VW's $20bn lawsuit is just the beginning

The US Department of Justice finally launches its legal offensive against Volkswagen, but is the car giant ready?

by Adam Gale
Last Updated: 16 Feb 2016

Hopefully VW appreciates the distinctive theatre of the American court room, because the company’s about to spend a long time sitting in one. The US Department of Justice has finally opened legal proceedings against the German firm on behalf of the Environmental Protection Agency (EPA), four months after the latter outted it for installing ‘defeat devices’ in hundreds of thousands of diesel cars in the US.

‘Today’s complaint is the first stage in bringing Volkswagen to justice,’ said US Attorney Barbara L McQuade in a filing last night. As the ‘first stage’ involves fines of up to $37,500 (£25,300) for each of the 600,000 vehicles that allegedly have defeat devices installed, that should be enough to make even the most redoubtable multinational executive sweat.

But VW still doesn’t really seem to have accepted that this isn’t just a minor transgression of a regulatory code, but rather a full-blown, BP-style environmental disaster for which the US will pursue it vigorously for enormous sums of money. 

‘We will do everything in our power to win back the trust we have lost,’ Volkswagen chief executive Matthias Müller said in October he presented his beleaguered firm’s first quarterly results since the emissions scandal broke. But this is beyond trust now. It’s about compensation - and retribution.

The firm set aside €6.7bn (£4.9bn) in ‘special items relating to the diesel issue’ back then, which resulted in a €2.5bn pre-tax loss. But as the maximum this lawsuit could cost it is well over $20bn, it might need to think again about its provisions, not least because this case is likely to be just the beginning.

Aside from criminal investigations, there’s also the distinct possibility of class action lawsuits by customers whose cars have lost value, and that’s just in the US. European and British investigations loom too. VW may refuse to speculate on the possible costs from these, as its own investigations are still ongoing, but as most of the 11 million cars affected were this side of the Atlantic, it would be reasonable to expect the consequences could be pretty serious here too.

Although VW isn’t exactly incapable of handling the costs coming its way - it would have made a solid profit had it not been for the scandal, and after selling its stake in Suzuki it now has a healthy €27.8bn in net liquidity - Müller’s comments a few months ago that VW could ‘shine again in two to three years’ are sounding increasingly optimistic. Shareholders are perhaps realising that too - VW stock fell 6% this morning on the news.

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