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Will Volkswagen Repair Both Software & Hardware of Cars?

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Volkswagen AGVLKAY will have to fix the pollution control system problem in 11 million vehicles by making changes to software as well as hardware, per reports. However, this solution may reduce fuel efficiency and vehicle performance and may also escalate maintenance costs for vehicle owners.

A former executive of the company believes that a software alteration is necessary, rather than a hardware one, to make the vehicles comply with U.S. emission standards. On the other hand, U.S regulators believe that the German automaker may need to develop two sets of solutions for the two different emission-control systems which have been installed in 482,000 U.S. diesel vehicles of model years 2009-2015.

Volkswagen has been very much in the news after the Environmental Protection Agency (EPA) revealed that the company had developed a software algorithm to deceive U.S. emission tests. Meanwhile, the company has admitted that its diesel vehicles are installed with software which makes the engines appear to have low emission levels during tests. According to the EPA, Volkswagen vehicles emit nitrogen oxides, or NOx, at almost 40 times the standard amount.

Volkswagen had installed the software in late 2008, on 2.0-liter four-cylinder turbo-diesel engines fitted with devices known as lean NOx traps. This device reduces nitrogen oxides in engine exhaust. Nitrogen oxide emissions lead to smog, acid rain as well as serious health concerns like lung cancer. The EPA believes that the vehicles of model years 2009-2014 with lean NOx traps will take a longer time to fix.

Meanwhile, Volkswagen believes that the older vehicles will be able to comply with the emission standards after the software problem is solved. Also, these vehicles do not require any hardware installation, which usually takes longer and is also an expensive affair.

In 2012, Volkswagen had installed the 2.0-liter four-cylinder turbo-diesel engines with a sophisticated and expensive emissions control system called Selective Catalytic Reduction. These systems inject a liquid urea solution into the exhaust in order to break down the nitrogen oxides. Notably, these systems are installed in the Passant models. However, the software in these vehicles turns the systems off during driving.

Volkswagen currently carries a Zacks Rank #3 (Hold). Better-ranked stocks in the same space include Meritor, Inc. MTOR , Daimler AG DDAIF and Superior Industries International, Inc. SUP . All these stocks sport a Zacks Rank #1 (Strong Buy).

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DAIMLER AG (DDAIF): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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