Volkswagen Cheated Regulations, Consumers, & Investors

Published on October 21, 2015, by Matthew Sharp

Product Liability

Volkswagen Cheated Regulations, Consumers, & Investors

Seven years is a long time to cheat without getting caught, but that is precisely what Volkswagen managed to do in countries around the world. After installing illegal software into four of their engine models, the company sold over 11 million vehicles that emitted nitrogen oxide levels far in excess of regulatory limits.

Known as a “defeat device,” the company has acknowledged its existence under the increasing weight of criminal investigations and public outcry. However, more concerning is the fact that company refuses to answer questions about whether or not they have developed other defeat devices and installed those in vehicles as well. Indeed, the company’s evasiveness in this regard may indicate that the current VW and Audi emission lawsuits are but the tip of a very large iceberg that just might sink one of the world’s largest automakers.

The device itself isn’t physical; it’s software. It was code that was embedded within the engine control computer. When the vehicle was attached to an emissions testing system, the computer sensed this by calculating steering wheel position, speed, engine operation, and even barometric pressure. Sensing the vehicle was being tested, the software adjusted the engine’s operating state to produce fewer emissions than it would during normal operation of the vehicle on roads and highways.

With over 20 million lines of code installed within onboard vehicle computers, it was easy for Volkswagen to hide a few extra lines to adjust engine operation during emission testing. It simply calculated that the engine was running within a consistent ambient temperature, that the wheels were not turning, and when it put 2+2 together, the computer adjusted engine operations without anyone noticing or the computer detecting the adjustment.

Volkswagen and Audi vehicles did have the ability to produce lower emissions during regular operation; however, this reduction in emissions had a dramatic, negative impact on performance. This impact was significant and made the efficiency of the vehicles far less attractive within the highly competitive eco-conscious marketplace.

Put succinctly, Volkswagen deliberately cheated in order to increase market share and charged consumers between $1,000 to $7,000 more per vehicle after convincing them that the vehicles they were buying were equipped with the latest, state-of-the-art technology to reduce emissions to incredibly low levels. Globally, the company sold over 11 million vehicles equipped with this modified software package and reaped billions of dollars in profits from the dupe; 482,000 of these vehicles were sold within the United States.

The VW and Audi emissions lawsuits have already begun to surface from consumers. Both individual and class action suits are being filed across the country. In these suits, vehicle owners are seeking everything from the cost of repair to buyback, and in some suits, total replacement. This is in addition to damages consumers and their product liability attorneys for these suits are seeking from the company. In most cases, owners do not wish to have their vehicle repaired as these repairs will have a markedly negative impact on gas mileage efficiency and performance. These were the key selling points Volkswagen used to sell the vehicles to consumers and earn their trust; and it is becoming clear that consumers have lost their trust in the company and their ability to deliver the performance they claim.

Equally ready to hold the company accountable, counties are filing their own VW and Audi emissions lawsuits. In many cases, it was their emissions equipment that was duped by the software, and it was communities within their counties which were adversely affected by the illegal levels of pollution the vehicles emitted. Unfortunately, while the fraud has been proven, it will be difficult for counties to ascertain precisely how many people within their communities have been directly impacted by the scandal.

In addition to lawsuits and fines the company will have to settle with consumers and governments, the company is facing up to $46 billion in lawsuits from investors. The VW and Audi emissions lawsuits are just the beginning of the company’s problems as investors are also seeking to recoup their losses. At this point, the VW emissions scandal has erased $28 billion off the company’s stock value; roughly 40% of the company’s total value. Should these suits be successful, the potential for damages to be awarded going back to 2009 is very real.

The ripple effect is beginning to show. Porsche owns 50% of VW, the German state of Lower Saxony controls 20%, and the Qatari state investment fund owns 17%. The scandal won’t destroy these entities, however, it will have a significant impact on their value and assets that will take years to recover from.

The impact the scandal will have on these is certain to have an impact that reaches far beyond Volkswagen’s boardroom where CEO Martin Winterkorn, North American Business Chief Winfried Vahland, and many others have resigned.