Volkswagen: Still Economically Viable?

With the recent Volkswagen emissions measurement scandal, is it time to be pessimistic about the future economic viability of the famed German car manufacturer? 

By: Ringo Bones 

Ever since German engineer Rudolf Diesel patented his diesel engine, the industrial world was quick to embrace it with open arms given that your typical diesel engine burn about 25-percent less fuel in comparison to a gasoline engine of similar horsepower rating, not to mention that diesel fuel, as a byproduct of crude oil refinement, is around 4 to 5 times cheaper than gasoline when a barrel of crude oil produces 19 gallons of gasoline and 12 gallons of diesel fuel when it is refined. And given this “ energy utilization efficiency”, diesel engines by their very nature only produce a quarter of the carbon dioxide produced in a typical gasoline engine – which is now of paramount importance in our increasingly climate change conscious world. But sadly, diesel engines are inherently way dirtier than gasoline engines when it comes to oxides of nitrogen and particulate emissions. 

From an economic standpoint, Volkswagen could be fined up to 37,000 US dollars per car and 482,000 of Volkswagen’s diesel cars have already been recalled in the United States and its share value plummets by 30-percent since the emissions measurement scandal became headline news a few days ago. With 12 separate brands and 600,000 employees, cleaning up Volkswagen could be a monumental task. Three days ago, Volkswagen CEO Martin Winterkorn resigns and has since been replaced by Porsche CEO Matthias Mueller. But is it good time to buy Volkswagen stocks given that their value is at an all time low? Sadly, hedge fund managers who invested pension funds beholden to them in Volkswagen are not quite terribly pleased of the resulting reduced economic viability.  

The row over whether diesel engines – as in diesel fueled cars and trucks – are really more environmentally friendly than their gasoline engine counterparts recently came to light in the form of the recent Volkswagen emissions measurement scandal where the famed German automaker was caught by the U.S. Environmental Protection Agency back in September 21, 2015 when Emissions Analytics, an internal combustion engine / automotive emissions testing lab recently uncovered that the latest models of diesel fueled Volkswagen cars sold in the United States employ a “cheating software” on its electronic engine management system that automatically reduces the engine’s power output and thus the resulting emissions output when it detect that the car is mounted on a tachometer – a device used to statically test the power output and combustion byproducts of cars under test. The Volkswagen “cheating software” allowed their late-model diesel cars to produce up to 40 times less oxides of nitrogen and particulates in a lab testing setting when compared to being actually driven on the road. 

Whether the “cheating” is deliberate or not, from a scientific viewpoint, diesel engines still produce less carbon dioxide – a potent greenhouse gas and the primary cause of the ongoing climate change – than their gasoline counterparts, but the oxides of nitrogen and particulates produced by diesel engines also have a deleterious effect on our environment and of human health. The oxides of nitrogen produced by diesel engines can promote the formation of smog and increases the acidity of rain and can also do nasty things to our lungs due to its corrosive nature. And also oxides of nitrogen, the same one that gives a nuclear blast mushroom cloud its orange-brown color, are usually produced by extreme high-temperature processes that occur in the earth’s atmosphere both man-made and natural like lightning and the since retired supersonic airliner Concorde’s Olympus jet engines which can also deplete ozone in the Earth’s ozone layer giving everyone a higher risk of getting skin cancer. 

Particulates that are the byproduct of diesel combustion can increase anyone with a compromised immune system to catch pneumonia. Diesel engines may be more fuel efficient and produce less carbon dioxide than gasoline engines, but clean they are not. Another “environmental fallout” of the recent Volkswagen Emissions Measurement Scandal is that it could empower climate change skeptics like the U.S. Republican Party which will eventually point out that the supposedly earth friendly commercial institutions – like the German automaker Volkswagen – cheated in order to bolster its green credentials.