Car Dealers

Making VW pay for its sins

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Cleaning up VW's image at home may prove difficult. Source: Reuters

First came the American dealers, 637 angry small businessmen accusing Volkswagen of having “blindsided” them with the revelation that its diesel cars contained software to cheat on emissions tests. They filed a class action lawsuit against the German firm and won €1.42 billion ($1.67 billion) compensation.

Now dealers in Germany, once the loyal sales partners for VW, are clamoring for similar help. And the cost to VW could be substantially higher – diesel cars make up just 3 percent of the cars sold in the US, compared with nearly 50 percent in Germany.

“Volkswagen let the dealers stand in the rain,” said Christian Genzow, a Cologne-based lawyer who is representing a number of German VW dealers who are upset at the way they have been treated in the diesel scandal.

“Up to now, VW has not even apologized to the dealers for the diesel scandal.”

Christian Genzow, lawyer for VW dealers

However, the dealers face a number of hurdles in pursuing a legal case. Unlike in the United States, class action lawsuits are rare, in part because the German legal system has a “loser pays” legal costs requirement so plaintiffs are reluctant to take on large corporations with deep pockets.

Another big difference with America is that VW pleaded guilty to an extensive series of charges made by the US Environmental Protection Agency and paid $16 billion in fines, so the government basically provided the legal basis for the US dealers’ suit.

In Germany, on the other hand, where the state of Lower Saxony owns 20 percent of the company, VW has been treated with kid gloves.

The ministry of transport approved a recall of affected VW cars to fix the same illegal software defeat device, saying that no further action was required. Efforts by consumer groups in Germany and other parts of Europe to sue VW over the scandal have proved fruitless because of this decision. Not only is VW not admitting to having broken the law, the government has approved its fix as a legal solution to the problem, although dealers complain that the software fix is months late in being provided.

Since the scandal broke in Germany, the market share of VW diesel cars has slipped from 21.4 percent at the end of 2014 to around 18.3 percent today, nearly a fifth less cars sold. Unsold diesels now fill many dealers’ lots.

At a meeting of VW dealers in Mainz, a number of franchise owners talk about the fear of bankruptcy. With driving bans for diesel cars being considered in a number of cities, new diesel registrations are down about 10 percent.

“No one thought a failure of this magnitude was possible from the VW group,” said Dirk Weddigen, president of the dealers’ association. Another dealer, who asked to remain anonymous, adds: “The last two years have been a horror. We have been treated like the worst dirt.”

Mr. Weddigen said a legal opinion from the Cologne law firm of Osborne Clarke concluded that VW “must be liable for the damage caused by unauthorized action.”

The German dealers have faced numerous problems according to their attorney, Mr. Genzow. “The burdens are enormous,” he said. Dealers are either unable to sell their used diesel cars or have to offer huge discounts over the list price. Even worse, when leased cars are returned to the dealers, they face thousands of euros in losses because of the scandal, he said.

Despite the damning evidence against VW, the financial remedy for German dealers is expected to be much more modest than in the US. Each dealer might get around €100,000, the dealers association said. According to the Hagens Berman law firm in Seattle, which brought the US dealers’ class action, each dealer received $1.85 million in cash and substantial non-cash benefits.

“Customer confidence in the dealers, which took years to build, is massively damaged,” Mr. Genzow said. “Up to now, VW has not even apologized to the dealers for the diesel scandal.”

Volker Votsmeier is part of Handelsblatt’s investigative team, Stefan Menzel is one of Handelsblatt’s leading automotive reporters and Charles Wallace is an editor for Handelsblatt Global in New York. To contact the authors: votsmeier@handelsblatt.com, menzel@handelsblatt.com and c.wallace@extern.handelsblatt.com

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