dieselgate scandal

Bans and Lawsuits for VW

Volkswagen used emissions-cheating device: ministry This September 2015 file photo shows a depot for cars imported from Volkswagen at a port in Pyeongtaek on South Korea's west coast. The Environment Ministry said on Nov. 26, 2016, the German auto giant was found to have faked emissions results of some of its diesel models sold in South Korea. (Yonhap)/2015-11-26 11:11:20/ [ Rechtehinweis: picture alliance ]
VW's imported cars in Pyeongtaek on the west coast of South Korea.
  • Why it matters

    Why it matters

    The revocation of licenses to sell cars in South Korea will further dent the carmaker’s profits and trust by investors and customers.

  • Facts

    Facts

    • Volkswagen is grappling to address the Dieselgate scandal which affects 11 million cars worldwide and has set aside €18 billion for legal costs.
    • South Korean authorities have banned the sale of 80 VW models in the country for falsifying data about noise and emissions.
    • South Korea’s fair trade commission is also investigating is whether the carmaker exaggerated claims in its advertising.
  • Audio

    Audio

  • Pdf

Another day, another series of Dieselgate fallouts for Volkswagen.

The government in South Korea has withdrawn Volkswagen’s license to sell almost all of its cars in the country, the second-most important market for diesel vehicles in Asia. The move affects 80 models, including of subsidiaries like Bentley and Audi.

Volkswagen will additionally be fined €14.2 million for falsifying information about the cars’ emissions and noise levels.

But South Korea’s ban wasn’t the only bad news of the day.

Bavaria’s finance minister said the state may have no choice but to sue Germany’s largest automaker to recover hundreds of thousands its pension fund has lost because of Volkswagen’s collapsing share price. The carmaker is in similar battles with private pension funds in the United States.

Volkswagen is struggling to overcome the effects of the Dieselgate scandal, which broke last September when the carmaker admitted to fitting cheat devices in 11 million diesel cars worldwide. The cars had devices installed that lower emissions under test conditions but switch off in real driving conditions.

In July, VW increased the amount of money it has set aside for fines and legal costs to €18 billion. The true costs of the scandal however remain unclear as lawsuits and investigations are ongoing.

Volkswagen’s preference shares have lost one third of their value since the carmaker admitted to the manipulation. On Tuesday, the carmaker’s preference shares fell another 5 percent, closing at €118.85. Only Germany’s Commerzbank performed worse on the blue-chip DAX index.

While Volkswagen announced strong sales last month, the step taken by South Korean authorities will no doubt dent its progress in the country.

South Korea’s decision Tuesday is particularly damaging. It could take months for VW to regain the licenses to sell import cars, without which the carmaker is banned from selling the vehicles. The carmaker called the decision “most severe,” according to a Reuters report and is considering taking legal steps.

VW had already withdrawn 79 car models from sale in the country in July amid an investigation into the emissions scandal, when prosecutors presented a list of VW cars it suspected were affected. A VW executive was also arrested in June for allegedly falsifying hundreds of documents about the cars.

South Korea’s environment ministry also revoked the certification for 83,000 VW, Audi and Bentley cars already on the road. This brings the total number of cars – both diesel and gasoline – de-certified in South Korea to 209,000 since November, or 68 percent of the vehicles the automaker had sold in the country since 2007, the environment ministry said. Last November, the carmaker was fined the equivalent of €10.3 million.

While Volkswagen announced strong sales last month, the step taken by South Korean authorities will no doubt dent its progress in the country. Before the emissions scandal, VW’s South Korean unit had tripled revenue to 2.82 trillion South Korean won ($2.54 billion) in the last five years. Since the scandal emerged, VW’s sales have fallen 33 percent in South Korea.

Separately, South Korea’s Fair Trade Commission has opened an inquiry into whether the carmaker exaggerated information about its vehicles in its advertising. Volkswagen had described in ads that its cars met Euro 5 emissions standards.

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In its annual report for 2015, Volkswagen noted that various mass legal proceedings were pending in South Korea, where several hundred lawsuits had been aggregated seeking damages and to rescind purchase contracts.

Volkswagen said it greatly regretted the current situation and would cooperate with the environment ministry in order “to win back trust among dealers and customers.”

Tuesday brought further difficulties for Volkswagen in the form of a possible suit for damages from the German state of Bavaria.

Bavaria plans to sue the German automaker Volkswagen over the consequences of the Dieselgate scandal, the state’s finance minister told the German news agency DPA. The lawsuit stems from share-price losses that have affected the value of Bavaria’s state pension fund, the finance minister, Markus Söder, told the agency on Tuesday.

Volkswagen’s failure to warn shareholders about the scandal meant Bavaria’s pension funds suffered serious losses, and now wants the money back from VW. Mr. Söder said the sum could run to €700,000. Bavaria has to sue Volkswagen, Mr. Söder said, adding that the state had legal obligations towards its employees. “These are legal entitlements that we have to pursue.”

The southern state of Baden-Württemberg is also considering suing Volkswagen over the diesel emissions scandal, according to information obtained by Handelsblatt.

At the outbreak of the emissions scandal, the state held 64,600 preferred Volkswagen stock through a €5.2 billion ($5.7 billion) fund set up to support the benefits of state employees.

The automaker’s preference shares have dropped by nearly a third in the past year due to the Dieselgate scandal, which was revealed last September.

“We have been reviewing whether or not to file a damages suit for some time,” a source in the state finance ministry told Handelsblatt.

The same day, Volkswagen moved to battle suits from the investors into pension funds in Arkansas and Miami, also relating to losses. Both own American Depositary Receipts which make it easier for companies to hold shares in foreign firms.

Complaint have been filed by investors in the Arkansas State Highway Employees’ Retirement System and the Miami Police Relief and Pension Fund. Volkswagen applied to the District Court in California to dismiss the application, saying that the criteria for the suit aren’t fulfilled. A company spokesperson said: “Volkswagen is convinced that the consolidated securities class action is without basis.”

The complainants now have until October 11 to contest VW’s rebuttal. The German carmaker then would have to file any response by November 22.

 

Allison Williams is deputy editor in chief of Handelsblatt Global Edition. To contact the author: williams@handelsblatt.com

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