Putting a price on Volkswagen's diesel disaster

An $18bn (€16bn) liability figure attached itself last Friday to Volkswagen’s diesel disaster.

Yesterday came news the German carmaker has set aside $7.3bn to cover a scandal spreading worldwide.

Volkswagen has apologised for selling hundreds of thousands of diesel cars in the US with software specifically designed to evade government pollution tests.

That’s bad, but it gets worse. As regulators in multiple countries have weighed in to say they would also probe Volkswagen imports, the company disclosed the irregularities on diesel-emission readings extend to some 11m vehicles globally.

At this early stage, putting a precise price tag on the ultimate cost of pollution penalties, criminal fines, private settlements, and the like is virtually impossible.

But we can begin to break down some likely elements of the pecuniary damage Volkswagen faces.

The $18bn liability figure reflects the maximum per-car clean-air penalty the EPA could in theory assess. For those who like to see the maths: 482,000 four cylinder VW and Audi cars sold in the US since 2008 multiplied by $37,500 for each non-compliant vehicle.

That’s the way a very angry American judge might calculate civil damages if there were a trial.

But there won’t be a trial. Volkswagen CEO Martin Winterkorn said on Sunday his company is “deeply sorry” and will do “everything necessary in order to reverse the damage this has caused.”

On Monday, Michael Horn, the head of the brand in the US elaborated at an ill-timed promotional event in New York. “Our company was dishonest with the EPA, and the California air resources board and with all of you,” he told reporters.

Prosecutors from the US will look for evidence of knowing fraud by Volkswagen engineers and executives.

Since the company has admitted it rigged diesel vehicles to pass lab tests even though they emitted as much as 40 times the legal limit of pollutants on the road, it seems likely investigators will find fraud.

That will probably lead to three results: A corporate criminal plea by Volkswagen, a criminal fine , and criminal charges against individuals.

We have some potentially helpful comparison points. Just a few days ago, General Motors agreed to pay $900m to resolve a federal criminal probe of ignition-switch flaws linked to at least 124 crash deaths and the recall of 2.59m cars.

So far, no individuals have been criminally charged in the GM case, but the probe is continuing.


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