Volkswagen Will Pay $14.7 Billion To Settle Emissions Cheating Case

Somewhere, Ferdinand Piech is feeling glum this morning. He is the despot who ran Volkswagen at the time the company began installing software that allowed its diesel engines to bypass emissions control systems and spew up to 40 times the legal limit of nitrous oxides into the atmosphere. Volkswagen sold 11 million cars with the corrupted software around the world. Just under a half million of them were sold in the US starting in 2009 as part of Volkswagen’s Clean Diesel initiative.

Volkswagen Clean Diesel

For their sins against the American public, Volkswagen will now shell out $14.7 billion in fines, penalties, and other compensation to resolve the majority of claims pending against it. The company is still facing the possibility of criminal prosecution and must resolve complaints from the Federal Trade Commission regarding its massive false advertising campaign.

In essence, the Clean Diesel strategy was a way to counter the inroads the Toyota Prius was making into world markets. Although Prius sales have cooled significantly today, a decade ago it was the hottest new technology in the world of automobiles. As gasoline prices soared, demand for the Prius soared right along with them.

Piech and his minions believed they could build diesel-powered automobiles that got just as good gas mileage as the Prius without having to spend the money to develop their own in-house hybrid technology. The US market was a tough nut to crack for diesel cars, however.

For one thing, diesel engines were favored by European shoppers and diesel fuel cost less than gasoline. Across the pond, US diesel emissions regulations were far more rigorous. American buyers also had a negative opinion about diesels, which they thought of as smelly, clattering beasts trailing a cloud of black smoke behind them. And diesel fuel has always cost more in the US than in Europe.

Volkswagen worked hard to tame the smoke and the clatter of its diesel engines, but it couldn’t make its cars meet US emissions standards without compromising fuel economy. Since the whole point of the Clean Diesel campaign was excellent fuel economy that was as good as a Prius, Obergrüppenfuhrer Piech simply demanded his people do whatever was necessary. In the end, they were more petrified of the boss than the EPA.

Now Piech’s chickens have come home to roost. According to the Washington Post, on June 28, the company and the government will formally present a proposed settlement offer to the federal court in San Francisco. More than $10 billion will go to fix or buy back the 475,000 Volkswagens equipped with 2.0 liter diesel engines sold in the US. Another $2.7 billion will go into an Environmental Protection Agency trust fund for environmental remediation, and the German automaker will spend $2 billion more on American clean energy technology. Settlements with 40 state attorneys general may push the total payout to more than $15 billion.

Car owners have the option of selling their vehicles back to Volkswagen at pre-scandal prices or have the emissions software fixed free of charge. Owners are also eligible to between $5,100 and $10,000 in additional compensation in the settlement. Owners who sold or traded in their vehicles are also entitled to compensation, even if the current owners also receive compensation.

The buy-back and fix program runs through Dec. 1, 2018. The settlement requires Volkswagen to have replaced or repaired 85% of the affected cars or pay hundreds of millions of dollars more in federal fines, an unnamed source with knowledge of the negotiations told the Post.

Even more important than the money is the damage Piech’s tyranny caused to Volkswagen’s reputation worldwide. A year ago, it was the largest car company on earth, having wrested that title from none other than Toyota. It held that position for only a few months before the roof fell in last September. Now, it is fighting to survive. Although it says it is making a major push to become a global leader in electric and connected cars, its reputation is in tatters. Who will buy automobiles from a company known for lying and cheating its customers?

“The PR piece is such a huge piece especially because people relied on these green cars, and now they feel cheated,” said Carl Tobias, a professor of law at the University of Richmond. “I think the pressure was so intense that they weren’t paying attention or cut corners or cheated. You just can’t do that. It won’t fly in the US with our consumers and our agencies. I just don’t think VW reckoned with that or did not take it seriously until it was too late.”

Tobias is right, of course, but his focus is too narrow. What Volkswagen did is little different than what many global corporations are doing today. British Petroleum decided to cut corners when it drilled for oil in the Gulf of Mexico. ExxonMobil has had knowledge of the harmful effects of burning fossil fuels since the ’70s, but decided to take a Big Tobacco stance of denial and obfuscation to protect is enormous profits.

The message is that business can’t be trusted to do the right thing by consumers, nations, or the planet. Globalization has imposed a rubric of laws that protects profits instead of people. Those who bleat about how regulations are strangling business are really telling us we can trust corporations to do the right thing.

Oh, really? And where is the proof of that? Volkswagen got caught, but it is just the tip of the corporate malfeasance iceberg. It’s corrupt decision-making should serve as an alarm that we need to take back control of our lives and our planet from corporate malefactors. Assuming anyone is paying attention and is willing to see the bigger picture. TPP, anyone?

Steve Hanley

Closely following the transition from internal combustion to electricity. Whether it's cars, trucks, ships, or airplanes, sustainability is the key. Please follow me on Google + and Twitter.