Friday, April 22, 2016

How Many VW Buybacks?

Diesel emissions problems will cost Volkswagen billions of dollars. One of the big questions that may determine how much the scandal costs the company is that of how many cars it will have to buy back. That remains an open question after an agreement in principle has been reached with U.S. regulators for 2-liter engines, which covers most of the recent diesel cars Volkswagen has sold in the U.S. This framework may eventually be extended to cover larger cars and trucks. Volkswagen will offer to buy back the cars, but it’s a choice for the buyers to make. How many owners will elect to sell their cars back?

The rate is hard to predict, and not just because the actual offer is months away and many of the details remain to be worked out. There are arguments to be made for and against selling your car into a buyback program. Some fraction of the cars will have mechanical problems that make owners more eager to unload then. If a car is working reliably, though, it is harder to give it up. Some VW diesel owners surely will feel they don’t have time to go through the complicated process of trading in their cars.

For VW owners who don’t want to sell their cars back, there may be an engine repair option. The details of the repair have not yet been designed or approved. If the repair is particularly robust, that may look like the better option. On the other hand, if the repair still falls short of emissions standards, that option might seem too risky. The details that are available so far aren’t enough to allow a Volkswagen diesel car owner to begin to weigh the various considerations involved. That also means we can’t meaningfully assess the cost to Volkswagen yet.