VW faces $18bn fine for false data

Published Sep 21, 2015

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Volkswagen has ordered an external investigation after US regulators found software the carmaker designed for diesel cars gave false emissions data, its chief executive said yesterday, adding he was “deeply sorry” for the violation of US rules.

“I personally am deeply sorry that we have broken the trust of our customers and the public,” Martin Winterkorn said in a statement published by the carmaker yesterday.

“Volkswagen has ordered an external investigation of this matter.”

The US Environmental Protection Agency (EPA) said on Friday that the software deceived regulators measuring toxic emissions, adding Volkswagen could face fines of up to $18 billion (R239.2bn) as a result.

“We do not and will not tolerate violations of any kind of our internal rules or of the law,” Winterkorn said, adding the company was fully co-operating with the relevant agencies. He gave no details on who would carry out the external investigation.

“This is not your usual recall issue, an error in calibration or even a serious safety flaw,” Bernstein analysts wrote in a note yesterday.

“There is no way to put an optimistic spin on this – this is really serious.”

Cynthia Giles, an enforcement officer at the EPA, said on Friday that the cars in question “contained software that turns off emissions controls when driving normally and turns them on when the car is undergoing an emissions test”.

The feature, which the EPA called a “defeat device”, masks the true emissions only during testing. When the cars are on the road they emit as much as 40 times the level of pollutants allowed under clean air rules meant to ensure public health is protected, Giles said.

“We have admitted to it to the regulator. It is true. We are actively co-operating with the regulator,” a spokesman for Volkswagen said yesterday.

Volkswagen could face civil penalties of $37 500 for each vehicle not in compliance with federal clean air rules. Some 482 000 four-cylinder VW and Audi diesel cars sold since 2008 are involved in the allegations.

If each car involved is found to be in noncompliance, the penalty could be $18bn, an EPA official confirmed on Friday.

Volkswagen peer Daimler, meanwhile, signalled it may not be subject to the same violation. “I have a rough idea of what is happening and that it does not apply to us,” Daimler chief executive Dieter Zetsche said yesterday in Hamburg. “But it is much too early to make a final statement on this,” he added.

Foothold

Volkswagen has struggled to gain a foothold in the US, the world's second-biggest car market, with a strategy built in part on touting the efficiency of fun-to-drive “clean diesel” vehicles now shown to be anything but.

“It’s a huge black eye for Volkswagen,”said Matt DeLorenzo, the managing editor for news at Kelley Blue Book in Irvine, California. Consumer Reports magazine reacted by suspending its “recommended” rating of two diesel models.

Diesel versions of the popular Beetle, Golf, Jetta and Passat comprise more than a quarter of the brand’s sales in the US and are a vital part of the firm’s strategy for meeting tougher US fuel economy standards going into effect in coming years. More than other carmakers, VW has chosen to focus on diesel technology instead of electrics or hybrids.

“They were counting heavily on diesels to meet the fuel- economy numbers,” DeLorenzo said. “This brings that whole strategy into question.”

Volkswagen admitted it sold 2009-2015 diesel Volkswagen and Audi cars with software that turns on full pollution controls only when the car is undergoing official emissions testing, the EPA said, calling the algorithm a “defeat device”.

During normal driving, the cars pollute 10 times to 40 times the legal limits, the agency estimated.

The EPA, working with the justice department, is likely to push for a stiff fine, because there are clear violations of the law and harm to the environment, said Margo Oge, the former director of the agency’s Office of Transportation and Air Quality. VW’s competitors were spending more money on systems to comply with the law and help the environment.

“My hope is the agency will send a strong message to the rest of the industry,” Oge said. “You want to make it clear that this isn’t acceptable.” The closest parallel to the Volkswagen case was a group of truck makers who used devices to suppress diesel-pollution controls to improve fuel economy, Oge said. That case, settled 15 years ago, resulted in fines of more than $1bn, she said.

The potential financial liability is unclear. But EPA allegations that carmakers violated environmental rules often are settled for far less than the maximum possible fine. Hyundai Motor Company and Kia Motors Corporation agreed last year to pay a $100 million civil penalty to resolve Clean Air Act violations based on their sale of more than 1 million vehicles that emitted more greenhouse gases than what they certified to the EPA.

Lawyers familiar with automotive law say the company could face criminal exposure if prosecutors agree with the EPA’s assertion about the defeat device. The Clean Air Act contains criminal provisions which apply to tampering with monitor devices, as well as making false statements to the EPA.

REUTERS AND BLOOMBERG

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