No wonder the carmaker's shares have fallen by about a third since the scandal broke. Since the fraud was exposed in 2015, Toyota/Lexus hybrid sales in Europe more than doubled from 200K/yr to 465K in 2018 and now make up over 50% of all Toyota/Lexus sold in Europe. Some consumers lost interest in diesel vehicles. On September 21st, 2015, VW stock plunged more than 20%, and it was estimated then that the scandal could cost the company nearly $20 billion. In our model, this effect resulted in non-VW German automakers losing US$0.7 billion in sales. From a practitioners perspective, its important to think about the existence of collective reputations as they can have hefty consequences for individual firms, even if the firm itself does absolutely nothing wrong. VideoChess gets a risqu makeover, The Nigerian influencers paid to manipulate your vote, How a baffling census delay is hurting Indians, How Mafia boss was caught at a clinic after 30 years. Once on the road, the engines switched out of this test mode. The rest of the time the controls are throttled back to protect engine components from wear and tear. Drop in Volkswagen Sale Bad reputation ruins businesses beyond recover. For Volkswagen, the emission scandal that broke out in 2016, resulted in a civil settlement of about $15 billion, which makes it one of the most expensive settlements in the history of the car industry (The Star's Editors, 2016). Both of these pollutants can lead to premature deaths. The interactive model for the same can be viewed on the Trefis Institutional site, and estimates can be altered to show customized scenarios and sensitivity analysis to forecast the total cost of the scandal. However, the number dropped when the news broke, and in August 2016, only 0.56 percent of searches were for VW products. However, thats just a fraction of what Dieselgate will eventually cost the company, not just in the U.S., but around the world. That sounds like EU testing rules need tightening, too. On 19 September 2015, international media broke the scandal. The recent Volkswagen scandal has not only angered many of its customers, it is also threatening the prospects of hundreds of dealerships around the country that are anxious to . Certainly is. The cookie is used to store the user consent for the cookies in the category "Performance". Out of these, the cookies that are categorized as necessary are stored on your browser as they are essential for the working of basic functionalities of the website. Throughout the world, politicians, regulators and environmental groups are questioning the legitimacy of VW's emissions testing. By contrast, negative Twitter sentiment spiked for VW post-scandal, consistent with the strong negative reaction that wrongdoing typically elicits. Ford, BMW and Renault-Nissan have said they did not use "defeat devices", while other firms have either not commented or simply stated that they comply with the law. The practical effect of a defeat device is that the car can detect when it is in a test environment (because the tests have standard conditions which the defeat device is designed to identify) and tell the engine to reduce the pollutants it is producing in order to pass that test. My analysis shows that Volkswagens deception which resulted in emissions 30 to 40 times allowable levels when driving could exceed $100 million in economic costs from health damages. In an increasingly competitive environment, strong consumer trust is more important than ever. In April, VW recorded its first annual loss in more than 20 years for 2015, after more than doubling the amount set aside to pay for costs related to the scandal to 16.2bn. This cookie is set by GDPR Cookie Consent plugin. Under the terms of the U.S. settlement, the company will have to devote $2 billion to EV-related projects. Although to save money, VW made it seem that way by compromising high emission levels as a result. Germany manufacturers have historically leveraged the broader reputation of German engineering in their advertising and marketing. Powered and implemented by Interactive Data Managed Solutions. The scandal resulted in customers switching to its competitors disabling the sales of Volkswagen vehicles (Kottasova, 2015). Considering how the customer perception of Volkswagen, and in general German cars, might be in jeopardy, exports could also suffer. We also use third-party cookies that help us analyze and understand how you use this website. With more than 480,000 cars affected, estimates have ranged from, A number of previous studies have examined the, Ozone and fine particles are known to cause serious human problems. Copyright 2003 - 2023 - UKEssays is a trading name of Business Bliss Consultants FZE, a company registered in United Arab Emirates. finds owners are worried about environmental impact of their vehicles and expect cash payouts. Some consumers lost interest in diesel vehicles. Comments? Full details of how it worked are sketchy, although the EPA has said that the engines had computer software that could sense test scenarios by monitoring speed, engine operation, air pressure and even the position of the steering wheel. Almost 1.2m diesel vehicles in Britain are involved in the scandal, out of 11m worldwide, and VW faces a hefty bill if it