Volkswagen ‘Green’ scheme

German car manufacturer Volkswagen has introduced a new scrappage program for residents in UK. People can trade their old diesel cars and get up to $7,750 off for more environmentally friendly cars.

The car manufacturer has been mired in controversy regarding the emission of diesel from its car engines.

Background

In 2015, US’ Environmental Protection Agency (EPA) issued a notice of violation of the Clean Air Act to German automaker Volkswagen Group. The automaker was accused of flouting rules for nearly 7 years in the region. VW had reportedly programmed a turbocharged direct injection. This enabled the diesel engines to activate emissions controls only during laboratory emissions testing. This programming was found from models that were introduced in 2009 to 2015. Reportedly, 11 million such cars were deployed across the world and 500,000 in the United States alone. The scandal that unfolded resulted in the resignation of then CEO Martin Winterkorn. A number of the company’s top executives stepped down as well as further details began to emerge.

On September 2015, Volkswagen admitted that 1.5 million UK cars had been affected by the diesel controversy. Most recently, Volkswagen and its China ventures have announced a recall of 1.8 million vehicles over a fuel pump issue.

As a result of this scandal Volkswagen AG’s former engineer James Liang has been sentenced to 40 months in prison by a federal judge in the US. The company also faces a number of other criminal and civil law suits.

There is growing concern that the performance of vehicles in labs are different from the performance in the real world. A study noted that diesel cars and trucks from 10 countries produced 50% more nitrogen oxide emissions than lab tests showed.

Analysis 

Volkswagen has announced that UK drivers can exchange their old diesel cars for newer Volkswagen cars and get up to $7,750 off from market price. This is being billed as an environmental initiative by the company. It is offering its largest incentives for people willing to buy its electric models.

Volkswagen is amongst many other car manufacturers that are also offering similar schemes in UK. Kia and Renault have offered £2,000 off new models. Nissan is also offering a similar scheme and is providing customers incentives to purchase its electric model. Toyota too has introduced a similar scheme.

In July 2017, the UK government announced that that it will be banning diesel and petrol cars and vans by 2040. The initiative was initially launched in Germany.

Scrappage schemes are offered to get old vehicles off the roads. According to Financial Times, they are also introduced to boost car markets when sales are down.

Assessment

Our assessment is that car manufacturers have begun incentivizing electric cars. As governments across the world crackdown on diesel emissions, companies like Volkswagen and Toyota are betting on ‘Green’ initiatives. We believe that the established car manufacturers will compete in the same space that Tesla does. This, in our opinion, is extremely good for both the industry and the consumers as focus will be on affordability.