Volvo keeps $780M reserve to address emissions system degradation problem

Volvo announced the discovery of the degradation issue in October, saying then that it likely affects engines for both the North American and European markets. The affected component is part of the exhaust after treatment system, also known as the selective catalytic reduction (SCR) system. These systems were implemented in nearly all Class 8 truck engines in the U.S. to meet 2010 emissions standards and have been in use ever since.

The company is still in the early stages of remedying the issue, said Claes Eliasson, head of media relations for the Volvo Group. The $778 million charge, taken in 2018’s fourth quarter, is “the calculated costs for Volvo Group for this issue,” he said.

Specifics as to the company’s plan for repairs or potential recalls, as well as what truck models are affected, are still being fleshed out, Eliasson said. “When it comes to remedies, we are still looking at options,” he said, adding the company is “engaged in dialogue with relevant authorities.”

“It’s too soon to say what it will look like,” he said.

The $778 million figure is based on vehicle testing and “statistical analysis and dialogue with relevant authorities,” Volvo said in a press release on Thursday. The company also noted that the emissions component degradation issue does not affect engine performance nor is it a safety issue. Also, the company said, the engines met emissions standards when they were built.

Cummins last July announced it had uncovered a similar component degradation issue within its SCR systems and instituted a voluntary recall of roughly 500,000 model-year 2010-2015 engines. Cummins also has set aside hundreds of millions of dollars for a repair campaign, according to financial filings.