How Will Volkswagen Cheat Scandal Affect Korea?

      September 22, 2015 12:22

      German automaker Volkswagen has been found to have installed software to cheat on emission tests in five diesel cars, forcing it to recall nearly half a million vehicles.

      Three of the five models -- the Audi A3, Volkswagen Jetta and Golf -- have been in showrooms in Korea since 2009 with sales totaling around 60,000 vehicles. But even if Volkswagen installed the same software in models sold here, recalls are unlikely due to conditions in the Korea-EU free trade agreement.

      The U.S. Environmental Protection Agency has ordered Volkswagen to recall 482,000 cars that were equipped with the cheating software. If found guilty after an ongoing investigation, Volkswagen could pay up to US$18 billion in fines, according to the EPA.

      The EPA has refused to permit sales of and Volkswagen has halted U.S. sales of diesel cars.

      The Environment Ministry here said Monday it would investigate the latest imports but not models that have already been sold.

      There are two reasons for this decision. First, the Korea-EU FTA stipulates that Korea will adhere to European emission standards for diesel cars, and the EU plans to apply strengthened standards only on diesel cars sold after September 2017.

      A ministry official said, "Excessive emission levels emerged as a problem for most European diesel cars several years ago. Automakers delayed adhering to strengthened regulations until 2017 so they could come up with the technology." As a result, it will be difficult for Korea to impose restrictions on European diesel cars until September 2017.

      The second reason is fear of a trade dispute. If Korea steps up to enforce emission standards at the risk of violating the FTA, the EU may take similar steps to crack down on Korean-made diesel cars sold in Europe.

      "Diesel cars made by Hyundai also have problems with excessive emission levels when traveling at high speeds," an official said. "We could end up facing a recall of millions of Korean-made diesel cars in Europe."

      But the scandal could benefit Hyundai and Kia in terms of sales. Volkswagen sold 405,202 cars in the U.S. from January to August of this year to rank ninth in market share. Hyundai and Kia are ranked seventh and eighth. Hyundai's i30 hatchback and Tucson small SUV and Kia's Sportage small SUV compete with Volkswagen's Golf and Tiguan.

      A staffer at Hyundai said, "Volkswagen is our closest competitor in the U.S. and sales of the new Avante and Sportage should increase while Volkswagen halts sales of affected models."

      The tarnished image of Volkswagen's diesel cars is expected to add luster to Korean-made rivals.

      The German automaker has deleted all publicity clips for the diesel cars on YouTube. But a Volkswagen spokesman here claimed that diesel cars sold in Korea have different parts and settings from models sold in the U.S.

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