By Autumn Cafiero Giusti
New developments in the VW scandal continue to unfold. In early November, Volkswagen Group said that its internal emissions testing found “irregularities” in about 800,000 cars worldwide, and this time that includes gas-powered cars, according to a USA Today report. That adds an estimated $2.2 billion to the costs the automaker is already paying to address the scandal.
Since the Sept. 18 announcement by the U.S. Environmental Protection Agency that Volkswagen had been intentionally doctoring its emissions tests, the value of used VW diesels in the U.S. fell an average of 13% to $11,160 from 12,830, according to Kelley Blue Book.
“Owner-victims are certainly facing a significant decline in the Blue Book value of their cars,” says Ed Mierzwinski, consumer program director for the U.S. Public Interest Research Group.
At the same time, there’s money to be saved for consumers on the buying side, particularly if they already own a VW. Already, Volkswagen is offering rebates for current owners and deep discounts to potential buyers.
“I would bet that if I was a consumer who wanted to buy a Volkswagen, the price is probably better today,” says Ira Rheingold, executive director of the National Association of Consumer Advocates.
In addition, class-action lawsuits could result in even more payouts for VW owners.
Here, industry experts weigh in on some of the ways the scandal could both cost and save money for consumers.
1. Cost: Lost value
Volkswagen owners could experience up to $5,000 in lost resale value as a result of the scandal, says Dr. W. Rocky Newman, professor of supply chain management at the Farmer School of Business at Miami University in Oxford, Ohio.
It used to be that if you wanted better gas mileage, you bought a diesel automobile. The tradeoff was that diesel fuels were “dirty.”
“If you wanted a more efficient car, you had to put up with the pollution,” Newman says.
“Clean diesel” engines are designed to emit 97% less sulfur while delivering 20% to 40% better fuel economy than comparable gas-powered engines. Volkswagen buyers were willing to pay a premium for a car perceived to have both better fuel economy and cleaner emissions.
“You’re forcing the consumer to choose between the two, when they bought the car thinking they had the best of both worlds,” Newman says. “If I were to buy a Miller Lite because someone said it tastes great and is less filling, I’d pay $3 for it instead of $2. But if you’ve got to pick one, then it’s not worth the same $3, is it?”
Newman says that online estimates indicate that the diesel engine option adds anywhere from $2,500 to $5000 to the cost of the vehicle.
Ed Kim, vice president of industry analysis for AutoPacific, an automotive research firm out of Tustin, Calif., says that resale value was one of the main reasons that clean TDIs were considered such a good deal. “Yes, they cost more up front, but they had much better resale value compared to gasoline cars,” Kim says. “Now, that’s kind of gone out the window.”
One thing that can’t be measured is the reputational risk, Rheingold says.
“People bought Volkswagen because they thought they were getting good mileage, and that they were buying a car that was more environmentally friendly than other cars,” he says. “And what they found out was that Volkswagen was lying.”
This goes back to the resale cost. “If I own a Volkswagen and I'm trying to sell it at this point, that market is going to be a lot smaller, and people are going to want to pay less. The reputation costs will hurt Volkswagen, but also Volkswagen owners who are attempting to sell those cars,” Rheingold says.
2. Savings: Deep discounts on new VWs
While it’s probably not the best time to be selling a Volkswagen, it could be a great time to buy one.
“If you wanted to buy a Volkswagen, you could probably negotiate a better price than you could before the scandal was admitted,” Rheingold says. “I would bet the price of a Volkswagen would be less – maybe considerably less.”
As a result, Volkswagen is offering massive incentives right now to buy new VWs to bring more foot traffic into their showrooms.
“A savvy consumer could walk into Volkswagen and get an incredibly good deal,” says Kim says.
And for existing Volkswagen owners, the automaker is offering a $2,000 loyalty bonus to apply toward the purchase of a new gas or hybrid vehicle. That means a customer could lease a $25,000 Passat Limited Edition for $500 down and $179 a month.