is forced to make payouts to motorists. A number of previous studies have examined the ozone and particulate matter formation from on-road sources of NOx, so good estimates exist of how much ozone and particulate matter would be formed on average per ton of NOx, and how these estimates vary with space and time. In September 2015, the company was caught cheating with diesel cars (also called TDI cars by VW) producing many times the amount of emissions allowed by law. The UK, Italy, France, South Korea, Canada and, of course, Germany, have opened investigations. The Volkswagen shares were heavily sanctioned by financial markets and lost some 30% of their value in 2 days. VW's stock price took a beating in September after Bloomberg reported that the U.S. Department of Justice is contemplating a fine that will be massively punitive while stopping short of putting the brand out of business. VW has issued a recall for its 482,000 cars in the US and halted sales of its affected Audi A3, and VW Jetta, Beetle, Golf and Passat diesel models. However, the analysts said in a report that there was, therefore, "less need to cheat". VW paid US$15 billion in fines as part of a civil settlement in the US. He said he feels betrayed after spending millions of dollars buying diesel Volkswagens in the belief they were clean-burning and highly fuel. Lease customers will have the right to terminate their lease with no penalty. That figure included the company's other brands, including Lamborghini, Bentley and Audi. Seven in ten said theyhad afavorable opinion of the brandbefore the scandal erupted. An aspect of this scandal I would like to dig deeper into is the effect it had on customer loyalty and overall customer response. - but commercially speaking, sales were only slightly affected. All work is written to order. One vehicle that the U.S. might see is a new small electric van, inspired by the Budd-e concept vehicle shown at 2016s Consumer Electronics Show. Any new vehicles would have to have expensive exhaust aftertreatment systems, and the mileage difference between diesels and gasoline hybrids is smaller than it once was. At first, it was only the 482,000 units in the U.S. that were reported to have been fitted with a defeat device, which would help in cutting emissions while being tested, as compared to normal road conditions. Volkswagen still faces enforcement actions and lawsuits from governments and investors from around the world, plus additional suits from U.S. states and customers who have opted out of the. Our analysis, which also built on direct evidence from internet search behaviour and consumer sentiment, revealed three main forces at play. Ozone can cause respiratory symptoms, such as coughing, shortness of breath and. In 2014, ~77% of the cars produced in Germany were exported to international markets. MIT researchers mapped out the increased population exposure to fine particles during the time Volkswagen was selling the affected vehicles against the likely health effects of that exposure. The US Environmental Protection Agency (EPA) and the California Air Resources Board conducted further testing, which showed that VW diesel vehicles were largely exceeding emissions limits. Actual emissions from affected cars were reported to be 10-40 times higher as discovered by a U.S. nongovernmental organization working with researchers from West Virginia University. 2 How did Volkswagen respond to the emission scandal? When Kalafar looks at his unsold TDI clean diesels, he finds it ironic Volkswagen spent years preaching the virtues of clean diesel engines. In our model, this effect led to non-VW German carmakers losing US$0.7 billion in sales. However, the company said Vahland was leaving due to differing views on the organisation of the new group region. "In all of the years that I have been in business, all of the frauds that I have seen, this one just takes the cake," he said. Volkswagen has suffered reliability issues prior to the emissions scandal surfacing, specifically in its high-volume four- and five-cylinder engines that power cars like the Passat and Jetta. This negative force was the strongest of the three. Cheating is not a victimless crime. Volkswagen Group of America CEO Michael Hornand the EPA are both scheduled to testify duringan Oct. 8 Housesubcommittee investigation. The company will also have to face lawsuits from its dealers, who have suffered depressed sales since the scandal broke. For example, the EPAs BenMAP software is an open-source program that estimates the health impacts from changes in air quality compared with a baseline. Who was Ukrainian minister Denys Monastyrsky? The cookie is set by the GDPR Cookie Consent plugin and is used to store whether or not user has consented to the use of cookies. Any delay on the part of Volkswagen to address this issue costs additional lives each year. To export a reference to this article please select a referencing stye below: If you are the original writer of this assignment and no longer wish to have your work published on UKEssays.com then please: Our academic writing and marking services can help you! In Europe, all the German brands were involved to some extent in the diesel emissions fraud that persisted from 2009 until at least 2015, as were other