Volk­swa­gen to ad­mit guilt in scan­dal

Set­tle­ment with U.S. over emis­sions scam also calls for $4.3 bil­lion in fines


detroit — Ger­man au­tomaker Volk­swa­gen said Tues­day that it plans to ad­mit guilt to set­tle crim­i­nal and civil in­ves­ti­ga­tions brought by U.S. of­fi­cials re­lated to its diesel emis­sions cheat­ing scan­dal, a rare ad­mis­sion of crim­i­nal wrong­do­ing by a ma­jor com­pany.

The set­tle­ment, which Volk­swa­gen said is in “ad­vanced dis­cus­sions,” also calls for the com­pany to pay $4.3 bil­lion in fines.

In an­other un­usual move, the FBI this week ar­rested a Volk­swa­gen em­ployee ac­cused of par­tic­i­pat­ing in the scheme to de­ceive U.S. reg­u­la­tors. A sec­ond Volk­swa­gen worker pleaded guilty in Septem­ber to fraud charges. Court doc­u­ments in­di­cate that in­ves­ti­ga­tors are look­ing at other au­towork­ers as well.

VW’s ad­mis­sion of guilt struck an­a­lysts as both a sign of the strength of the govern­ment’s case and the fastest route for an au­tomaker try­ing to es­cape dam­ag­ing head­lines that have poured out for more than a year since the scan­dal broke.

It also stands in con­trast with other re­cent cases in­volv­ing au­tomak­ers — in­clud­ing Toy­ota’s prob­lem with the sud­den ac­cel­er­a­tion of its cars and GM’s deadly prob­lem with faulty ig­ni­tion switches — in which com­pa­nies paid hefty fines but did not ad­mit crim­i­nal wrong­do­ing.

David Uhlmann, who was head of the Jus­tice Depart­ment’s en­vi­ron­men­tal crimes sec­tion from 2000 to 2007, saw VW’s ex­pected ad­mis­sion as a hope­ful sign.

“The Jus­tice Depart­ment needs to move past its will­ing­ness to al­low com­pa­nies like VW to buy their way out of crim­i­nal pros­e­cu­tion — as Toy­ota and GM were able to do,” said Uhlmann, a Univer­sity of Michi­gan law pro­fes­sor.

The late-stage deal with the Jus­tice Depart­ment and U.S. Cus­toms and Bor­der Pro­tec­tion is still sub­ject to the ap­proval of Volk­swa­gen’s man­age­ment and board of di­rec­tors, the com­pany said. Those bod­ies were set to meet by Wed­nes­day.

If it re­ceives their sup­port, the set­tle­ment must then be ap­proved in court. Volk­swa­gen then will be re­quired to have an in­de­pen­dent mon­i­tor over­see its busi­ness for the next three years to en­sure reg­u­la­tory com­pli­ance.

The scan­dal af­fected 11 mil­lion cars around the world, in­clud­ing roughly half a mil­lion in the United States.

The agree­ment comes three months af­ter a U.S. district judge signed off on a sep­a­rate set­tle­ment that re­quires Volk­swa­gen to pay reg­u­la­tors and car own­ers $14.7 bil­lion — the largest penalty levied against an au­tomaker in U.S. his­tory. Most of that money will be used to buy back cars and oth­er­wise com­pen­sate the af­fected cus­tomers; smaller por­tions are al­lo­cated for ef­forts to mit­i­gate the en­vi­ron­men­tal dam­age and pro­mote zero-emis­sion cars.

“When you break the laws de­signed to pro­tect pub­lic health in this coun­try, there are se­ri­ous con­se­quences,” En­vi­ron­men­tal Pro­tec­tion Agency Ad­min­is­tra­tor Gina McCarthy said at a June 2016 news con­fer­ence when the penalty was an­nounced.

In Septem­ber 2015, the EPA is­sued a vi­o­la­tion no­tice that Volk­swa­gen had out­fit­ted its diesel cars with soft­ware that rec­og­nized when the ve­hi­cle’s emis­sions were be­ing tested. The car then ac­ti­vated a mech­a­nism to re­duce its emis­sions at the ex­pense of en­gine per­for­mance. When not be­ing tested, how­ever, the cars ac­tu­ally emit­ted 40 times as much ni­tro­gen ox­ide as Clean Air Act reg­u­la­tions per­mit.

The scan­dal has not greatly harmed car sales. Volk­swa­gen an­nounced Tues­day that world­wide sales in 2016 rose by 3.8 per­cent from the year be­fore, though U.S. sales were off by 2.6 per­cent.

