THE TIPPING POINT.

By Peter M. De Lorenzo

Detroit. Just when the industry was rolling along at a record pace and the grandiose plans of every auto manufacturer included large dollops of blue-sky prognostications and ever-increasing market share, the news that VW mislead everyone - including the EPA, its dealers, its customers and the German government - by proclaiming its vaunted “clean” diesels were the greatest thing since sliced bread, while intentionally skirting EPA verification tests by using ghost software that went undetected for years has sent the automobile industry into a tailspin.

Not only has the venerable VW brand been rocked to its core; the monumental repercussions from the swirling maelstrom of Sturm und Drang that has engulfed the German automaker has placed the entire automobile business under a guilty-until-proven-innocent microscope.

The auto industry here has barely distanced itself from the bitterness of two major bankruptcies that required bailouts from U.S. taxpayers and the lingering resentment associated with them. Add to this the more recent - and massive - punitive actions against Toyota and GM (with the latter involving gut-wrenching loss of life), and this industry’s reputation was already suspect, and with the perceived level of integrity at rock bottom.

And now this.

Automakers in general will have difficulty escaping the seething wrath of the regulatory agencies in this country, because they were already at odds with them to begin with. And now and for the foreseeable future the auto industry will have the screws put to them, as they pay for past transgressions – both real and imagined – at every turn.

Because of these jarring developments we are about to see a fundamental shift in this business that will alter the automotive landscape once and for all.

It might be hard to understand for some but to Germany and the German people its automobile industry is sacrosanct, a shining beacon of technical innovation and automotive superiority. The machines from Audi, BMW, Mercedes-Benz, Porsche and VW represent a huge source of pride to the nation. Make no mistake; the admission that VW cheated on diesel emissions tests and did so in such a calculated fashion is a national embarrassment, a severe blow to national German pride and disaster of monumental proportion.

Beyond the costs associated with this fiasco, which could be as much as $20 billion, it will alter the future technical direction of German automobiles, especially when it comes to the use of diesel power.

Will diesel go away? No. But the waning desirability of diesel power will become a thing. And with the prestige of the German automobile industry at stake, look for the German manufacturers to do what they do best, which is push the technical envelope and reach new heights of innovation. This means electrification will become the watchword and the future foundation of this industry, with all of the German manufacturers having already telegraphed their accelerated intentions in this regard. And this means that the U.S.-based automakers will be forced to keep up with advanced electrified products of their own.

In essence we have reached the tipping point in the development of the automobile, whereupon the internal combustion engine – though it will be around for many, many years to come in both traditional and hybrid applications – will give way to full electrification.

The Frankfurt Motor Show was filled with many futuristic examples of advanced electrification, the most striking of which were from Audi (the e-tron quattro) and Porsche, including the stunning Porsche Mission-E Concept.

(Porsche)

Innovation with technical excellence is clearly the only way out of this dire situation for the German auto industry. And I expect them to deliver a glittering array of breakthrough products that will lead the industry, with VW doing its part at the mainstream level. (I wouldn’t be surprised to see the all-electric VW Bulli Concept become a production reality - and soon.)

The all-electric Volkswagen Bulli Concept.

But that isn’t going to save VW and its dealers here in the U.S. in the short term, because not only did VW dupe the EPA, it betrayed its customers, destroying any residual goodness accumulated from its formative counter-culture days. Let’s not forget that VW marketers spent millions convincing import-oriented consumers in this country that it had discovered the Golden Unicorn, aka “clean” diesel (TDI) automobiles that were peppy and fun to drive while delivering great mileage. And they were, except now we know that it was a complete fraud, that the cars never met the emissions requirements. So not only did VW customers get screwed by “The Man” - the realization that “The Man” was in fact VW itself made it a thousand times worse.

This is such a fundamental breakdown in trust that the damage to the brand is incalculable at this juncture. I expect VW business in this country to take a severe hit, with many dealers who were already teetering on the brink financially to be forced to go under, with the associated lawsuits to come multiplying exponentially. It’s going to get a lot worse for VW here before it gets better, you can count on it. (Read more about this subject in "On The Table" -WG)

One thing that the powers that be at VW have managed to do right is to keep the Audi brand name out of this mess, but that’s not going to be the case much longer. Let’s not forget that the Audi luxury brand not only pushed “clean” TDI diesels, they pushed them under the guise of “Truth In Engineering.” And that’s a giant bowl of Not Good.

The “tipping point” for this industry was always coming, it wasn’t a matter of “if” but “when.” But this VW debacle has just accelerated its onset by a decade, at least.

And that’s the High-Octane Truth for this week.