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Irina Slav

Irina Slav

Irina is a writer for the U.S.-based Divergente LLC consulting firm with over a decade of experience writing on the oil and gas industry.

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VW Agrees To Pay $10 Billion In Dieselgate Scanadal

Car Emissions

Back when VW started installing pollution test-cheating software on its diesel-engine cars, probably no one thought it would all end with such a loud bang: $17.8 billion in provisions related to what’s now called Dieselgate, a net loss of $1.74 billion for 2015, and a series of lawsuits in Europe and the U.S. that will cost VW billions more.

VW recently agreed to pay around $10 billion to settle a class-action lawsuit involving almost half a million car owners affected by the company’s performance-rigging machinations.

The so-called Dieselgate made headlines last fall, when the U.S. Environmental Protection Agency revealed that VW cars with diesel engines had a special software installed that manipulated the vehicles’ performance when they were being tested for polluting emissions. In some cases, the EPA found, actual emissions of nitrogen oxide and compounds exceeded the legal limit by a factor of 40.

Since then, VW has admitted it had installed the software on as many as 11 million cars.

Reactions were unambiguous and immediate, including a management shuffle that saw CEO Martin Winterkorn resign and lawsuits, both against members of the management team and against the company as a whole.

Winterkorn and brand chief Herbert Diess are currently being investigated by the prosecutor’s office for the state of Lower Saxony for market manipulation. The charges are that the two knew about the potential losses the company may suffer from the performance-rigging practice, but failed to inform investors about this until it was too late.

The investigation may expand to more members of VW’s management.

Earlier this year, 300 institutional investors filed a suit against VW, asking for damages to the tune of $3.6 billion that were incurred after the company’s stock nosedived by 50 percent following the revelations about Dieselgate. Now the EU’s Industry Commissioner Elzbieta Bienkowska has urged the company to extend to European car owners the same generosity it did to U.S. motorists affected by Dieselgate. Related: OPEC’s Pain Is Only Getting Worse As Revenues Continue To Fall

VW agreed to individual compensations of between $1,000 and $7,000, in addition to repurchasing or fixing the “cheating” cars. In Europe, the company has agreed to remove the cheating software from affected cars, but has offered no cash compensation.

German media have suggested that the very existence of Volkswagen is at risk, with customer trust severely affected and with the prospect of more fines and settlements in the billion-euro range. Even so, the company reported a profit for the first quarter of this year. Sentiment is upbeat about its full-year performance, with the management anticipating a 5 percent overall revenue decline, which is definitely not life threatening.

As huge as the Dieselgate scandal is, it’s unlikely to topple one of the world’s largest carmakers. VW has already stopped selling diesel-engine cars in the U.S. and may take the same step in Europe, reflecting a growing negativity about diesel.

Its reputation has suffered and investors are angry. Yet, in all likelihood, it will survive and regain its balance. After all, fines and settlements of more than $50 billion failed to topple BP after the Deepwater Horizon disaster.

By Irina Slav for Oilprice.com

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  • KansasGirl on June 27 2016 said:
    Where does this money end up?
  • Larry on June 28 2016 said:
    Irina < You need to dig a little deeper on the VW diesel leaving the US MKT.@125mpg what do you think emissions were never the issue

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