Diesel disaster: the Volkswagen fiasco explained in 8 questions

Volkswagen, the German automobile giant, has found itself in a world of trouble. Stocks have dropped, it's CEO has resigned, huge penalties lie ahead and the board is in crisis meetings. Not sure why? Let me break it down for you.

Wait, what's going on, I thought everyone loved Volkswagen?

You're not wrong in thinking that. Up until a few days ago, Volkswagen was doing just fine. In fact, Volkswagen produced the second highest number of cars last year (9.9 million), making Volkswagen the second largest automobile manufacturer after Toyota.

But it has all come crashing down thanks to some dubious emission systems installed in their diesel vehicles.

So what's the problem with these emission systems?

Volkswagen has been found to have installed emission systems in their diesel vehicles that cheat on emission tests. The software that governs this system turns on the cars full emission systems when the car is undergoing tests for toxic emissions, but turns off this system during regular driving.

That sounds bad, but how much of a difference could the software have made?

The actual measurements from a study funded by the International Council on Clean Transportation (ICCT) between 2012 and 2013 shows that the difference between emission levels during testing and regular driving were staggering - up to 15 to 35 times more than testing levels in some vehicles and between 10 to 20 times the testing levels in others.

Wait, you said research between 2012-2013? Why are we discussing this now?

This is where it gets interesting. The original studies were carried about by a small team at West Virginia University on a paltry $50,000 dollar grant from ICCT back in 2012.

Even though the study was over by 2013, the scientists didn't make their findings public all the way until 2014. In fact, they were so stunned by the discrepancies they found that they initially doubted their own findings and spent a while verifying them again. Finally, the US' Environment Protection Agency (EPA) took cognizance of the findings and decided to launch their own investigation which leads us to the present situation.

Okay, that makes sense, but what is the scale of the problem?

When the story first broke on Friday, 18 September, it was assumed that the problem was only limited to 4,82,000 diesel passenger vehicles sold by Volkswagen in the US since 2008. Since then, however, the company has admitted that the scale of the problem is much, much bigger. Apparently, all Volkswagen vehicles sold worldwide with Type EA 189 engines are affected by this. This amounts to a staggering 11 million cars across the globe.

That's ridiculous, surely they have to be penalised?

Oh yes they do, and how. When it was initially thought that the problem was only limited to vehicles in the US, the penalty from the EPA was already expected to be staggering.

The EPA alone was liable to fine Volkswagen $37,500 per vehicle for flouting air pollution norms. This would amount to an eye-watering $18 billion fine. For comparison, you could provide clean drinking water to every single person on the planet for $10 billion.

Even the GDP of all of Iceland is only $15-odd billion. To be fair though, companies rarely, if ever, pay the maximum fine possible. The company itself has set aside a fund of $7.3 billion dollars to deal with the situation. But even they seem to think it won't be nearly enough as evidenced by the fact that they've just hired the lawyers who defended British Petroleum after the Deepwater Horizon disaster.

God damn, that's gotta hurt, so how has this affected Volkswagen?

Naturally, when news like this breaks, a company's stocks are the first to take a hit, and take a hit they have. In fact, this is more of a body blow than a hit. 10 percent would be a hit. The 30 percent-plus hit they've taken since news broke has wiped $25 billion off the company's market value.

Regulatory agencies have also refused to certify new Volkswagen cars and newer models as fit for roads until proper testing has been done.

Volkswagen's CEO, Martin Winterkorn, has now announced his resignation following the scandal.

So what's the way forward?

Volkswagen will have to recall all the cars that have the cheating software. The researchers who initially found the problem have stated that they expect the fix to be something fairly minor. Volkswagen though, is yet to identify a solution.

Till one is found, the vehicles will remain on the road as they are safe to drive. Once a solution is found, Volkswagen has promised to recall all the vehicles with the software and fix the problem free of charge. As for their legal woes though, that's much harder to fix. In addition to the US, regulators worldwide will now be scrutinising Volkswagen and they are likely to face numerous class-action lawsuits across the globe.

Will the company remain standing once the dust (sorry, toxic emission) clears? Probably, though it will take a while to regain trust.