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Volkswagen Pleads Guilty Over Diesel Emissions Deception As VW Pleads Guilty in U.S. Over Diesel Scandal, Trouble Looms in Europe
(about 2 hours later)
DETROIT — Volkswagen pleaded guilty on Friday in federal court to criminal felony charges over the diesel emissions scandal that has roiled the German automaker for more than a year and cost it tens of billions of dollars in settlements and penalties. FRANKFURT — Volkswagen took a big step toward resolving its legal problems in the United States when it pleaded guilty on Friday to its vast emissions deception. But in Europe, its troubles may be just beginning.
The company had been charged with fraud, obstruction of justice and making false statements about vehicles it imported into the United States, using software designed to cheat on emissions tests during lab testing that helped deceive environmental regulators. Across the Continent, the German carmaker faces not only an expanding criminal investigation but also thousands of lawsuits from consumers demanding recourse.
Thursday’s guilty plea was part of a criminal settlement worked out with the Department of Justice that calls on Volkswagen to pay $4.3 billion in fines and penalties. In a separate civil settlement, the company has already agreed to spend $15 billion to compensate its customers in the United States. An Irish nurse wants compensation for the plunging value of her Volkswagen diesel. Lawyers in London have filed the British version of a class action suit. And a German seafood supplier claims it was tricked into believing it was going green by shipping shrimp and cod to market in a fleet of Volkswagen “clean diesel” vehicles.
The Volkswagen case is the latest in which the Justice Department has extracted a guilty plea from an automotive company accused of wrongdoing. Last month, Takata, the Japanese auto parts maker, pleaded guilty to criminal charges linked to faulty airbags, agreeing to pay $1 billion in fines and penalties. Three Takata executives face criminal charges. The lawsuits are a potentially costly unknown, since there are far more diesel owners in Europe than in the United States — and they only add to Volkswagen’s ballooning legal bill, which has weighed on profits and shaken management ranks.
That marks a contrast with the settlement the Justice Department reached with General Motors over faulty ignition switches that were linked to more than 100 deaths. G.M. paid $2 billion in fines and civil settlements, but no executives were charged. Already, Volkwagen has paid heavily for it crimes, as the American government has tried to take a tougher approach to corporate wrongdoing. After being accused of treating Wall Street too gingerly in the wake of the 2008 financial crisis, the Justice Department, under the Obama administration, pushed in its final months to hold more companies and corporate executives accountable.
Manfred Doess, Volkswagen’s general counsel, acknowledged in court that the carmaker knowingly and intentionally mounted a conspiracy to violate the Clean Air Act and deceive federal environmental regulators, and destroyed or concealed records and other data in a bid to cover up its actions. Volkswagen, which admitted to equipping cars with software to cheat emissions tests, has been a prime example of the aggressive new posture. The company formally pleaded guilty in a Detroit courtroom on Friday to federal charges that included conspiracy to violate the Clean Air Act and obstruction of justice. Six executives have so far been charged in the United States, and one engineer has pleaded guilty to conspiring to defraud regulators and car owners.
He maintained, however, that the conspiracy was carried out by midlevel managers and engineers without the knowledge of the top executives who sit on the company’s management board. It is too soon to tell whether the new attorney general, Jeff Sessions, will adopt the same approach as the previous administration. Separately, the fate of the executives’ cases is unclear, since five of the six people indicted are believed to be in Germany, which does not usually extradite its citizens outside the European Union.
Judge Sean F. Cox, of the Federal District Court for the Eastern District of Michigan, heard a brief objection to the settlement from a lawyer representing about 300 Volkswagen customers seeking higher compensation than what the company has already agreed to pay in its civil settlement. But Volkwagen’s exposure in the United States has already dwarfed previous cases for vehicle manufacturers in pollution cases and safety malfunctions. Volkswagen agreed to pay $4.3 billion in civil and criminal penalties in the case brought by the Justice Department. It was just a piece of the overall $22 billion in settlements and fines in the United States.
The court accepted the plea but delayed sentencing until April 21. “Volkswagen deeply regrets the behavior that gave rise to the diesel crisis,” the company said in a statement. “The agreements that we have reached with the U.S. government reflect our determination to address misconduct that went against all of the values Volkswagen holds so dear.”
Volkswagen’s guilty plea does not, however, end its legal troubles. General Motors, by comparison, paid $2 billion in fines and civil settlements over faulty ignition switches that left more than 100 dead. No executives were charged in the matter.
Federal prosecutors have announced criminal charges against six Volkswagen executives, including a former head of development of the Volkswagen brand and the head of engine development. One, Oliver Schmidt, was arrested in Florida in January and remains in custody. The other five are believed to be in Germany. Takata, the Japanese auto parts maker, recently pleaded guilty to criminal charges linked to faulty airbags, agreeing to pay $1 billion in fines and penalties. Three Takata executives face criminal charges.
Shareholder lawsuits in the United States and Europe, meanwhile, could cost an additional $10 billion. Europe is now the big, potentially costly, wild card that remains for Volkswagen. This week, consumer protection authorities from a group of European Union countries agreed to join forces to put pressure on the company to compensate car owners.