“Clearly, Volkswagen is doing heavy, heavy discounting in the short term in an attempt to keep showroom traffic up,” Kim says.
3. Cost: Other brands take hit
The fallout from the VW scandal could affect not only Volkswagen, but also other manufacturers of diesel vehicles. And that fallout could eventually trickle down to the owners of vehicles made by those other manufacturers, particularly from a resale perspective.
“I think the image of diesel in the U.S. is going to be severely damaged,” Kim says.
A recent assessment by analysts from corporate credit rating firm Fitch Ratings and investment bank Morgan Stanley claims that the Volkswagen emissions scandal is going to cost both consumers and manufacturers since the industry will be forced to spend more money on pollution control systems. A Morgan Stanley analyst told the Los Angeles Times that stricter testing and enforcement will add about $100 to the cost of building a vehicle. That could cut the industry’s profits by about 10% unless some of that expense is passed on to consumers.
Time will tell whether these buyers are going to move to other clean technologies, such as hybrids, electric cars or back to gas-powered engines.
“You have to wonder if this is the beginning of the end for diesel,” Rheingold says. “It will be interesting to see how this affects the entire diesel marketplace. Obviously Volkswagen is the biggest player in that market.”
4. Savings: Cheaper options from competitors
Some automakers of the green engine types that had been playing second fiddle to Volkswagen and its “clean diesel” vehicles now have an chance to deliver innovations that are better and less expensive. With “clean diesel” in question, consumers could turn their attention to hybrids, electric cars or even back to gas.
“The scandal may result in opportunities for other, actually clean, manufacturers to offer consumers better, lower-priced deals going forward,” Mierzwinski says.
Newman points to a phenomenon known as the “experience curve.” As companies build experience, they find better ways to make a better, cheaper product. “So innovation takes place with experience. And that’s what a lot of people are banking on,” he says.
For example, even though batteries on these cars haven’t developed enough to last on the highway for extended periods of time, the emissions scandal could help force that innovation.
“There’s a lot out there to suggest Tesla is on the threshold of making more powerful batteries a whole lot cheaper,” Newman says. “If some of Volkswagen’s diesel business is thrown over to those guys, maybe if they accumulate enough experience that they tip over that threshold of bigger, better cheaper things.”
5. Cost: Performance decline
Volkswagen is about to launch a massive worldwide recall that would repair 11 million diesel vehicles to bring their emissions systems into compliance with pollution regulations. But those repairs could result in either higher emissions or worse fuel efficiency than what Volkswagen originally claimed.
“If they (consumers) comply with the terms of the recall, they’ll end up with a car with slightly less performance and somewhat less gas mileage, which is not what they were promised,” Mierzwinski says.
Rheingold agrees that whatever gas mileage was being claimed will no doubt be reduced as soon as Volkswagen complies with emissions standards.
“I think the reason people go for Volkswagen is because of its theoretical green record and its good mileage. Now, you’ve got a car where the mileage is not going to be as good because it’s going to have to get its emissions test fixed,” Rheingold says.
6. Savings: Potential payouts from class-action suits
Class-action lawsuits against Volkswagen already are starting to take shape. As of late October, more than 350 suits had been filed on behalf of U.S. consumers against Volkswagen over its rigged diesel vehicles, according to The New York Times.
“I assume at some point they’ll have to pay hefty fines, and I would hope those fines end up in the pockets of consumers who were lied to,” Rheingold says.
Class action suits could recover some of the lost value, although it’s unclear whether owners will recoup all losses. “VW owner-victims deserve full compensation for all of these harms, as well as for the lower value of their cars,” Mierzwinski says.
In addition to benefits from consumer litigation, Mierzwinski says that any settlement by government officials could result in positive environmental remediation by Volkswagen, “which will reduce pollution going forward and save lives.”
At this point, however, Kim says it’s too early to know how much of an impact these class-action lawsuits will have on Volkswagen, and what kind of compensation consumers stand to get. “We’re going to be hearing about these things for quite a long time,” he says.