VW Diesel Scandal: Sacramento VW Owners Latest To File Class-Action Lawsuits

27 Sep 2015 | Author: | No comments yet »

Diesel scandal victims await villains.

As the owner of a 2014 Volkswagen diesel Jetta Sportwagen, I am plenty angry about the car giant’s pollution scam. Switzerland said Saturday that it was suspending the sale of Volkswagen diesel vehicles most likely equipped with software capable of cheating environmental tests.

A team of British scientists repeatedly warned the Government that emissions of a deadly pollutant from diesel cars far exceeded official safety levels.If ever there were an object lesson on the dangers of investing in very large companies with flawed corporate governance operating in industries with a high political profile, Volkswagen may well prove a textbook case.

A recap for those who haven’t been following the story: The Environmental Protection Agency accused VW of setting certain diesel cars to cheat on emissions tests.When Volkswagen’s low-priced Rabbit hatchbacks rolled off its Pennsylvania production line in April 1978, it was the first time since the Great Depression an overseas manufacturer had made a car on US soil. The announcement followed the German automaker’s revelation that 11 million vehicles worldwide were fitted with the software, which can switch pollution controls on during emissions tests but shut them off during normal driving. Having taken over a half-finished Chrysler factory a few years earlier, the move was part of a concerted effort by the German carmaker to “break” the United States, and its sizeable automobile-buying public who, at the time, remained fiercely loyal to domestic marques.

The studies, funded by the Department for Environment, Food and Rural Affairs (Defra), showed that on average diesel cars emitted four times the legal limit of dangerous NOx gases. Mueller, 62, who headed Volkswagen’s Porsche subsidiary, pledged to help the automaker get through the biggest business crisis in its 78-year history.

Their findings appear to have been ignored by successive governments which have continued to offer generous tax subsidies to encourage people to buy diesel cars, which now account for half of new cars sold in the UK. Then, when the owner was back on the road, it went back to normal, spewing up to 40 times more pollution than is legally allowed but also getting more miles per gallon and power. The modest popularity of its Rabbit – and later its Golf – models was soon supplanted by new production techniques and fierce competition from rival firms and larger cars that caught the eye when the price of gasoline fell. The scam could lead to fines worth more than USD 18 billion (16.1 billion euros), while the German giant has already seen billions of euros wiped off its stocks this week. “We will overcome this crisis,” he said Friday, adding that the carmaker could “emerge stronger from the crisis in the long term” if it learned from its mistakes.

The spotlight has fallen on diesel car emissions after Volkswagen, the world’s biggest car manufacturer, admitted that it had used a “defeat” device to beat the official tests and enable polluting cars to pass US regulations. The Westmoreland plant closed in 1988, after five years of running at less than half-capacity, and it would take the German outfit almost a quarter of a century to return to US production.

Still, we see far too little responsibility-taking in American business, where failed CEOs more often extort seven-figure payouts and go on to rule again. While VW will doubtless become another saga in the demonisation of business, the reality is more complex and one in which the European political establishment must take its share of the blame. Thomas Rohrbach, spokesman for the Swiss federal office of roadways, announced that the ban was being implemented on all cars with diesel engines in the “euro 5” emissions category. Volkswagen introduced its new 2016 Passat — which includes a diesel version — in New York on Monday just as the scandal over cheating on pollution controls broke.

The 2012 Passat, one of its first models, was described in one review as “an eight-year-old’s Crayola rendering of a car” and “almost patronising”, although later models began to win round US motorists. The ban does not apply to cars now in production with “euro 6” engines, which are supposed to be able to meet the latest and toughest emissions standards set by the European Union. Some 180,000 vehicles on Swiss roads made by Volkswagen’s Audi, Seat, Skoda and VW brands between 2009 and 2014 could be affected by the scandal, the Federal Roads Office said in a statement. Last year VW sold nearly 600,000 cars in the US – about 6pc of its global total – and was working on plans to add 25pc more space to its American factory off Volkswagen Drive, Chattanooga.

It came as a report out on Monday by Transport & Environment, the campaign group which first raised the spectre of “defeat” devices used in tests, will show that the gap between the true fuel economy for cars and the claims made by manufacturers in testing has grown in the past five years and the car industry is using more and more sophisticated methods to cheat tests. The software tells a car when it is under an official test, triggering emissions control systems that do not seem to be operating under normal driving conditions.

No matter that perp walks were absent from far more serious scandals, ranging from incendiary gas tanks to rollover-prone designs to exploding air bags. Research from Redburn Partners shows that diesel may be better on CO2 emissions than petrol but it does have higher concentrations of harmful Nitrogen Oxides (NOX). Given the ratcheting down of emissions over the years, nobody should pretend that even the tenfold increase in nitrogen oxide emissions discovered in some VW testing will directly kill anybody.

It stands accused of intentionally falsifying emission-test scores by installing “defeat device” software to make its cars seem cleaner when driving under laboratory conditions. There is a huge gap between what the manufacturers report and what is actually happening.” He added: “It has been known for some time and Defra are certainly aware that concentrations [of NOx] have not decreased.” The studies, which measured emissions from more than 100,000 cars, show that Oxford Street, London’s busiest shopping thoroughfare, is the most heavily polluted road in the world.

In Europe 180 milligrams of NOX per kilometre were permitted; recently this has come down to 80mg/km but is still higher than the long-standing US standard of 53mg/km. As a certified energy efficiency and environmental zealot, I passed up a hybrid to buy my first “clean diesel.” They also use less fuel, thus producing less carbon dioxide that causes climate change. Having pointed the manufacturers down the wrong track, European governments had to tolerate health damaging high NOX emissions or bust the local car industry. The first steps to uncover VW’s scheme were made in an academic study carried out by a non-profit group, the International Council on Clean Transportation, in which it sent cars out on a loop through traffic-filled roads in downtown Los Angeles in 2013 and 2014.

