Published 2:37 p.m. ET Jan. 10, 2017
The federal government’s pending agreement to fine Volkswagen AG $4.3 billion for rigging hundreds of thousands of diesel cars to cheat U.S. emission standards would be the largest penalty levied on an automaker doing business in the United States.
Volkswagen said Tuesday it is too early to gauge the financial effect that the penalty – which far surpasses other fines levied against car companies in recent years – would have on its bottom line.
Under the agreement with the U.S. Justice Department and U.S. Customs and Border Protection which is not yet finalized, VW will be forced to enter a guilty plea regarding “certain U.S. criminal-law provisions” and will issue a statement of facts on the emission cheating. The company will be subject to an independent monitor for the next three years.
VW said the final conclusion of the settlement agreement “is still subject to the approval by the management board and the supervisory board of Volkswagen AG.”
The Justice Department declined to comment.
Volkswagen’s diesel fine would dwarf the $900 million fine that General Motors Co. was forced to pay over its handling of vehicles with a dangerous ignition switch defect. And it is far more than the $1.2 billion that Toyota Motor Corp. was penalized for issuing misleading statements about cars that experienced unintended acceleration in 2014.
“The concrete impact regarding the annual result 2016 cannot be defined at present due to its dependency on various further factors,” VW said.
Volkswagen has been under fire in the United States since it was accused by the U.S. Environmental Protection Agency in September 2015 of selling diesels for years with software that activated required air pollution equipment only during emissions tests. They had been marketed as “clean diesels” for the company’s Volkswagen, Audi and Porsche brands between 2008 and 2015.
The automaker has admitted to programming its diesel cars to trick emissions testers into believing the engines released far less pollution into the air than they actually do, in violation of the federal Clean Air Act. Regulators have said that in normal driving they emitted up to 40 times more smog-causing nitrogen oxide than the legal limit.
Volkswagen has stopped selling diesel cars in the U.S. since it admitted to cheating federal emission standards.
The $4.3 billion fine that would be imposed on VW comes in addition to a $14.7 billion settlement the company reached earlier this year with the EPA that calls for it to spend $10 billion to either buy back or repair about 475,000 2-liter diesel vehicles that were sold between 2009 and 2015 and were built with devices to trick emissions testers; the company must contribute $4.7 billion to federal efforts to reduce pollution.
Karl Brauer, executive publisher for Cox Automotive, said Tuesday that he could not think of larger fine being imposed on an auto company.
“And this still isn’t the end,” he said. “There still is the potential for states like California that might sue and other countries like Europe that are supposedly in the works. We’re crossed $20 billion and we still aren’t done.”
The announcement of the civil and criminal penalties for the emission cheating follows the arrest on Monday of a second Volkswagen executive who was responsible for ensuring the company was in compliance with U.S. emissions regulations.
Oliver Schmidt, former general manager of the Engineering and Environmental Office for VW of America, was arrested in Miami and charged with one count of conspiracy to defraud the United States to commit wire fraud and violate the Clean Air Act.
James Robert Liang, leader of diesel competence for VW from 2008 through June, pleaded guilty to a criminal charge in September for his role in the automaker’s diesel emissions scandal.
Michelle Krebs, senior analyst for Autotrader, said Volkswagen’s apparent punishment is fitting given the magnitude of its efforts to deceive regulators and cheat U.S. emission rules.
“What Volkswagen did — deliberate deception — was unprecedented and so is the punishment,” she said.
Brauer, the Cox executive publisher, said Volkswagen’s negative publicity and penalties have so far not hurt its global sales, thanks to the German automaker’s strong performance in China in 2016.
“In the face of all of this, they grew in sales,” Brauer said of VW, which has been on the verge of catching Toyota in the global auto sales race. “They’re doing very well in China. You have a company that is facing problems in U.S., but they’re still growing globally.”
Brauer predicted Volkswagen would be able to survive the blow to its finances and public perception from the emission scandal like other auto companies that have been embroiled in controversy like GM and Toyota did.
“This has been a pretty big blow to Volkswagen, but at the same time I’ve seen other news issues centered around auto companies and a few years later it’s like, ‘Oh yeah, I remember that,’” he said. “Other companies have bounced back from them, and I still think that’s the long-term prognosis for Volkswagen.”