seems that another VW subsidiary, more known in Europe than anywhere else, has a championship rally effort of its own.
Skoda, whose rally team has won the drivers' championship for the last four years, can quickly absorb the soon-to-be-former VW racing specialists. It is something that no one could have foreseen. However, for VW racing enthusiasts it is the silver lining to a very dark cloud. So, it appears that though VW will officially part ways with WRC at the end of 2017, the Skoda racing team will benefit as will its winning driver, France’s Sebastien Ogier.
Sources: Automotive News, Reuters, Autocar