This week, three state attorneys general filed lawsuits against Volkswagen for defrauding customers by installing “defeat devices” in vehicles with diesel engines.
VW had already settled with the federal government – for $15.3 billion – over nearly 500,000 vehicles sold in the US that can’t have their engines fixed to be able to legally pass emissions tests.
But the states are another matter. Maryland, New York, and Massachusetts allege that the scandal reaches to the highest managerial levels of the notorious clannish automaker.
Current CEO Matthias Müller may be implicated, due to his tenure at Audi, where the first examples of the defeat devices were deployed.
Despite all this, VW is sticking with the USA; we have no indications whatsoever that the car maker intends to withdraw from the market.
But if there were ever a time to pull out, this is it.
VW’s market share in the US is a pathetic: 1.6%. That’s barely more than the VW Group’s Audi luxury division (1.2%). Volkswagen is one of the largest global automakers, but its performance in the US, the world’s most competitive market, is appalling, and has been since before the emissions scandal hit.
The underperformance is especially notable because the sales in the US have been booming for years, breaking a record in 2015 when 17.5 million new cars and trucks rolled off dealers lots. Most automakers have been reporting month after month of improving sales; GM, Ford, and Fiat Chrysler Automobiles have also been raking in the profits, quarter after quarter.
- REUTERS/Arnd Wiegmann
The conditions are ideal for selling cars to Americans. Unemployment is low, credit is abundant, gas is relatively cheap, and the average age of a vehicle on the nation’s roads is at an all-time high of 11 years.
But VW can’t break through. In fact, the only aspect of its return-to-America strategy that was working was the diesels, which offer good fuel economy and robust performance – as long as they can pass emissions tests! This is probably the biggest irony in the entire crisis.
At Business Insider, we’ve spoken with numerous industry experts and executives about VW’s plight, and the consensus is that the automaker won’t go.
The reason why is simple: the US is the most important auto market on the planet.
Yes, China promises a lot of growth, and Europe, in the aggregate, is larger. But because Americans love big cars and trucks, profits in North American can be very tasty. The US is also still where most of the major automotive trends get started, from electric cars to crossover SUVs. Americans also tend to own fleets of cars – two or three per family – and they finance everything, often now on stretched-out loan terms of more than the traditional 60 months. And then there’s leasing, which is also a big part of the mix in the US.
All that said, the situation for VW is rough – and it isn’t going to get better any time soon. But the embattled company, which captured America in the 1960s and ’70s with the legendary Beetle, looks to be holding the line.