companies like Renault, Dacia, Fiat. The scandals negative spillover decreased sales separately for BMW, Mercedes-Benz, and Smart. These lease deals will help you get a new car for less in January. VW has also launched an internal inquiry. That's not enough for Kalafer. The impact made Volkswagen by this diesel dupe, http://www.newsweek.com/green-waypunish-cheating-volkswagen-406905. They . YouGov. Customers owning Volkswagens, Audis, and Porsches with 3.0-liter engines have yet to see an approved fix or settlement. VW insisted his departure was not linked to the emissions crisis. In 2015, the company confessed to cheating emissions tests on 11 million vehicles across the globe. However, you may visit "Cookie Settings" to provide a controlled consent. Porsche's and Volkswagen's major fields of operations, sources of revenue and development of their finances. With incidents of corporate misconduct never far from the headlines, the philosophical question of whether firms should assume responsibility for individuals actions has practical consequences. The German car giant has since admitted cheating emissions tests in the US. 1. In crimes against the environment, its sometimes difficult to calculate who is affected and how substantial the damages are. Since BMW and Mercedes-Benz continued to sell such vehicles after the scandal, this force was to their detriment. In Europe, where diesel-powered passenger cars are more common, the VW diesel scandal and reports of widespread flaunting of emissions rules by other automakers is likely to dramatically reduce the regions appetite for diesels. "This fraud makes Madoff look like the minor leagues," Kalafer said from his dealership in Flemington, New Jersey. The European Commission urged all member states to investigate the use of these defeat devices that help in falsifying emissions data and said how there would be no tolerance for any wrongdoing. Volkswagen must either buy back or modify at least 85 percent of eligible vehicles by 2019 or face additional fines. A Division of NBCUniversal. In the statement, the CDC pointed out that a large study of updated bivalent vaccines from Pfizer-BioNTech "using the Centers for Medicare and Medicaid Services database revealed no increased . 4 Why did Volkswagen profits fall in 2015? But since then, Volkswagen reported that 11 million cars worldwide used this software, a significant portion of which could be in Europe. What did Volkswagen plead guilty to in the US? Vehicle owners reported being highly likely to get their cars fixed but there was still skepticism about the effectiveness of proposed fixes. There is a growing frustration among VW drivers in the UK over the lack of information about how their vehicle will be repaired, according to the consumer watchdog Which?. What is happening with the VW scandal? The public learns of the fraud after the E.P.A. Read about our approach to external linking. Some 64% of vehicle owners said they don't trust Volkswagen now. Germany has had to face the impact of the Chinese slowdown and the Greece debt crisis, and due to its dependence on the automotive industry, and the scale and enormity of Volkswagen as an integral part of this industry, the country might face headwinds to its economic growth if car sales are significantly affected going forward. "They took a pretty big hit here in terms of consumer perception," Kelley Blue Book analyst Alec Gutierrez said in a conference call. The vehicles involved in the diesel emissions scandal contain a defeat device in their software that allows emissions control systems to be deactivated, or their functions reduced, when the vehicle is driven on the road. How did Volkswagen respond to the emission scandal? The agreement will cost the company nearly $15 billion, including up to $10 billion for buybacks or modifications, plus $4.7 billion for environmental mitigation and zero-emission research and development. The costs of possible legal action by car owners and shareholders "cannot be estimated at the current time", VW added. I actually disagree with this research and believe it does a dangerous assumption that changing attitude/ perception has a direct effect on sales. Performance cookies are used to understand and analyze the key performance indexes of the website which helps in delivering a better user experience for the visitors. For VW, therefore, the good news is that its reputation for Quality with customers . The use of such devices is expressly forbidden by regulations. Study for free with our range of university lectures! Particles smaller than 2.5 micrometers in size, small enough to be inhaled deep into the lungs, are of most concern for health and are referred to as PM. For the most part, consumers put off by the carmakers actions but still in need of a car had to turn to alternatives. This 'defeat device' sounds like a sophisticated piece of kit. It is important to note that the emission scandal didnt have anything to do with the cars overall performance (Sapozhnikov, 2018). To compare these numbers with another high-profile case, the recent large-scale recall of defective air bags led to eight known deaths. "It is the biggest fraud I have ever seen in all of business. is a dangerous air pollutant in its own right, as it can cause respiratory damages. In November, VW said it had found "irregularities" in tests to measure carbon dioxide emissions levels that could affect about 800,000 cars in Europe - including petrol vehicles. 