Volkswagen in US recall setback

Volkswagen has suffered a setback in its efforts to emerge from the 10-month-old emissions-cheating scandal as California regulators rejected a recall proposal for 85,000 diesel-powered vehicles, raising the prospect that the German carmaker will have to buy them back.

The manufacturer’s plan for fixing Volkswagen, Audi and Porsche models equipped with 3.0-litre engines rigged to cheat on emissions tests was inadequate, the California Air Resources Board has said.

The regulator, along with the US Environmental Protection Agency, will continue talks with Volkswagen in hopes of finding a fix, the board said in letters on Wednesday to Volkswagen executives and attorneys.

“It seems that a buyback is a definite possibility if there’s not a solution that makes them street legal,” Kelley Blue Book senior analyst Rebecca Lindland said.

A buyback of cars with 3.0-litre engines would mean re-buying luxury vehicles such as Audi’s top-of-the line A8 sedan and Q7 sport utility vehicle as well as Porsche Cayenne SUVs.

That could add another $2bn (€1.8bn) to $3bn to Volkswagen’s costs related to the cheating in the US, said Juergen Pieper, a Frankfurt-based analyst at Bankhaus Metzler. The rejection shows the scandal that emerged in September is far from over, despite last month’s landmark $14.7bn settlement covering 480,000 cars with 2.0-litre engines.

Volkswagen downplayed the risk. The board announcement was a procedural step under state laws governing recalls, spokeswoman Jeannine Ginivan said.

“We continue to work closely with the U.S. Environmental Protection Agency and the California Air Resources Board to try to secure approval of a technical resolution for our 3.0-litre TDI vehicles as quickly as possible,” Ms Ginivan said.

Volkswagen shares rose 2.4% at one stage yesterday. That pared the stock’s decline this year to 12%, compared to a 7% in the benchmark Dax Index.

The board has been in talks with the German company over the 3.0-litre engines since at least February 2, when the manufacturer filed its first “single, incomplete recall plan”, according to the agency’s letters.

Additional data submitted by Volkswagen as recently as June is also “incomplete” and “substantially deficient” for legal requirements, said the board.