Volkswagen faces major legal trouble in emissions scandal

28 Sep 2015 | Author: | No comments yet »

EU may change emissions tests laws.

Volkswagen’s own staff and one of its suppliers warned years ago about software designed to thwart emissions tests, two German newspapers reported over the weekend.Volkswagen’s big push in the United States revolved around making Americans love driving a diesel car again — a challenging task given the poor image diesel had endured since the 1980s.The German carmaker named company veteran Matthias Mueller as new CEO on Friday in an attempt to get to grips with a crisis that its chairman described as “a moral and political disaster”.

Law firm Leigh Day, which says it is representing hundreds of VW drivers in the UK, claimed consumers were “being kept in the dark” by the German carmaker over which diesel cars are implicated.Volkswagen’s diesel emission scandal is just the latest in a string of cases of corporate bad behaviour, followed by apologies, fines and new regulation PRINCETON • So far, the Volkswagen scandal has played out according to a well-worn script. Europe’s biggest car maker is adding up the cost of the biggest business scandal in its 78-year history, having acknowledged installing software in diesel engines designed to hide their emissions of toxic gasses. Its answer was a 2-liter, 4-cylinder turbo-diesel engine that could run seemingly forever on a single tank while offering great acceleration and meeting even the most stringent environmental standards.

The appointment came as Swiss authorities said they were suspending sales of Volkswagen brand diesel vehicles that could contain devices capable of cheating emissions tests, including Audi, Seat, and Skoda vehicles built between 2009 and 2014. Revelations of disgraceful corporate behaviour emerge (in this case, the German carmaker’s programming of 11 million diesel vehicles to turn on their engines’ pollution-control systems only when undergoing emissions testing). The company’s internal investigation is likely to focus on how far up the chain of command were executives who were responsible for the cheating, and how long were they aware of it. It is facing an $18bn (£11.9bn) fine from US regulators, as well as lawsuits from customers and also investors, who saw 30 per cent of the value of their shares disappear last week. German weekly Bild am Sonntag reported that VW’s internal investigation has found a 2007 letter from parts supplier Bosch warning Volkswagen not to use the software during regular operation.

The Frankfurter Allgemeine Sonntagszeitung, citing a source on VW’s supervisory board, said the board had received an internal report at its meeting on Friday showing VW technicians had warned about illegal emissions practices in 2011. Bozena Michalowska-Howells at Leigh Day criticised VW, whose statement on Friday she said “gave scant regard” to its millions of customers, adding that it focused solely on the new chief executive, Matthias Müller.

To deliver its point, Volkswagen has spent $77 million this year to promote its diesel cars, often in a humorous way, a figure that represents about 45 percent of its total for television ad spending of about $165 million, according to the measurement firm iSpot.tv. In one, they argue about the car’s smell. (It turns out that it comes from the dog, not the diesel.) In another, they disagree about whether the engine is turned off. (It’s on.) In a third, one of the women asks, “How do you like my new car?” Another jumps in with, “Isn’t diesel dirty?” The first woman ends up holding a white scarf under the tailpipe to show how clean the emissions are. Mueller pressed the board to move ahead with a reorganisation he helped devise before Volkswagen was caught up in an emissions-cheating scandal, as the new leader seeks to put his stamp on the company.

They do not know whether the car they are driving is indeed emitting 40 times the legal emissions limit, as has been suggested, nor do they know whether their cars will be recalled to bring them into the line with EU regulations.” She added: “There is a woeful lack of clarity. A spokesman for Volkswagen declined to comment on the reports, saying that as a matter of principle the company wouldn’t comment on what he called “rumours and speculation.” “Volkswagen is working with all its strength to conduct a thorough and merciless investigation of this matter,” Andreas Lampersbach said in an email.

