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The US Government takes on Volkswagen. But how big will the fine be?

With the lawyers circling, Paul Horrell ponders how much VW might have to pay

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The US Government has slammed the Volkswagen Group with a massive legal action over the emissions scandal. If successful, huge fines could hit VW. But there are so many variables it’s impossible to predict the amounts, and the legal battle could take years to resolve.

Critically, the suit aims to rule out any mitigation by VW that the cheating was the work of a few maverick engineers, and that the company as a whole acted in good faith. The suit says “VW… knew or should have known that the software logic/calibrations were installed…”

The lawsuit, a civil complaint, has been filed by the US Department of Justice, on behalf of the Environmental Protection Agency (EPA). It refers to cars sold in the US - nearly half a million 2.0-litre diesel VWs and Audis since 2008 - and a further 80,000 3.0 V6 diesel VWs, Audis and Porsches.

The suit seeks fines on four different grounds.

First is that the cars ran different and more NOx-emitting software when on the road compared to the official test, and that this meant they didn’t meet their Certificates of Conformity. And it’s illegal to sell a vehicle without one of those. Maximum fine $37,500 (£25,500) per car sold.

Second is that VW was selling components that acted as defeat devices. Not the cars per se, but the defeat devices. Which are illegal. Maximum fine $3,750 (£2,550) per component, per car.

Third, that with these cars in use, every time they ran on the road they were in effect tampering with their emissions control equipment, and VW caused it. The fine for tampering is, again, up to $37,500 per car.

And finally, that VW failed to disclose all the above violations. Failure to disclose is subject to a fine of up to $37,500 per day. Remember this goes back to 2008.

Now, would a US court actually hit VW for all these fines on some 600,000 cars? Of course not. In fact the maximum fine applies only to the first 10 cars, and then declines on a sliding scale for the rest of the cars sold.

It’s clear that if the court were to start piling up every possible individual violation – even if they are just different ways of expressing the same basic offence – then VW would be facing one of the biggest fines in history.

VW certainly didn’t help its case by foot-dragging in working with the EPA after the scandal broke. When the 2.0 diesel software issue was exposed, the EPA then started looking at the 3.0 diesels. It found a different defeat device. The EPA issued a ‘notice of violation’ over this piece of code.

At this point VW, having already publicly promised the utmost transparency, specifically denied that there was anything wrong with the 3.0 engine. It later had to cave in and admit that engine too was a cheat.

So there is a lot of anger in US Governmental circles, not just about VW’s cheating, but about its failure to co-operate with investigations since. VW simply says it has its own investigation under way in Germany and will reveal all when that’s finished.

If the US Government and legal system is angry, it doesn’t seem likely the judiciary will be lenient in doling out the fines.

Meanwhile VW has no recall programme arranged in the US. VW has submitted an engineering fix to the EPA, but the EPA has not approved it yet.

For the 2.0 diesel owners in the US, VW is giving away a ‘Goodwill Package’ consisting of a Visa card preloaded with $500 (effectively $500 cash) and a $500 dealer token, as well as three years’ roadside assistance.

Interestingly, the terms and conditions say this: “Affected customers eligible for the Goodwill Package are not required to waive their rights or release their claims against Volkswagen”. So it won’t actually inoculate VW against compensation suits from owners.

In the end, VW might well have to buy some cars back and scrap them. Respected analyst Bernstein Research puts the cost to VW of buying them all at $7 billion (£4.5 billion). If that gets them out of potentially huge compensation claims, it could look like good value to VW’s accountants.

Even before the Department of Justice suit was announced, analysts at UBS bank put the long-term damage to the VW Group at £25 billion over the next four years. A shocking amount to you and I, but in context of VW’s profits, it’s more-or-less affordable.

In Europe, things are looking up for VW. The recall programme is approved by the authorities. And the cost for fixing each vehicle, involving at most an hour’s workshop time, is comparatively low. Meanwhile VW’s new car sales are almost back to pre-scandal levels.

Although the US has a far smaller number of vehicles affected – 600,000 versus 8.5 million in Europe – the costs per car will clearly be much higher over there. And harder to estimate, because the total will be made up of so many court cases, fines by different national and state agencies, and compensation cases.

The whole business has been bad for air quality and bad for VW, but it’s sure going to be great for the lawyers.

VW scandal: the big questions answered

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