Kel­ley Blue Book an­a­lyst Karl Brauer said Volk­swa­gen sales took their hard­est hit in the United States at the end of 2015. The scan­dal con­tin­ued to drag down sales in the United States through­out 2016, al­beit mod­estly, and the com­pany’s global sales were buoyed by China and Europe, where Volk­swa­gen is a big­ger player in the mar­ket.

“Gen­er­ally, Amer­i­cans don’t have a su­per long mem­ory when it comes to au­to­mo­tive scan­dals,” Brauer said. “So they didn’t grow [in the U.S.] this year, but they didn’t suf­fer fur­ther.”

But the scan­dal con­tin­ues to un­fold for ex­ec­u­tives at Volk­swa­gen.

A Volk­swa­gen ex­ec­u­tive was ar­rested in Mi­ami over the week­end and charged with con­spir­acy to de­fraud the govern­ment. Oliver Sch­midt, a Ger­man res­i­dent who was the ex­ec­u­tive in charge of the com­pany’s emis­sions com­pli­ance in the United States, did not en­ter a plea in court Mon­day. The Jus­tice Depart­ment as­serts that Sch­midt knew that the soft­ware fal­si­fied tests but kept that in­for­ma­tion hid­den from reg­u­la­tors.

In Septem­ber, an­other Volk­swa­gen em­ployee, en­gi­neer James Liang, pleaded guilty to de­fraud­ing U.S. reg­u­la­tors and cus­tomers. Pros­e­cu­tors con­tend that Liang was among the em­ploy­ees who cre­ated the de­cep­tive soft­ware af­ter re­al­iz­ing Volk­swa­gen’s diesel en­gine could not meet stiff­en­ing en­vi­ron­men­tal stan­dards.

On Tues­day, shares of Volk­swa­gen ended reg­u­lar trad­ing mod­estly higher, but about 42 per­cent lower than when they reached their record high a few months be­fore news of the scan­dal widely broke in late 2015.

Ex­ec­u­tives have since apol­o­gized for the emis­sions scan­dal and pledged to ex­pand their fleet of eco-con­scious ve­hi­cles. In June, Volk­swa­gen vowed to de­but 30 new elec­tric ve­hi­cles by 2025, an ag­gres­sive time frame dur­ing which the com­pany also plans to in­vest in bat­ter­ies, dig­i­ti­za­tion and au­ton­o­mous driv­ing.

At the North Amer­i­can In­ter­na­tional Auto Show in Detroit, ex­ec­u­tives told re­porters they were seek­ing to re­build the coun­try’s trust in the brand. The com­pany un­veiled a new ver­sion of the Tiguan cross­over and a mod­ern, con­cept ver­sion of its clas­sic mi­crobus that is elec­tric and can drive it­self.

Volk­swa­gen cer­tainly isn’t the first au­tomaker to run afoul of the fed­eral govern­ment.

In 2015, the Jus­tice Depart­ment or­dered GM to pay $900 mil­lion for an ig­ni­tion switch de­fect that was tied to at least 174 deaths. The com­pany and its ex­ec­u­tives faced no crim­i­nal charges de­spite ac­cu­sa­tions of mis­lead­ing safety reg­u­la­tors and de­lay­ing po­ten­tially life­sav­ing de­ci­sions.

The year be­fore, Toy­ota was told to pay $1.2 bil­lion for de­ceiv­ing reg­u­la­tors about a glitch that caused some of its cars to ac­cel­er­ate sud­denly. The de­fect also led to fa­tal car wrecks and safety con­cerns among own­ers of the brand. At the time, the set­tle­ment was the largest fine ever im­posed by the Jus­tice Depart­ment on a car com­pany. Toy­ota also avoided crim­i­nal charges.

“VW had lit­tle chance of get­ting off that eas­ily in light of de­lib­er­ately in­stalling the cheat­ing soft­ware and deny­ing do­ing any­thing wrong un­til it was caught red­handed,” said Erik Gor­don, a pro­fes­sor at the Univer­sity of Michi­gan’s Ross School of Busi­ness.


At­ten­dees look at Volk­swa­gen’s lineup of ve­hi­cles Mon­day dur­ing the 2017 North Amer­i­can In­ter­na­tional Auto Show in Detroit. At the event, ex­ec­u­tives from the Ger­man au­tomaker told re­porters that they are seek­ing to re­build the coun­try’s trust in the brand in the wake of the emis­sions-cheat­ing scan­dal.

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