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Volkswagen’s High Ambitions Came With A High Price

With the November numbers in, it appears as though Volkswagen’s US sales have slid by 25 percent. It’s still too early to say whether the drop is going to be a consistent trend or just the single worst month – October sales were stagnant, but the month was too close to the start of Dieselgate to feel its effects – but it’s clear even now that VW’s efforts to become the world’s top automaker have completely backfired.

Uncompromising Goals Led To Other Compromises

Recent internal investigations at Volkswagen have turned up evidence that work on their illegal solution to diesel emissions standards may have started as early as 2005, and the defeat devices they used to fool lab emissions tests were first used in vehicles in 2007-2008. That was when the EPA brought its nitrogen oxide emission requirements to a stricter standard than the EU’s.

The reason VW employees considered cheating to be a reasonable solution is the simple fact that they had no other solution that met government and corporate demands. VW was desperate to expand its market for diesel personal vehicles into the United States, but Americans have been notoriously shy about buying diesel-powered cars since the very beginning. Since Volkswagen’s diesel engines weren’t able meet both the EPA’s strict standards and the company’s performance requirements, their engineers turned to the defeat devices as a way of doing each at two different times.

The real kicker, however, is the fact that they eventually developed a technical solution which would have let them create engines that met both standards without the need for deception. Unfortunately, the lawful solution came years too late, and by that point VW’s staff had already committed itself (in many cases unknowingly) to the defeat device.

It seems the trouble was that Volkswagen was pushing itself too hard too fast to become the world’s top automaker, and as a result of making unreasonable demands the company came up with unreasonable solutions. VW would eventually achieve its goal in the middle of 2015, passing GM and Toyota to reach the top spot, but Dieselgate went public soon afterwards and toppled them from the head of the rankings in an instant. Hindsight is admittedly 20/20, but VW probably should have taken a page from the tortoise instead of the hare.

The Uncertain Future

Although the number of affected vehicles is more or less known by this point, what’s still unclear is the final cost of this scandal. Volkswagen has set aside 6.7 billion euros to pay for everything including recall and refit costs, fines, and settlements with their customers, but even the most conservative analyst considers this amount to be more wishful thinking than a realistic estimate.

Still, VW is sparing no expense when it comes to expert help. The company recently hired Ken Feinberg to operate an alternative dispute resolution program so that they can hopefully settle as many American diesel fraud cases outside the courts as possible. Feinberg previously worked on similar funds to resolve disputes including GM’s faulty ignition switches and BP’s massive Gulf oil spill, so to say that the man knows his business is an understatement.

On the other hand, the number of VW diesels in America is peanuts compared to the nearly 11 million in Europe and Asia. And while EU citizens are generally less likely to sue than Americans, their governments will probably demand far more in fines and penalties than the EPA and the NHTSA.

Still, if worse comes to worst, Germany is likely to offer the same sort of bailout package as the US government extended to GM and Chrysler. Although Dieselgate is a scandal of VW’s own creation, too many people would suffer if Germany’s biggest automaker were to collapse.

To say that Volkswagen is headed for hard times is a major understatement, but they’ll likely pull through one way or another. What’s more important is making sure that the right people are punished for their actions, and making sure that the governments and individuals VW cheated are fairly compensated.

Michael J. Babboni's wide-ranging legal career is based on the strong belief that everyone should be treated fairly and have access to effective legal help. Michael began putting his beliefs in action by helping the people of St. Petersburg Florida get what they are owed in civil trials fighting to protect families by making corporations pay, and honor their obligations.

Volkswagen’s High Ambitions Came With A High Price

Goldman Babboni Fernandez
Murphy & Walsh

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