VW preliminary settlement raises larger compliance issues

Apr 21, 2016
<p>New agreement in principle fails to include fixes for 3-liter engine vehicles and leaves questions about how VW will repair its public image</p>

Volkswagen’s preliminary settlement with the Environmental Protection Agency (EPA) today leaves unanswered questions about efforts the automaker is prepared to make to overhaul its compliance programs to prevent similar criminal acts in the future and how it plans to address the reputational damage it has incurred.

Under the agreement in principle with the federal government and lawyers for car owners, which was reached within the deadline set by US District Court Judge Charles Breyer, VW agreed to either fix or buy back almost half a million diesel cars in the US outfitted with illegal emissions software, as reported by the New York Times earlier today. The size of the fines that VW will have to pay, initially estimated at a maximum of $18 billion but now expected to be far lower, have yet to be negotiated. Judge Breyer has given lawyers until June 21 to finalize the settlement. He also promised owners will receive additional compensation and that the agreement ‘will fully address any excess emissions and environmental consequences,’ according to the New York Times.

The preliminary settlement addresses fixes for 480,000 Volkswagens and Audi A3 models with 2-liter engines, but not for roughly 100,000 cars with 3-liter diesel engines, including Audi and Porsche models. In January, the California Air Resources Board (CARB) rejected the technical fix that VW had proposed to address emissions-cheating software in 2-liter TDI engines – a major setback for the company’s plans to refit nearly 600,000 cars in the US.

In an April 19 letter sent to Judge Breyer, Attorney General Loretta Lynch, EPA Administrator Gina McCarthy, CARB chair Mary Nichols and Hinrich Woebcken, newly appointed president and CEO of VW’s North American operations, the US PIRG Education Fund and other consumer protection groups outlined six main criteria by which a proposed settlement should be evaluated in order to compensate consumers and the environment and deter future criminal conduct. These criteria are:

  1. Mitigate past, ongoing, and future emissions
  2. Make consumers whole by offering to buy back their affected cars 
  3. Mitigate environmental harm caused by scrapping cars
  4. Assess large civil penalties. 
  5. Set up Supplemental Environmental Projects (SEPs)
  6. Criminally charge responsible executives and hold the firm criminally accountable

Given that owners of affected VW diesel cars could receive as little as an estimated $5,000 each for cars sold back to the company, VW still has a long road ahead to regain the confidence of consumers and repair its tarnished reputation. In that regard, US PIRG’s recommendation that the company establish supplemental environmental projects (SEP), working in collaboration with the EPA, that could achieve concrete pollution reductions, could be a key part of a future plan to overhaul VW’s public image.

‘The SEP should direct a substantial amount of funds, perhaps calculated on a per-car basis, to create a fund for state and local governments, as well as private-sector entities, to implement projects to reduce pollution from on-road vehicles and increase deployment of zero-emission electric vehicles,’ the letter said. It also made clear that any such projects would need to be ‘above and beyond other remedies so automakers don’t take the lesson that all they need to do to cure cheating is to pay money as a cost of doing business.’ 

As an incentive for setting up SEPs, the letter said it could offset a portion of the civil penalties that will be imposed. But US PIRG, and others that signed the letter, also said that full justice would include bringing criminal charges against individual executives responsible for the scandal, as well as ‘the full array of criminal monetary penalties and other criminal remedies available under the law against the firm.’

To read the complete New York Times story, click here.

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