Volkswagen developed the illegal software more a decade ago after it planned to ramp up sales of diesel cars and sport utility vehicles in the United States, but learned it could not get them to meet emissions requirements. But the automaker, in contrast to its strategy in the United States, is refusing to negotiate with unhappy diesel owners.
In 2014, researchers testing emissions of VW vehicles found they met tailpipe rules when tested in laboratory settings but released up to 40 times the pollutants allowed in real-world driving. When pressed by United States regulators to explain the matter, Volkswagen at first disputed the researchers’ findings. But in September 2015, it acknowledged the deception. It is betting instead that Europe’s less consumer friendly laws will allow it to avoid potentially ruinous financial damage. Volkswagen refuses to even admit that the emissions-cheating software that prompted the guilty plea in the United States is illegal under European Union law.
The news rocked the company. Its chief executive at the time, Martin Winterkorn, resigned soon after the revelations, more than a dozen others left the company in the months that followed, and sales in United States slumped as its diesel models were pulled from the market — all badly damaging Volkswagen’s reputation and brand image. The scandal has exposed the stark differences between laws governing corporate behavior in Europe and the United States.
With a few exceptions, like Britain, most European countries do not provide for class action suits, forcing owners to challenge corporations alone. Emissions regulations in the European Union are also full of loopholes and it is harder to prove wrongdoing. There is no single agency in the bloc with the enforcement powers of the Environmental Protection Agency or Federal Trade Commission.
Volkswagen, for its part, has good reason to take a hard line in Europe.
In the United States, criminal and civil fines, settlements with owners and other costs have come to more than $22 billion for fewer than 600,000 vehicles. If it had to pay that much per car in Europe, where there are 8.5 million diesels with the emissions software, the cost would be more than $300 billion — enough to destroy the company.
Even in a worst-case scenario, Volkswagen is unlikely to have to pay more than a few thousand euros per car in Europe. Still, any additional financial burden would divert yet more funds that Matthias Müller, the company’s chief executive, would rather spend to develop new models and stay on the cutting edge of a shift to electric and self-driving vehicles.
Whatever the outcome in the European lawsuits, they will be a long-running headache for Volkswagen. While the American court proceedings were costly for the company, they were at least efficient.
The class action lawsuits by owners were bundled into one case and settled in less than a year. In Europe, Volkswagen is facing thousands of legal pinpricks — lawsuits by owners brave enough to take on one of the Continent’s biggest corporations.
A nurse named Eithne Higgins, for example, has filed a lawsuit in a district court in Castlebar, in northwest Ireland. She is claiming that her diesel, made by a Volkswagen unit, has plunged in value because it is equipped with the illegal software designed to fool emissions tests.
Her lawsuit has taken on broader significance because her lawyer, Evan O’Dwyer, is trying to use it to get Volkswagen to surrender large quantities of potentially incriminating documents. Unlike in the United States, courts in many European countries do not allow plaintiffs broad leeway to subpoena evidence from corporations.
Mr. O’Dwyer is cooperating with the firm managed by Michael Hausfeld, a Washington lawyer who played a major role in the class action lawsuit against Volkswagen in the United States. Mr. Hausfeld, whose firm has an office in Berlin, has been trying to find creative ways to bring American-style litigation methods to Europe.
Wary of the precedent that might be set, Volkswagen has hired a prominent Dublin firm to defeat Ms. Higgins’s suit. Lawyers for Volkswagen have asked an Irish appeals court to rule that the lower court has no jurisdiction.
In other European cases, Volkswagen has argued on technical grounds that the software in the cars is not an illegal “defeat device” under the region’s rules.
The company admits that the software caused the cars to produce impermissible amounts of harmful nitrogen oxides. But the software worked by changing the way the engine functioned and did not affect the emissions control system. So, according to Volkswagen’s reasoning, it did not meet the European definition of a defeat device.
Volkswagen also argues that a recall underway across Europe fixes the emissions problem, claiming that customers have suffered no damage. A similar fix was not possible in the United States, which has more stringent limits on nitrogen oxides.
The extent of the legal threat to Volkswagen will become clearer once some of the cases reach appeals courts. Mr. Hausfeld and others hope that a successful case would encourage more plaintiffs to come forward.
But it is by no means certain that a higher court would rule in favor of vehicle owners.
By Volkswagen’s count, it has won more than three-quarters of about 2,000 lawsuits that have been decided by lower courts in Germany. The relatively small number of suits, out of 2.5 million diesels in Germany, is evidence that most customers are not unhappy, the company says.
“Consumer law is very weak in Germany,” said Ferdinand Dudenhöffer, a professor at the University of Duisburg-Essen. “You won’t get the big damages you get in the U.S.A.”
But Mr. Dwyer, the Irish plaintiffs’ lawyer, warned that Volkswagen will face a deluge of lawsuits if higher courts rule in favor of aggrieved owners.
“There are a lot of people waiting on the fence for things to happen,” he said.