On September 18, 2015, the U.S. Environmental Protection Agency (EPA) and the California Air Resources Board accused Volkswagen of installing secret software on certain diesel engines that turned on pollution controls for yearly inspection sticker tests and shut them off during real-world driving. A few days later, VW admitted the same “defeat device” that switched the pollution controls on and off was installed in 11 million cars worldwide.
As a result, close to half a million cars in the United States put out 10 to 40 times more ozone-causing nitrogen oxide than American law allows.
Affected diesel models include:
· Jetta (Model Year 2009 – 2015)
· Jetta Sportwagen (Model Year 2009-2014)
· Beetle (Model Year 2012 – 2015)
· Beetle Convertible (Model Year 2012-2015)
· Golf (Model Year 2010 – 2015)
· Golf Sportwagen (Model Year 2015)
· Passat (Model Year 2012-2015)
Criminal Charges Likely
The German automaker will likely face significant legal problems, including potential criminal charges, arising from its admission that 11 million of its diesel vehicles sold worldwide contained software specifically designed to help cheat emissions tests. Its market value has already plunged almost $28 billion (about 30%).
More than half of U.S. states, including California, Texas, and New York, have launched a multistate investigation of Volkswagen to determine if it deceived consumers by selling “clean diesel” cars with software designed to circumvent emissions tests. Attorneys general for nearly 30 states and the District of Columbia are issuing subpoenas for company records.
The Clean Air Act allows for fines of up to $37,500 for each of the 482,000 suspect VWs sold in the United States, potentially totaling more than $18 billion.
At least one estimate of the cost to Volkswagen and its shareholders puts the total at approximately $54 billion, given fines both inside and outside the U.S. along with lost sales that result from the scandal.
Volkswagen Admits Mistakes Were Made
Volkswagen CEO Martin Winterkorn resigned, and Michael Horn, the head of the VW brand in the U.S. has said, “[o]ur company was dishonest with the EPA, and the California Air Resources Board and with all of you … and in my German words: We have totally screwed up. We must fix the cars to prevent this from ever happening again and we have to make this right. This kind of behavior is totally inconsistent with our qualities.”
Volkswagen faces daunting challenges in fixing the software that enables cheating on diesel engine emissions tests, a task that’s becoming more urgent because of growing anger from customers.
The company has already set aside $7.3 billion to pay for the scandal, but it’s likely to cost much more. VW will now not only have to bring its vehicles into compliance with American federal environmental regulations, it will also have to deal with diesel owners who paid extra for its cars, thinking they could help the environment without sacrificing performance. That’s in addition to a potential $18 billion fine in the U.S. and the cost of numerous class-action lawsuits alleging that VW’s cheating reduced the value of its customers’ cars.
Diminution in Value as a Cause of Action
Owners of these vehicles will likely face a severe decrease in their ability to use their cars and/or to resell them. To the extent that consumers conclude Volkswagen’s lies about “clean diesel” extend to its vehicles’ overall safety, the impact on future sales will be devastating.
Volkswagen owners may face the inability to drive their vehicles, so the value of their vehicles would then be worthless. Therefore, the company could simply buy back all of the vehicles installed with the faulty emissions software. Volkswagen is being pressured to write checks to owners for whatever price they paid for the vehicles in the first place, but its most likely action will be to offer to fix the cars with the aim of writing much smaller checks.
Fixes can include:
- A mandatory recall of the car to reprogram the engine. This could make the car less responsive, less fuel efficient, and less fun to drive.
- Adding an entirely new tank of chemical reagent, which then must be maintained and filled by the driver.