Audi Chairman, Rupert Stadler, gazing ahead at the International Motor Show (IAA) in Frankfurt am Main, Germany, 14 September 2017.

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Nearly four years after the automaker admitted cheating on diesel emissions tests, and after Volkswagen has now spent more than 30 billion euros on fines, settlements and other costs, its diesel emissions scandal continues to take a toll.

Prosecutors in Germany on Wednesday charged four former employees, including one-time Audi Chief Executive Rupert Stadler, for their role in the scandal.

The 56-year-old Stadler, once seen as a rising star at the Volkswagen, faces allegations that include fraud for helping conceal the fact that VW had rigged its diesel engines to illegally pass emissions tests. Others caught up in the scandal include former Volkswagen CEO Martin Winterkorn who was charged in April for his alleged role in the cover-up.

What some have dubbed “Dieselgate” could yet stretch on as prosecutors in both the U.S. and Germany continue to look into the case and as the U.S. Securities and Exchange Commission continues to slowly move forward on its own lawsuit targeting the world’s largest automaker.

Defeat device

The scandal was uncovered by the U.S. Environmental Protection Agency in September 2015, the agency discovering a “defeat device” was used to detect when one of Volkswagen’s diesels was undergoing emissions tests and then adjust the way the engine operated. All told, more than 11 million vehicles using VW’s faulty diesels were sold in the U.S., Europe and other parts of the world, though the allegations against Stadler cover only about 434,000 of them.

The scandal originally appeared to involve just one four-cylinder diesel engine primarily used in Volkswagen-branded models. But, in November 2015, Audi confirmed that a 3.0-liter diesel engine used in its TDI models, as well as some VW and Porsche products, had also been rigged to illegally pass emissions tests. In real-world operations, some of the vehicles produced as much as 40 times more pollutants than legally allowed.

Volkswagen Group CEO Martin Winterkorn arrives for the Volkswagen annual general shareholders’ meeting on May 5, 2015 in Hanover, Germany.

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That triggered a tidal wave of legal headaches for the German carmaker, which rushed to work out settlements with U.S. and California regulators, as well as with owners and investors. That included, among other things:

  • A buyback plan for more than 400,000 of the diesel vehicles sold in the U.S., though many were subsequently repaired, owners received various levels of financial compensation;
  • The creation of Electrify America, a Washington, D.C.-based company that is helping promote the sale of electric vehicles – of all brands – while also setting up a nationwide public charging network;
  • Additional fines and settlements have so far brought the total cost of the scandal to around 30 billion Euros, or $33.4 billion at current exchange rates.

Scandal could drag on ‘for years’

And the financial cost could go higher. VW CEO Herbert Diess acknowledged in comments earlier this year that the scandal could drag on for “years.” In May, the automaker set aside another 5.5 billion euros in contingent liabilities.

It may need to tap that to deal with the lawsuit filed by the SEC in March, the action targeting both VW and former CEO Winterkorn. The agency contends the company concealed the depth of the scandal — and the potential penalties — from investors and federal regulators. Its complaint noted that, in the year before the cheating was discovered, Volkswagen issued $13 billion in bonds and securities in the U.S. Their value was directly impacted once the carmaker’s scam was revealed.

The SEC has come under fire itself. Among the critics questioning why it took so long to sue was U.S. District Judge Charles Breyer who, in May, said he was “totally mystified” by why the lawsuit wasn’t filed until this year. In a court filing this month, the agency said its “staff worked hard and as quickly as possible under very difficult circumstances.” It also said it sued only after negotiations with VW failed to come up with a voluntary settlement.

Emissions testing equipment sits in the exhaust of an Audi AG A5 diesel automobile at a garage in Bruchkoebel, Germany, July 26, 2017.

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The indictment

Under the indictment announced Wednesday, German prosecutors said “Defendant Stadler is accused of having been aware of the manipulations since the end of September 2015 at the latest, but he did not prevent the sale of affected Audi and VW vehicles thereafter.”

Fraud and other charges were also filed targeting Wolfgang Hatz, a former executive who had worked on powertrain development with both the Audi and Porsche brands, as well as two engineers. So far, more than a dozen one-time Volkswagen employees have been charged in the U.S. and Europe in connection with the case.

The highest-ranking target is Winterkorn, prosecutors in Braunschweig alleging he learned about the emissions test rigging no later than May 2014 but failed to notify authorities in the U.S. and Europe, while also failing to stop the use of the defeat device technology.

Seven-year sentence

Oliver Schmidt, the automaker’s compliance officer charged with working with American regulators, is now serving a seven-year prison sentence. Most of those indicted by U.S. authorities, however, remain out of reach due to the limits of German extradition law.

Despite its ongoing problems, VW has put the crisis behind it in many ways. Its stock tumbled sharply in the months after the emissions cheating was revealed. It has rebounded since then, though not reaching the highs set in the months before the scandal broke. Sales have also largely recovered, especially in the U.S. where, for the first half of 2019, they rose 6.8% year-over-year in an overall down market. VW’s second-quarter net profit, meanwhile, rose to 4.11 billion euros for the period, up from 3.31 billion a year earlier.

One big change is that the automaker has effectively abandoned sales of diesel models in the states, though Diess said the technology will remain viable in Europe. But he has ordered a major shift in product development that will, going forward, put the emphasis on zero-emission battery-cars.



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