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Volkswagen faces make or break start to 2016

New Volkswagen Group Chairman Matthias Mueller speaks to the media with Volkswagen Work Council head Bernd Osterloh and Lower Saxony Governor Stephan Weil (both not pictured) while standing at the assembly line of the Volkswagen factory on October 21, 2015 in Wolfsburg, Germany.
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New Volkswagen Group Chairman Matthias Mueller speaks to the media with Volkswagen Work Council head Bernd Osterloh and Lower Saxony Governor Stephan Weil (both not pictured) while standing at the assembly line of the Volkswagen factory on October 21, 2015 in Wolfsburg, Germany.

Volkswagen's (VW) supervisory board has taken bold steps in the final weeks of 2015 to put the diesel cheating scandal to rest.

But with two days to go before Christmas, I expect Santa has made his list, is checking it twice and sending a sleigh full of coal to Volkswagen's Wolfsburg headquarters.

That's because VW, despite winning over regulators in Europe, has failed to get the green light to fix nearly half a million cars in the United States with so-called defeat devices that are designed to cheat on nitrogen oxide emissions tests. If VW wants to go from "naughty to nice" in 2016, it must move with a laser-like focus to correct its original sin in the U.S.

VW met a November 20 deadline to submit a proposed technical solution to U.S. environmental officials. But one month on, the Environmental Protection Agency (EPA) and the California Air Resources Board (CARB) have yet to give the all clear.

VW CEO Matthias Mueller appeared visibly frustrated, voicing "impatience" with the EPA when I asked him earlier this month why an agreement had not been struck. But he refrained from disclosing any specific sticking points, largely blaming the delay on more stringent emissions standards in the U.S.

On Friday, the California Air Resources Board (CARB) agreed to extend a deadline for a decision on VW's fix to January 14. But time may not be on the automaker's side.

Each day that passes without an approved fix means additional pain for U.S. dealers who are struggling with stop-sale orders and inventory shortages. The lingering uncertainty also leaves the door open to additional legal action, with at least 500 lawsuits already pending.

Volkswagen recently picked compensation claims veteran Ken Feinberg to try to ease that legal headache. Drawing on Feinberg's experience with payments tied to September 9/11, the BP oil spill and General Motor's ignition-switch recall, VW hopes it can speed up the claims process. But Feinberg, too, faces a Sisyphean task until judgement is cast on the technical solution.

And what if the proposed technical fix fails to get a seal of approval on January 14? VW found an unlikely group of defenders in Tesla CEO Elon Musk and dozens of other green investors last week. They issued an open letter to CARB asking them to abandon plans for a VW technical fix altogether and instead urge the carmaker to "cure the air."

The five-step plan would require VW to invest more in research and development aimed at zero-emissions electric vehicles. Although that plan would boost Musk's ambitions to scale electric vehicle infrastructure, it does very little to alleviate VW's immediate woes.

VW's Mueller paid homage to Musk's home base in a press conference earlier this month, saying "you could say we need a little more Silicon Valley." Mueller's ambitions for a more innovative culture should be applauded, but it would be premature to talk about disruption until the U.S. clean-up is underway. Before Wolfsburg starts recruiting technology stars to reinvent the car, management must cure the patient. Until then, investing in VW is not for the faint of heart.