Volkswagen diesels might not be completely fixable, regulator says

It seemed like a fairly simple remedy for a major automotive defect: Require the carmaker to recall the vehicles and make them right.

But the fix for Volkswagen’s diesel air-pollution scandal is proving anything but simple.

Officials with the California Air Resources Board, the state agency that helped discover that Volkswagen had rigged thousands of diesel cars to cheat on pollution tests, said last week that it might not be possible for Volkswagen to bring the vehicles into full compliance with the state’s pollution standards. The problem lies in the complexities of the cars’ emissions systems, air board officials said.

The air board’s startling disclosure, made at a legislative hearing in Sacramento, adds a new layer of complication to the worldwide scandal that has dogged Volkswagen for months. Air board officials said they’re contemplating compromise solutions under which motorists could sell their vehicles back to Volkswagen – or drive cars that don’t meet the state’s air-pollution standards.

The air board’s solution would only affect California; it’s unclear what federal officials would do about the rest of the country. The U.S. Environmental Protection Agency, which is working with the air board on the Volkswagen investigation, declined comment Monday.

In any event, the prospect of a partial fix isn’t sitting well with environmentalists and health advocates, who say the tainted cars must be fixed completely or sold back to Volkswagen and taken off the road forever.

“They have to be either repaired or scrapped as quickly as possible,” said Will Barrett, senior policy analyst at the American Lung Association’s California office.

Absent a complete fix for the emissions systems, auto industry analysts said Volkswagen owners could be stuck with a difficult decision: Unload a car they love or stick with a vehicle whose resale value could tumble.

Air board officials, frustrated with Volkswagen’s apparent inability to completely fix the cars, said they’re struggling with how to proceed. Just the idea of allowing the cars to stay on the road if they aren’t 100 percent fixed goes against form for an agency that prides itself on establishing groundbreaking environmental protection standards.

“That’s a very serious thing for us to consider,” said Todd Sax, the agency’s chief of enforcement, in testimony last week before a joint hearing of the state Senate Transportation and Housing, and Environmental Quality committees. He said the agency is concerned about setting a poor precedent by allowing partially fixed vehicles to stay on the road.

“Our goal has been to fix the vehicles and return them to their certified configuration as expeditiously as possible,” Sax said. “Unfortunately, this may not be possible.”

Sax said the California agency might order Volkswagen to offer buybacks, but that would create problems of a different sort. He said many Volkswagen owners would like to keep their diesel vehicles, which are known for sharp handling and high fuel mileage. Sax said the state is wary of forcing owners to sell cars against their will.

Although the air board isn’t a consumer-protection agency, Sax said the agency is trying to determine “what’s best for the innocent consumers who bought these vehicles in good faith.”

For those who don’t want to sell, the air board might let Volkswagen “fix the vehicles to something less than full compliance,” Sax said.

In that case, Sax said, the state would require Volkswagen to pay additional fines to help fund various air-pollution programs administered by the air board. He said it’s too soon to say how much of a fine would be imposed on the automaker.

Volkswagen declined comment on the matter, other than to say it’s continuing talks with the California air board and the U.S. EPA “to identify a remedy as quickly as possible.”

The air board and EPA disclosed last fall that Volkswagen had admitted secretly equipping its diesel cars with software that operates the emissions controls when the vehicles are in the testing labs but shuts them off when the cars are on the road. Analysts say the emission-control systems can compromise the vehicles’ fuel economy and road handling.

After getting tipped off by West Virginia University researchers, engineers at the air board’s test lab in El Monte confirmed the existence of the rogue software, known as a defeat device. Officials said the cars have been spewing up to 40 times the allowable emissions of nitrogen oxide, a key contributor to smog.

The scandal affects 600,000 diesel Volkswagens, Audis and Porsches sold in the United States since 2009, including more than 80,000 in California. Audi and Porsche are Volkswagen subsidiaries. Volkswagen submitted recall plans, which were rejected in January by state and federal regulators as insufficient.

In an interview last week, air board spokesman Stanley Young said it appears Volkswagen can’t fix the problems by simply removing the defeat device.

“The emissions-control systems on these cars are highly technical and enormously complicated,” Young said. “In essence, the cars were designed around the defeat device. So it’s not simply a question of pulling the defeat device out.”

One thing motorists don’t have to worry about is passing smog tests.

“If the car’s running normally, it will pass smog tests,” Young said. “We couldn’t suddenly pull the registration for 80,000 cars. … While we are pursuing the settlement discussions, consumers will still be able to drive these cars.”

Nonetheless, Volkswagen owners have a big question to ponder: Should they accept a buyback offer from Volkswagen if the automaker is required to put that on the table? Even if the cars are deemed roadworthy by regulators, the notoriety from the diesel scandal might make it hard for consumers to resell them later, said Rebecca Lindland, a senior analyst at Kelley Blue Book.

“It puts them in a no-man’s land when they go to dispose of the car,” she said. “What I’m concerned with is what happens … when the consumer goes to sell it, goes to trade it in. That’s what I would be concerned about with a partial fix.”

Rick Niello, a Sacramento Volkswagen dealer, said consumers might be tempted by an offer that would refund the full price they paid for their cars. If they’re offered partial refunds, they might hold onto their cars.

“I know customers like the cars; that’s a fact,” said Niello, president of The Niello Co. of Sacramento. “They love the gas mileage and performance.”

Volkswagen owners are likely to receive some sort of monetary compensation from the automaker through the courts. More than 400 class-action lawsuits have been filed against the company. The cases have been consolidated in U.S. District Court in San Francisco. The U.S. EPA is also suing Volkswagen in San Francisco, demanding billions of dollars in penalties.

Dale Kasler: 916-321-1066, @dakasler