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At Volkswagen, a Scandal Where Executives Could Pay the Price

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VW has pleaded guilty to criminal and civil charges related to its efforts to cheat on U.S. emissions standards | Anderson LeBlanc Upland Attorneys

At Volkswagen, a Scandal Where Executives Could Pay the Price

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Story By Jeffrey Rothfeder | The New Yorker

At the Detroit Auto Show last week, Volkswagen hoped to escape the present with a nod to the past, introducing a revamped version of its iconic flat-faced, boxy Microbus, the vehicle that shepherded the counterculture across the interstates some five decades ago. The bus’s reincarnation is a battery-propelled, self-driving vehicle called ID Buzz. But nostalgic wing-vent windows and chrome trim could not distract from the company’s current predicament. Barely had the auto show kicked off when the Justice Department announced that VW had pleaded guilty to criminal and civil charges related to its efforts to cheat on U.S. emissions standards.

The company agreed to pay $4.3 billion in penalties, the largest fine ever levied by the U.S. government on an auto company, dwarfing both Toyota’s $1.2-billion settlement for vehicle-safety problems involving unintended acceleration and GM’s nine-hundred-million-dollar settlement for ignition-switch defects. This new penalty was on top of the $14.7-billion settlement that VW signed, in July, to cover customers’ class-action suits. In addition, six Volkswagen executives have been charged with running a decade-long scheme to rig VW diesel engines with so-called defeat devices, which made engines appear to satisfy U.S. emission standards when they were actually spewing more pollutants than allowed, and then to hide their actions from regulators. The executives who were charged headed up engine development, quality control, and regulatory affairs. Oliver Schmidt, who led emissions compliance in the U.S., was taken into custody in Miami, earlier this month; the other five are said to be in Germany, where they likely must remain in order to avoid arrest.

The case stems from a strategic shift at VW in 2007, when Martin Winterkorn, who was then the C.E.O., implemented an aggressive growth directive meant to push Volkswagen past General Motors and Toyota as the leader in global auto sales by 2018. This would be accomplished, in part, by selling many more so-called clean-diesel vehicles, which at the time were believed to deliver better fuel economy than gasoline with lower emissions and high performance. The company saw its biggest clean-diesel opportunity in the large U.S. market, where it had minimal penetration at the time.

But when VW executives and other employees realized that their diesel engines would not meet U.S. air-quality standards and that the cars would likely be barred from the market, they created a workaround in the form of software programmed to reduce emissions only when the vehicle was undergoing a standard U.S. emissions test. When on the open road, the car would perform normally—that is, it would emit more pollution but perform better in other respects.

Much of the government’s evidence came from the testimony of James Robert Liang—a VW engine designer who helped write the software fix and pleaded guilty, in September, to conspiring to defraud regulators—as well as from internal documents and memos turned over by Volkswagen. On the face of it, the e-mails and descriptions of interactions among VW executives that prosecutors have released so far are pretty damning. In one example, according to the complaint, in May, 2014, a VW employee included Schmidt, the compliance officer, on a group e-mail saying that the Environmental Protection Agency had apparently found out about the emissions problems. Schmidt’s response to this open discussion about the deceptive device was quick and to the point: “Are you crazy? Recall the email.”

Although the six co-conspirators are upper-tier managers, none is on VW’s board, leading to objections that the company’s top executives are walking away unscathed. However, U.S. prosecutors have said that more indictments are possible as additional evidence is unearthed, and German legislators plan to question Winterkorn, who resigned soon after the scandal came to light. German prosecutors also have a separate investigation under way into the automaker’s activities.

Read the full article at The New Yorker

ABOUT THE AUTHOR
Story By Jeffrey Rothfeder | The New Yorker
Jeffrey Rothfeder is a former editor-in-chief of the International Business Times and a former national news editor at Bloomberg News. His latest book is Driving Honda: Inside the World’s Most Innovative Car Company.

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