Dieselgate Scandal VW Taken to Court

In the latest twist to an ongoing scandal, the U.S. Justice Department has filed suit against German automaker Volkswagen over its "Dieselgate" emissions rigging. It is seeking tens of billions of dollars in penalties, accusing VW of impeding investigations and giving misleading information.
It's proving difficult for VW to clear the air.

VW's managers can't seem to get a break. One day before Herbert Diess, the head of Volkswagen's core brand, was set to appear at the Las Vegas Consumer Electronics Show to unveil new electric driving plans, the carmaker was handed yet another dose of bad news from U.S. authorities.

The U.S. Justice Department filed a civil lawsuit against VW on Monday. The complaint, filed in a federal court in Detroit on behalf of the U.S. Environmental Protection Agency, alleges that Europe’s largest automaker knowingly installed so-called defeat devices in almost 600,000 of its diesel cars in the United States. Some 11 million cars around the world carried the devices, VW has admitted.

In its 30-page complaint, the Justice Department said the charges carry fines of between $2,750 and $37,500 per car, per violation. Based on four separate violations laid out in the complaint, VW could theoretically face as much as $48 billion in penalties, according to Reuters calculations, which is higher than the $18 billion estimated when the scandal broke in September.

"This is the worst-case scenario, the most negative number possible, but these are more fictional amounts," said Sascha Gommel, chief auto analyst at Commerzbank in Frankfurt. "The likelihood that it will be so high is very, very low in my view."

Volkswagen preference shares fell to a 3-week low on the Frankfurt Stock Exchange, dropping 3.4 percent on Tuesday morning. The stock lost the most on the German blue-chip DAX index.

The United States will pursue all appropriate remedies against Volkswagen to redress the violations of our nation's clean air laws. U.S. Department of Justice

The U.S. prosecutors said their investigations “were impeded and obstructed by material omissions and misleading information provided by VW entities.” The Justice Department also left open whether it may pursue criminal charges against the carmaker.

"The United States will pursue all appropriate remedies against Volkswagen to redress the violations of our nation's clean air laws alleged in the complaint," Assistant Attorney General John C. Cruden, who leads the Justice Department's environmental and natural resources division, said in a statement.

Together with the California Air Resources Board, the U.S. Environmental Protection Agency uncovered the scandal in September. Both had been investigating VW since May 2014, but the carmaker initially “concealed facts that would have revealed the existence of the dual-calibration strategy," the U.S. prosecutors wrote in the complaint. In addition, “VW failed to come forward and reveal to regulators” that 3-liter engines also contained illegal software.

More than 500 lawsuits have already been filed by U.S. consumers and investors, who are demanding compensation for lower values of their cars or losses on VW shares. The U.S. Justice Department’s complaint creates extra uncertainty about how many billions VW will have to pay in the end to clear and settle the Dieselgate scandal.

Mr. Gommel, the Commerzbank analyst, said he expected a settlement could come later this year. One possible comparison: In BP’s 2010 oil spill disaster in the Gulf of Mexico, the U.S. Environmental Protection Agency could theoretically have handed out a fine of $13.7 billion but BP paid $5.5 billion in the end, Mr. Gommel said.

"In the end, it will depend on the negotiations between VW and the Department of Justice. It’s hard to make predictions based on other cases,” Mr. Gommel said.

VW has so far set aside €6.7 billion, or $7.3 billion, to handle recalls and repairs of the 11 million cars affected globally, but that amount doesn't include potential fines expected from U.S., British, European and other global regulators.

In response to the action, a Volkswagen spokesperson Monday evening said: “We will assess the complaint. We will continue to cooperate closely with the U.S. authorities.”

The complaint is directed at Volkswagen and its subsidiaries Audi and Porsche, which have also been found to have installed the cheat devices.

 

 

The complaint came a day before the head of the VW brand, Mr. Diess, was set to present the carmaker’s plans on electric driving and digitalization at the Consumer Electronics Show in Las Vegas on Tuesday.

VW’s chief executive, Matthias Müller, will visit Detroit next week to attend the North American International Auto Show. He is also expected to meet with U.S. politicians, though he has drawn criticism for not planning to meet with the EPA or other environmental authorities.

Both executives want to launch a new campaign to improve their reputation, which has suffered as a result of the diesel-emissions scandal. In the United States, VW sold 25 percent less cars in November compared with the same month a year earlier, while sales fell 20 percent in the United Kingdom.

Mr. Gommel of Commerzbank was skeptical about whether the VW executives’ visits to the United States would herald a new start for the automaker.

“They will probably again offer their excuses. I don’t expect much from the visit," he said, but added: “I do find it brave that Mr. Müller will visit the United States," noting there have been cases of managers' passports being confiscated in the past.

The Justice Department also said its civil filing does not preclude it taking other court action over the Dieselgate scandal. U.S. authorities could still file criminal charges against VW for its violations. Prosecutors in two German states are also investigating VW over violating German laws.

According to the U.S. complaint, 499,000 2-liter engine cars and another 85,000 3-liter engine cars in the United States are equipped with defeat devices that reduce emissions only during testing to meet the EPA's standards. During normal driving, the vehicles emitted much higher levels of toxins, violating U.S. laws.

The statement also noted that VW had so far failed to issue a proper plan to recall the affected cars in the United States. While VW has handed in plans to recall or fix the affected cars, the EPA and the California Air Resource Board have postponed a final decision on the proposal to mid January.

“We’re working on solutions, but we can’t discuss these publicly yet,” the VW spokesperson said.

"So far, recall discussions with the company have not produced an acceptable way forward," said Cynthia Giles, assistant administrator with the EPA's office of enforcement and compliance assurance in a statement. Discussions will continue even after the complaint has been filed, she added.

 

Franziska Roscher and Gilbert Kreijger are editors at Handelsblatt Global Edition in Berlin. Astrid Dörner is a Handelsblatt correspondent in New York. Christopher Cermak, an editor at Handelsblatt Global Edition, and Markus Fasse, who covers the German aviation and automobile industry for Handelsblatt, also contributed to this article. To contact the authors: [email protected], [email protected] and [email protected]