The US Justice Department has launched a criminal investigation while the UK has ordered the Vehicle Certification Agency to rerun lab tests on VWs and compare the results with “real-world” driving conditions. Successive governments have deliberately made diesel cars more attractive and further subsidies, announced in this year’s budget, will be introduced next year although George Osborne, the Chancellor, will be under pressure to scrap them after the VW scandal.

A cynic might invoke that old idiom, “If it sounds too good to be true, it probably is.” But car buyers don’t have the wherewithal to conduct their own independent tests of emissions and mileage. But the events of the last two weeks have been an almighty wake-up call.” Transport & Environment’s new report will claim that cheating by car manufacturers is not limited to diesel engines or to rigged air pollution tests. “Cheating goes on for all vehicle tests,” a spokesman said last night. “We are only just scratching the surface of this.

After the federal watchdog was handed the ICCT data by the California Air Resources Board in early 2014, it set about poring over the data and opened talks with Volkswagen about its practices. More likely, the decision was taken, in my view, much further down the chain of responsibility – for instance, one could imagine that a group within the company, when they realised their cars could not match petrol cars on either cost or NOX emissions, decided to use a device that has only been outlawed in Europe since 2007. Without an independent regulator in Europe cheating companies won’t be caught.” Suggestions of collusion between governments and the motoring industry have been bolstered by an allegation from a former transport minister that David Cameron agreed to delay imposing a new emissions limit after a personal request by Angela Merkel, the German chancellor, to protect her country’s motor industry. “Angela Merkel rang the Prime Minister and asked him effectively to defer the arrangements that had been carefully negotiated.

For a long time, all car companies have used data for fuel consumption that I believe were at best flattering and the same may well apply on the subject of emissions. They demanded that Volkswagen tell them the reason for the emission problems, and on September 3 the company admitted that the cars were installed with defeat devices. One conclusion I draw from this situation, is that the notion that the CEO often does not know what is going on remains an under-utilised tool of investment analysis.

Motor industry experts have told The Telegraph that problems with VW date back to about 2006 when the company switched over to a new kind of diesel engine. However, the announcement went mostly unnoticed, with most of that day’s news coverage around Volkswagen instead centred on a possible bid to take over the Red Bull Formula 1 team. Peter de Nayer, a former research engineer with the AA, said VW’s EA189 engine had possibly caused emissions problems that meant the car could not pass tests without cheating.

When I invest, I seek to buy shares in companies where the management can easily “get their arms round the business”, by which I mean having a real grasp of the minute detail that drives their business. Two days later, chief executive Martin Winterkorn gave his first apology for customers’ “broken trust” because of falsified emissions data but stopped short of admitting guilt. Regulators and the company must have tools in place to detect those people the next time they go for an emissions test, at least in the states that have such requirements. Mr Winterkorn apologised again, but it was not enough to keep his job, and he resigned on Wednesday evening saying that “this is the only way to win back trust”. Only two days before his eight years in charge came to an end, the board had been due to rubber-stamp a two-year extension to his contract, which would have taken his leadership through to 2018, by which time he would have been 71 years old.

On Friday, Porsche boss Matthias Muller was named as his replacement, as the group changed its corporate structure and suspended some unnamed employees in a desperate attempt to save itself. It’s probably not enough: The Obama administration has extracted $132 billion to punish financial institutions since the 2008 crisis, according to SNL Financial. Economies of scale are critical in the auto industry but I believe there are significant diseconomies of scale in terms of management information from the globalisation. Fears that the rigged data would crop up outside of the US increased, and the German transport minister Alexander Dobrindt revealed that diesel vehicles with 1.6 and 2.0 litre engines were also affected.

While European and UK emissions tests relied on government-supervised tests rather than the manufacturers’ own data, they too used laboratory readings instead of real-world driving. The German corporate model, with its focus on long-term outcomes, has frequently been held up as a better model than the alternative, described as the “Anglo-Saxon” model, with its supposed focus on short-term results.

Certainly, Volkswagen has admitted that for 11 million of its cars around the world, emissions of nitrogen oxide (NOx) can display “a noticeable deviation between bench test results and actual road use.” U.S. and California officials say this deviation was designed into software and amounts to a “defeat device” outlawed by the Clean Air Act. The firm also generated 13pc of earnings per share for the entire DAX index of large-value German stocks, Deutsche Bank figures suggest, and its reputation is tied up with that of Germany’s manufacturing clout.

The company also buys 12pc of the world’s semi-conductors, according to UBS, and even if the producers of this technology are not implicated in the scandal their sales could suffer as the market recalibrates. After Toyota’s massive recall in 2009-10, suppliers to Hyundai benefited. “As such, we think a switch to US/Japanese vendors needs to be monitored going forwards,” said the UBS analysts.

But we don’t know whether the EPA forced this confession by cranking up enforcement or reinterpreting rules, as it has for so many other industries lately. A sum greater than the possible fine has already been wiped from its market value, angering some shareholders, including Nordea Bank, which said it will retain its 2.2bn kronor stock and debt holdings but has banned its fund managers from buying any more VW stock. For drivers of diesel cars of all marques, this news is particularly shocking. “The central point is that from a driver’s point of view, they were told they had to reduce their CO2 and many of them have gone to diesel as a result and as a way to deal with high fuel costs. For the unfortunate investor holding Volkswagen shares, the lesson to be learnt is proving a painful one: namely that a company’s corporate governance can often prove instructive on whether future trouble lies ahead.

London, Birmingham and Leeds are forecast to exceed EU air pollution limits until 2030, and local governments are examining levies and even bans on certain disel vehicles to ensure that pollution readings fall.

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