by William Boston, wsj.com, 13 June 2018
The auto maker said it wouldn’t appeal the penalty
|Volkswagen's emissions-cheating scandal has cost it|
billions. Photo: Sean Gallup/Getty Images
Volkswagen said it wouldn’t appeal the fine, for dereliction of management oversight, which could pave the way to the resolution of remaining criminal investigations in Europe.
The fine, the first imposed against Volkswagen in Europe, comes nearly three years after the German auto maker admitted to rigging nearly 11 million diesel vehicles to cheat on emissions tests. Dieselgate, as the scandal has been called, has cost Volkswagen tens of billions of dollars.
It also embarrassed the German political establishment, which has long been intertwined with the country’s most important industry. Politicians from both major German political parties have sat on the supervisory board of VW, which is partly state-owned. Former politicians move frequently from public office to jobs as auto-industry lobbyists.
The prosecutors’ investigation concluded that a lack of management oversight in VW’s engine-development department after 2007 shared responsibility for the manipulation of 10.7 million diesel vehicles that were rigged to fool regulators world-wide.
Disclosure of the decadelong cheat by U.S. environmental authorities in 2015 swept away VW’s top managers and led to the company pleading guilty in 2016 to defrauding the U.S. government and consumers. VW paid more than $25 billion in penalties, fines and compensation for consumers.
It also spurred other criminal investigations and civil complaints, many of which are still hanging over the company.
Volkswagen said the prosecutor’s ruling would have “positive effects on additional investigations in Europe against Volkswagen and its subsidiaries” and called it a “further step” toward resolving the diesel scandal.
The fine imposed Wednesday isn’t included in the €26 billion that Volkswagen has provided for on its balance sheets to cover the costs of the diesel scandal. Analysts said that means Volkswagen is likely to take another charge against earnings, likely to be booked in the second quarter.
Arndt Ellinghorst, an auto analyst at Evercore ISI, a brokerage based in London, said the ruling could relieve some investor angst about unknown fines looming over Volkswagen in the future.
“Many investors were reluctant to invest in VW with potentially unquantifiable legal risk,” he wrote in a note to investors. “That fact that the criminal risk is now being dealt with is good news.”
Environmentalists, who have long campaigned against diesel, welcomed the news.
“This has been a long time coming,” said Udo Taddei, a clean-air lawyer with ClientEarth, an environmental group based in London. “It’s high time for authorities across Europe to start imposing fines.”
Dieselgate has involved most of the auto industry. Volkswagen has been hit hardest in part because of the sheer scale of the subterfuge, but also because VW officials engaged in a coverup that lasted nearly two years after the company fell under the suspicion of U.S. regulators.
Two former Volkswagen employees have pleaded guilty and are serving jail time in the U.S., while several more have been indicted in the U.S. and are under investigation in Germany. Those include former CEO Martin Winterkorn, who was forced to resign in 2015.
Munich prosecutors said this week that they added Rupert Stadler, head of Volkswagen’s luxury division Audi, one of Volkswagen’s biggest profit centers, to the list of suspects in a diesel-related fraud investigation targeting at least 20 people. Mr. Stadler has declined to comment. Audi said Wednesday that the company was cooperating with the investigation.
Beyond Volkswagen, the German government this week ordered Daimler AG , which makes Mercedes-Benz cars, to recall 774,000 cars of various models, including its flagship S-class sedan, to remove what the government determined was illegal software. Daimler has declined to comment on the substance of the allegations, saying only that “legal issues” would be cleared up in its appeal of the government’s ruling.
The allegations against Daimler involve manipulation of two engines, one of which the company received from French car maker Renault SA, which denies wrongdoing.
The emissions-cheating scandal has triggered consumer backlash and spurred a movement among cities and towns in Europe to at least partially ban some diesel cars.
The backlash has hit new-car sales, forcing auto makers to produce fewer diesel vehicles and instead offer consumers models that use gasoline. The diesel share of VW’s new-car sales in Germany has fallen to 36% so far this year, compared with 55% before the scandal.
Write to William Boston at email@example.com