Year two: VW scandal drags on

SEATTLE -- These days, Volkswagen executives talk more about winning back trust than market share.

It has been that way ever since the diesel emissions scandal cast the brand known for happy hippie-mobiles into a basket of deplorables, alongside Enron, Lance Armstrong and Bernie Madoff.

Yet as the scandal approached a milestone -- it has been one year since the EPA went public with a notice of violation and sales of VW's diesel cars were halted -- VW last week was entertaining a gaggle of car reviewers, journalists and bloggers here to show off the new Golf Alltrack wagon.

The timing reflects what VW's U.S. boss Hinrich Woebcken sees as the best way back for a beleaguered and scandal-tainted brand: "product, product, product."

"One thing which is great about your country is you guys give people who did a mistake a second chance," said Woebcken, the obscure German who was brought in from BMW to lead a restructured North American operation at VW and steer a U.S. turnaround. "I believe we have today, with that car, a good start for this momentum." 

Woebcken, whose affinity for the U.S. dates to his high school days as an exchange student in Rochester, N.Y., sees hope in that quintessential American characteristic and in the arrival next year of two critical cross-over models that are designed to appeal to American tastes. 

But that long-awaited run of fresh product will coincide with a messy new phase in the scandal: the public airing of details about the conspiracy to deceive the U.S. government and the cover-up that kept the deceit going for seven years.

For the better part of a year, VW executives have talked about the importance of "making things right" and repairing the damage. That effort is under way, and it has been costly.

VW will pay up to $10,000 to some 475,000 owners of 2.0-liter diesels under a deal announced by U.S. officials on June 28 to resolve consumer and deceptive advertising claims. Owners also have the option to sell their cars back to VW or wait for an emissions fix, an unprecedented consumer-redress plan that could cost VW up to $10 billion. Billions more will go toward environmental remediation and electric-vehicle initiatives.

If the agreement is approved at a Sept. 30 hearing, VW will have taken a big step toward closure. Dealers caught in the middle of VW's malfeasance are in line for relief, too -- a reported $1.2 billion in compensation.

But as the scandal enters year two, there are still big clouds swirling over the company. No settlement deal has been reached yet for owners of roughly 80,000 3.0-liter diesels, and regulators have yet to approve fixes for the 2.0-liter diesels.

And despite leaks, apologies, promises, shake-ups, investigations and news conferences galore, there isn't yet a comprehensive account, on the public record, of who was involved, what they knew, what they did and why.

By comparison, an independent investigation into General Motors' ignition switch fiasco in 2014 yielded a finished report within three months that not only documented the sequence of missteps by employees but took a piercing look at GM's flawed processes and dysfunctional corporate culture.

Volkswagen was quick to order an investigation, hiring the U.S. law firm Jones Day in late September 2015. But as the investigation dragged into a seventh month, the company reneged on a promise to release the interim results on the advice of its lawyers.

At the time, VW said Jones Day expected the investigation to be complete by the fourth quarter of 2016, but it hinted that it may not release details at all, deferring instead to a "detailed statement of facts" that usually accompanies the conclusion of Justice Department investigations.

Some of those facts are beginning to spill out, following the federal indictment of VW engineer James Liang. Liang, who worked at VW since 1983, pleaded guilty this month to federal conspiracy and fraud charges for his role in developing and covering up the diesel cheat software. Under a deal with prosecutors, he will cooperate with the government's ongoing criminal investigation into VW, paving the way for additional names and details to come out.

In the meantime, VW's insistence that the cheat was carried out by a small group of rogue engineers is showing some cracks. In filings made in a federal court in San Francisco, lawyers for VW owners charged that supplier Robert Bosch GmbH worked "hand in glove" with VW on the cheat software, alleging this month that both Bosch CEO Volkmar Denner and VW's then-CEO Martin Winterkorn had known about the defeat device since at least May 2014, despite earlier statements from both companies to the contrary. The Liang indictment mentions the role of a third company as well.

VW also is on the hook for Clean Air Act violations and potentially billions more in fines. Those charges could be incorporated into the Justice Department's criminal probe. Then there are additional lawsuits filed by a growing field of investors, U.S. states and municipalities that will keep VW in court and in headlines for many months more. And that's just in the U.S.

Into this maelstrom rides the Golf Alltrack, which will hit showrooms next month with some 40,000 units committed to the market next year, dealers say.

If VW sees product as its surest way out of the woods in the long run, the Alltrack will need help from some bigger buddies. In size and capability, it is a competitor to the Subaru Crosstrek, but its price and fuel economy align it more with the larger and taller Subaru Outback.

But when matched with the new midsize crossover and redesigned Tiguan compact coming next year, it will let VW compete in segments accounting for 60 percent of U.S. sales vs. just 40 percent today, Woebcken said, and give the brand a fighting chance.

Said Woebcken: "The product cadence is the biggest proof point VW will deliver to regain trust."