New CEO Matthais Mueller sent a letter to staff promising “relentless” efforts to investigate the scandal and promote the “strongest compliance and governance standards in the industry”. Volkswagen said on Friday that more authority will be given to individual brands and regions, a departure from the centralised structures that kept key decisions in Wolfsburg and the CEO’s inner circle. VW would hold those responsible for rigging the emissions test to account and discuss technical solutions for the problem with authorities, he said, citing a statement by the company’s supervisory board. “Afterward we will provide a timetable to modify the vehicles of affected customers. The ads’ mantra of clean diesel that combines high performance with high efficiency came with a bonus for prospective car buyers: The cars were also relatively affordable. Regulators must also make urgent measures to ensure that deception on this scale could never happen again.” She urged the UK Government to “take action to prevent further damage to air quality”.

For about $30,000, consumers could get a Jetta or Golf 2-liter TDI engine that can be driven 600 miles on a tank of gas and still meet stringent emissions standards. Panmure Gordon’s veteran commentator David Buik described the appointment of Mr Müller, formerly head of Porsche, which is owned by VW, as “corporate insanity”. “The public is not being treated to the respect it deserves with an appointment that cannot be perceived as fully transparent,” he said. A Volkswagen spokesman said there had been no instructions from company headquarters in Germany to dealers to stop selling the affected cars, but sales units in individual countries had the right to take such decisions on their own.

Since Volkswagen admitted a little more than a week ago that it had lied about the performance of its diesel technology and had sold 11 million cars equipped with a device that cheated on emissions tests, the company has removed its clean diesel ads from its YouTube channel. German environment minister Barbara Hendricks said the European Commission and member states were considering stricter rules. “We are working on new, honest measuring methods in Brussels,” she told Handelsblatt newspaper. “We can’t just rely on tests in the lab,” she said, adding future tests should focus more on normal road conditions. Now, the company that famously introduced the original Beetle as a “Lemon” and urged consumers to “Think Small” faces a public relations crisis, and a major challenge to restore its image. “It is one thing to make a mistake, it’s another to intentionally trick your customers,” said Sara Roen Brady, a crisis reputation manager based in Florida. “This is a really emotional issue because it’s about the character of the company and the character of their customers. The carmaker has said 11m vehicles worldwide were fitted with software similar to the kind that allowed the company to rig the US tests, but said it was not turned on in the bulk of them. Stripped down to the bare reality, as regulators’ focus turned towards limiting global warming, there were tremendous incentives to manufacture vehicles that produced fewer greenhouse-gas emissions, never mind the other consequences of achieving those targets.

The company claimed that the TDI models in its lineup offered up to 30 percent better fuel economy and up to 30 percent lower carbon dioxide emissions than comparable gasoline engines. Volkswagen and other European manufacturers have promoted “clean diesel” technology, benefiting from diesel’s fuel economy but meeting stringent tests for emissions of toxins. Audi, part of the automotive group that includes the Volkswagen brand, targeted a bigger audience with its 2010 Super Bowl ad, drawing on a greener-than-thou image in a parallel world where overzealous “green police” hunt down environmental offenders who drink water out of plastic bottles, overheat their hot tubs or fail to compost properly. Banks are also uniquely vulnerable to scandal because many of their employees are simultaneously behaving in ways that could influence the reputation, and even the balance sheet, of the entire firm.

In July, Volkswagen boasted that a Golf TDI set a record — as measured by Guinness World Records — by being driven more than 8,000 miles and getting an average of 81 miles a gallon. The Volkswagen case is a useful reminder that corporate wrongdoing is not confined to the banking industry, and that merely levying fines or ramping up regulation is unlikely to solve the problem. Everyone knows that actual fuel economy does not correspond to the numbers on the showroom sticker, which are generated by tests carried out with the wind blowing from behind or on a particularly smooth road surface. The first is that large corporations, whether banks or manufacturers, are deeply embedded in national politics, with elected officials dependent on such firms for job creation and tax revenues.

It is time for a sustained discussion about how to craft regulations that provide the proper incentives to achieve the objectives we truly desire – economic and social well-being. The writer is professor of history and international affairs at Princeton University, professor of history at the European University Institute in Florence, and a senior fellow at the Centre for International Governance Innovation.

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