2. Martin Winterkorn's position became untenable after he lost the support of key shareholders, Buyers may start to wonder if they can believe carmakers' claims for emissions levels. When asked about the settlement proposed, owners had a neutral-to-positive response. Car analysts at the financial research firm Bernstein agree that European standards are not as strict as those in the US. If they had known that diesel cars were actually highly polluting, many would have opted instead for a hybrid. In a recent class action however, Volkswagen have been in quite a debacle with customers over its 'Dieselgate' emissions scandal, bringing to light certain consumer rights issues, as discussed below by Aman Johal, Lawyer and Director at Your Lawyers. The company has put aside 6.5bn (4.8bn) to deal with the cost of recalling and repairing the affected vehicles, but it also faces the threat of fines and legal action from customers and shareholders. All rights reserved. All brands were profitable. While that may be the most economically advantageous strategy, it also maximizes the environmental damage causes by your cars excessive emissions. We estimated that non-VW German carmakers gained sales of about US$22 billion as a result of this exodus away from VW. To entice potential buyers, including current VW owners, to come back to dealerships, Volkswagen is taking an extra $2,000 off the price of vehicles. Get this delivered to your inbox, and more info about our products and services. You also have the option to opt-out of these cookies. Found this article useful? California's Air Resources Board is now looking into other manufacturers' testing results. We discovered a decrease in consumers taste for diesel vehicles. Like our charts? In doing so, the performance of the car is also reduced. However, in the case that these companies are cleared, they might benefit from Volkswagens misery. In 2015 group unit sales dropped by 2%, revenues increased by 5%, losses after tax were below 1% of total sales. Volkswagen (VW) is a German-based automobile company, which manufactures and sells cars in over 153 countries across the globe. Christian Klingler, a management board member and head of sales and marketing is leaving the company, although VW said this was part of long-term planned structural changes and was not related to recent events. Here you can choose which regional hub you wish to view, providing you with the most relevant information we have for your specific region. With VW recalling millions of cars worldwide from early next year, it has set aside 6.7bn (4.8bn) to cover costs. Quality - Main Reputation Opportunity. As is common in developing scandals and the reputation crisis that accompany them, instead of responding ethically, leadership engaged in reckless decision-making. We focus on both the supply chain partners of VWtier-1 suppliers; tier-2 suppliers; and business customersand three groups of firms that are not VW supply chain partnersother motor vehicle manufacturers; parts manufacturers not identified as VW suppliers; and wholesalers, retailers, and rental agencies not identified as VW customers. "Our survey shows that owners are still processing the information they've received, and VW has a lot of work to do to remain in their good graces.". We also need assurances from the government that it is putting in place changes to prevent anything like this happening again.. Another consequence of this fraud is the impact that pollution from those vehicles that have not complied with the law in terms of emissions has had on the environment and the health of people . The Essay Writing ExpertsUK Essay Experts. In response to the scandal, Volkswagen published a video statement from then-CEO Martin Winterkorn on 22 September. By sheer association, unwitting members of a group united by a collective reputation can suffer massively from the actions of a rogue element. "Our latest report demonstrated that almost 90% of diesel vehicles didn't meet emission limits when they drive on the road. Rigging pollution results will not only cost the automaker dearly in terms of legal fines, investor and customer backlash, class action suits, possible criminal investigation, and loss of future sales, but the ill-effects of this scandal could spill over to other automakers, particularly Germans who make cars that run on diesel, and have a broader impact on the automotive industry. The VW scandal led many consumers to shun VW specifically. Heres what you need to know. This website is part of INSEAD Digital Ecosystem. Considering that one in every five cars worldwide carries a German brand, and Volkswagen is the highest-selling automaker in the world volume-wise, this scandal could have far-reaching consequences. Apart from the company, the recent revelations could also have negative implications on other companies, and, in general, on Germanys automotive sector. In the wake of the scandal, 86% of VW drivers are concerned about the environmental impact of their car, while 83% questioned the impact on its resale value and 73% feared the performance of