Dealerships, which generally benefit from recalls that bring customers into their stores, stand to lose a lot more than they gain from the massive recall that has been triggered by the Volkswagen emissions scandal.
Car recalls have become all too familiar to U.S. drivers with millions of vehicles affected in recent years for everything from minor hiccups to the deadly General Motors Co. GM, +1.89% ignition-switch recall. Car makers foot the bill for recalls and the only cost for consumers is their time. For dealerships, recalls are usually an opportunity to get customers into their showrooms where they can persuade them with extra services or a new car.
But that is not the case for VW. Volkswagen VW, +1.90% VLKAY, -2.88% is going through a massive scandal and its recall targets car owners who may not want their cars fixed, afraid of losing out on fuel economy and performance. The recall may leave U.S. dealers with a large inventory of cars that they won’t be able to sell anytime soon.
Adding to the pain, Volkswagen hasn’t told dealers and consumers how exactly it will fix the problem. Some are not even sure a fix exists for at least some the diesel engines involved in the recall. There are multiple generations of the diesel engine involved, with multiple country-specific variations. The company has said that a software update might be all it takes for some cars, but others may require new parts.
The company has launched a recall of nearly half a million diesel cars sold in the U.S. after it conceded it used software to foil emissions standards. Volkswagen has said the recall will start in January, after German and U.S. authorities review and approve the proposed fixes.
VW has said it would take a $7.3 billion charge to pay for the repairs, and, in preparation for the onslaught of servicing as well as class-action lawsuits that are already popping up, said its investment plan of 86 billion euros ($97 billion) was under review.
A recent thread on VWVortex.com, a site for VW enthusiasts, asked how much of a performance and fuel-economy “penalty” would be acceptable to VW owners affected. Most of those informally polled choose the option that said “None—I won’t fix it even if there is only a 1% reduction.”
Elsewhere on the site, a few owners expressed the same sentiment, and owners of gas-powered VWs also worried the scandal will affect the resale value of their cars.
Kelley Blue Book states that the Beetles, Passats, Audi A3 and other VW vehicles involved in the scandal had lost 13% of their resale value from Sept. 1 to Oct. 2. This is highly unfortunate for VW diesel car buyers who paid a premium for the “clean diesel” vehicles.