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A blog by Leon Oudejans

VW / Audi fraud – part 1 – Isn’t it ironic

19 September 2015

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My mother used to say that my grandfather had an expression for Automotive: “Everything that relates to rubber, stinks”. And he was working in that Automotive industry. So I suppose that he was knowledgable. This memory came to my mind when I read about the massive – nearly half a million – Volkswagen / Audi recall in the USA. In itself recalls are not breaking news. This one however is.

Yesterday’s breaking news alert by the NT Times announced that: “The Obama administration on Friday directed Volkswagen to recall nearly a half-million cars, saying the automaker illegally installed software in its diesel-power cars to evade standards for reducing smog.”

“The Environmental Protection Agency accused the German automaker of using software to detect when the car is undergoing its periodic state emissions testing. Only during such tests are the cars’ full emissions control systems turned on. During normal driving situations, the controls are turned off, allowing the cars to spew as much as 40 times as much pollution as allowed under the Clean Air Act, the E.P.A. said.” (NYT)

“Agency officials issued the car company a notice of violation and said it had admitted to the use of a so-called defeat device. The recall involves 4-cylinder Volkswagen and Audi vehicles from model years 2009-15. The recall covers roughly 482,000 diesel passenger cars sold in the United States since 2009. Affected diesel models include the 2009-15 Volkswagen Jetta, 2009-15 Beetle, 2009-15 Golf, 2014-15 Passat and 2009-15 Audi A3.” (NYT)

“Friday’s notice of violation was the Obama administration’s “opening salvo” in the Volkswagen case, said Thomas Reynolds, an E.P.A. spokesman. The Justice Department’s investigation could ultimately result in fines or penalties for the company. Under the terms of the Clean Air Act, the Justice Department could impose fines of as much as $37,500 for each recalled vehicle, for a possible total penalty of as much as $18 billion.” (NYT)

“This is several steps beyond the violations that we’ve seen from other auto companies,” said Tyson Slocum, director of the energy program at Public Citizen, a consumer advocacy group. “They appear to have designed a system with the intention to mislead consumers and the government. If that’s proven true, it’s remarkable and outrageous. It would merit a heck of a lot more than just a recall and a fine. We would see criminal prosecution.” (NYT)

Actually, I would be very surprised if this fraud would be limited to the USA. And a joint EU and US penalty could seriously hurt this car manufacturer. It’s Group Equity is some 90 billion (AR 2014) and the EU fine would most likely be a multiple of the US one considering VW’s massive European car sales volume and the small American volume. As VW employs nearly 600,000 people (AR 2014), there needs to be a sensitive trade-off between the fines and its going-concern.

It is getting more and more ironic that my business experience is in Automotive and Banking……

Alanis Morissette – Ironic (1996) – (artistlyrics, Wiki)

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