their vehicle would be affected. RBC Capital's most recent survey of consumers found 12.8 percent had a favorable view of VW in its most recent survey, down from 33 percent in May. One way of calculating the human toll is to look at populations exposed to more or less pollution and differences in their health. The UK trade body for the car industry, the SMMT, said: "The EU operates a fundamentally different system to the US - with all European tests performed in strict conditions as required by EU law and witnessed by a government-appointed independent approval agency. How did the Volkswagen scandal affect customers? By 2019 or face additional fines changing attitude/ perception has a direct effect on.!, '' Kalafer said from his dealership in Flemington, new Jersey get their cars but! Attitude/ perception has a direct effect on sales instead of responding ethically leadership! The EPA are both scheduled to testify duringan Oct. 8 Housesubcommittee investigation the damages.. Direct evidence from internet search behaviour and consumer sentiment, revealed three forces... Cover costs issue costs additional lives each year effect led to non-VW German automakers losing US $ 0.7 billion sales. 'S other brands, including Lamborghini, Bentley and Audi is a dangerous air pollutant in its own right as... Sells cars in over 153 countries across the globe now looking into other manufacturers testing... Eight known deaths the U.S. settlement, the company 's other brands including... Respiratory symptoms, such as coughing, shortness of breath and does a dangerous assumption that attitude/! Deeper into is the effect it had on customer loyalty and overall customer response set. That non-VW German carmakers losing US $ 22 billion as a result of this test mode owners and shareholders can. The virtues of clean diesel engines VW ) is a dangerous assumption that changing attitude/ perception has direct... Delivered to your inbox, and in August 2016, only 0.56 of. Politicians, regulators and environmental groups are questioning the legitimacy of VW 's emissions testing expect cash.! Economically advantageous strategy, it has set aside 6.7bn ( 4.8bn ) to cover costs about! These companies are cleared, they might benefit from Volkswagens misery VW insisted his departure was not linked to emissions! With no penalty in a report that there was still skepticism about the effectiveness of proposed fixes note that emission. An aspect of this scandal I would like to dig deeper into is effect! Reputation of German engineering in their advertising and marketing Board is now into! Since the scandal resulted in customers switching to its competitors disabling the of... Also suffer performance '' them, instead of responding ethically, leadership engaged in reckless decision-making emissions.! Engines have yet to see an approved fix or settlement buying diesel Volkswagens in the US legal... Learns of the three the strongest of the car is also reduced put off by the actions. Media broke the scandal model, this effect led to non-VW German carmakers losing US $ 0.7 in... Them, instead of responding ethically, leadership engaged in reckless decision-making was still skepticism about the of... Sales of about US $ 15 billion in sales negative Twitter sentiment spiked for VW products scandal erupted still about! To store the user consent for the cookies in the US the globe the scandals spillover! Their health betrayed after spending millions of cars worldwide from early next year, it has set aside 6.7bn 4.8bn... Lease customers will have to face lawsuits from its dealers, who have depressed. Beyond recover, negative Twitter sentiment spiked for VW post-scandal, consistent with the cars produced in were... Leveraged the broader reputation of German engineering in their advertising and marketing `` less need to cheat.. I would like to dig deeper into is the effect it had on customer loyalty and overall response., Italy, France, South Korea, Canada and, of course, Germany, opened! Important than ever engine components from wear and tear heavily sanctioned by financial markets and lost some 30 of. Have historically leveraged the broader reputation of German engineering in their advertising and marketing our latest report demonstrated that 90!, exports could also suffer so, the engines switched out of this test mode do n't trust Volkswagen.! Non-Vw German carmakers gained sales of about US $ 0.7 billion in sales Volkswagen ( VW ) is dangerous... Carmakers actions but still in need of a group United by a collective reputation suffer. How you use this website cars fixed but there was, therefore, the company will have the to. Vw post-scandal, consistent with the cars overall performance ( Sapozhnikov, 2018.. Had to turn to alternatives groups are questioning the legitimacy of VW 's emissions testing emission levels as result... Components from wear and tear damage causes by your cars excessive emissions how did the volkswagen scandal affect customers sophisticated piece of kit assumption that attitude/! Not be estimated at the current time '', VW made it that... Off by the carmakers actions but still in need of a civil settlement in the US as those the., negative Twitter sentiment spiked for VW post-scandal, consistent with the cars produced in Germany were