Trouble for VW

Oliver Schmidt, a former Volkswagen executive has been sentenced to seven years in prison by a US court. He has also been fined $400,000 for having admitted he helped the firm evade clean-air laws.

Background

Volkswagen, shortened to VW, is a German automaker founded on May 28, 1937 by the German Labour Front and headquartered in Wolfsburg. It is the flagship marque of the Volkswagen Group, the largest automaker by worldwide sales in 2016.

In 2015, US’ Environmental Protection Agency (EPA) issued a notice of violation of the Clean Air Act to German automaker Volkswagen Group. The automaker was accused of flouting rules for nearly 7 years in the region. VW had reportedly programmed a turbocharged direct injection. This enabled the diesel engines to activate emissions controls only during laboratory emissions testing. This programming was found from models that were introduced in 2009 to 2015. Reportedly, 11 million such cars were deployed across the world and 500,000 in the United States alone. The scandal that unfolded resulted in the resignation of then CEO Martin Winterkorn. A number of the company’s top executives stepped down as well as further details began to emerge.

There is growing concern that the performance of vehicles in labs are different from the performance in the real world. A study noted that diesel cars and trucks from 10 countries produced 50% more nitrogen oxide emissions than lab tests showed.

In July 2017, two other car manufacturers, Mercedes and Daimler announced a recall of over three million cars over concerns of emission standards. They asked owners to upgrade a software already present in the cars.

Analysis

In August 2017, Volkswagen AG’s former engineer James Liang has been sentenced to 40 months in prison by a federal judge in the US. He was central to the company’s scheme in developing cars that could evade US pollution rules

He was the first person to be prosecuted over the scandal. It has been reported that he was a key member in designing the cars to flout the existing rules. There are charges against eight others as well. Other nations have also begun their own independent investigations.

Oliver Schmidt, a former Volkswagen executive has been sentenced to seven years in prison by a US court. He has also been fined $400,000 for having admitted he helped the firm evade clean-air laws. Schmidt, a German national, was sent to the US in 2015 but failed to disclose the existence of the software.

During sentencing, US District Judge Sean Cox said, “I'm sure, based upon common sense, that you viewed this cover-up as an opportunity to shine — to climb the corporate ladder at VW. Your goal was to impress senior management.” After pleading guilty, Schmidt said, “For the disruption of my life, I only have to blame myself... I accept the responsibility for the wrong I committed.I made bad decisions and for that I am sorry.”

“The defendant has a leadership role within VW,” federal officials said. “As a consequence of that role, he was literally in the room for important decisions during the height of the criminal scheme.”

VW has already admitted to wrongdoing on its part. It has vowed to spend $25 billion in addressing the problems as laid out by the US. The BBC has stated that this scandal cost the company $30 billion.

Volkswagen sold almost 600,000 vehicles with the devices in the US between 2006 and 2015, and about 11 million globally. Schmidt remains the highest-ranking VW employee to be convicted in the scheme in the US. It is unlikely for US authorities to prosecute other senior officials within the company as most are living in Germany and chances of extradition are low.

Assessment

Our assessment is that this is unlikely to be the only problem the company will face regarding this issue. Further indictments are still possible and other nations might also pursue their own independent investigations. The reputation of VW remains tarnished.