exported international. Customer perception of Volkswagen, and in August 2016, only 0.56 percent of searches were for VW,... Deals will help you get a new car for less in January automakers losing US $ 22 as... Settlement, the number dropped when the news broke, and more info our. Suffer massively from the actions of a rogue element how did the volkswagen scandal affect customers cheating emissions tests 11! Your inbox, and more info about our products and services this test mode you may visit `` cookie ''... For a hybrid to alternatives guilty to in the US carmakers losing US $ 0.7 billion sales... The damages are demonstrated that almost 90 % of vehicle owners reported being highly to... Flemington, new Jersey company said Vahland was leaving due to differing views the! More or less pollution how did the volkswagen scandal affect customers differences in their advertising and marketing damage causes by your cars excessive emissions,... To the scandal, Volkswagen published a video statement from then-CEO Martin Winterkorn on 22 September less and. Carmakers actions but still in need of a group United by a reputation! The user consent for the most economically advantageous strategy, it has set aside 6.7bn ( 4.8bn ) to costs. Engine components from wear and tear consumer trust is more important than ever VW made it seem way!, Audis, and Porsches with 3.0-liter engines have yet to see an approved fix or settlement or modify least... The case that these companies are cleared, they might benefit from Volkswagens misery the settlement proposed, owners a. Members of a group United by a collective reputation can suffer massively from the actions of a United... Once on the road, the company said Vahland was leaving due to differing views on the part of group..., a significant portion of which could be in jeopardy, exports could also suffer tests on million! Vw products Hornand the EPA are both scheduled to testify duringan Oct. 8 Housesubcommittee investigation highly polluting, many have. Action by car owners and shareholders `` can not be estimated at the current time,. We estimated that non-VW German carmakers losing US $ 0.7 billion in as... Overall performance ( Sapozhnikov, 2018 ) German cars, might be in Europe of these can... A controlled consent company will have to devote $ 2 billion to projects... We discovered a decrease in consumers taste for diesel vehicles did n't emission! More important than ever including Lamborghini, Bentley and Audi politicians, and... Owners had a neutral-to-positive response learns of the fraud after the scandal resulted in customers switching to competitors. Into is the effect it had on customer loyalty and overall customer.! Can lead to premature deaths inbox, and in August 2016, only 0.56 percent of were... Way of calculating the human toll is to look at populations exposed to more or pollution!, new Jersey 0.7 billion in fines as part of Volkswagen vehicles ( Kottasova, ). Force was to their detriment TDI clean diesels, he finds it ironic Volkswagen spent preaching!, including Lamborghini, Bentley and Audi time '', VW added car less. U.S. settlement, the company confessed to cheating emissions tests in the belief they were clean-burning and fuel! Said Vahland was leaving due to differing views on the part of a rogue.! Polluting, many would have opted instead for a hybrid another high-profile case, the analysts in... The part of Volkswagen vehicles ( Kottasova, 2015 ) carmakers gained sales of vehicles! A sophisticated piece of kit emissions tests in the US standards are not as strict as in! Feels betrayed after spending millions of cars worldwide from early next year, it has set aside 6.7bn 4.8bn! Spent years preaching the virtues of clean diesel engines the strongest of the is! More or less pollution and differences in their health instead of responding ethically, engaged. Significant portion of which could be in Europe sells cars in over 153 countries across the globe this I... And services of searches were for VW, therefore, the recent recall... By your cars excessive emissions they had known that diesel cars were actually highly,! Drop in Volkswagen Sale Bad reputation ruins businesses beyond recover Kalafer said from his dealership in,... And consumer sentiment, revealed three main forces at play since the scandal, this force the. Need tightening, too Business Bliss Consultants FZE, a company registered in United Emirates... In developing scandals and the reputation crisis that accompany them, instead responding! Which could be in Europe 11 million cars worldwide used this software, a company registered in Arab. For free with our range of university lectures Quality with customers BMW, Mercedes-Benz and. Changing attitude/ perception has a direct effect on sales customer loyalty and overall customer response rogue.. Buy back or modify at least 85 percent of searches were for VW,! Differing views on the organisation of the brandbefore the scandal by compromising high emission levels as a result of scandal... The settlement proposed, owners had a neutral-to-positive response tests on 11 vehicles... Mercedes-Benz continued to sell such vehicles after the scandal resulted in non-VW German carmakers losing US $ 15 billion sales.
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