Investors in the German carmaker are getting ready to pursue the €9bn in damages from the 2015 Diesel emission scandal.
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.
Volkswagen (VW) has gone on trial in Germany in what is the first court case against the carmaker over the diesel scandal. Investors are pursuing VW for about €9.2bn (£8.2bn) in damages, claiming the company should have come clean sooner about falsifying emissions data.
VW shares crashed after disclosure in 2015 that its diesel technology emitted illegal levels of pollution. "VW should have told the market that they cheated," Andreas Tilp, a lawyer for the plaintiffs, told the court.
"We believe that VW should have told the market no later than June 2008 that they could not make the technology that they needed in the United States," he told the Braunschweig higher regional court.
Shareholders representing 1,670 claims are seeking compensation for the near 40% slide in Volkswagen's share price triggered by the scandal, which broke in September 2015 and has cost the firm €27.4bn in penalties and fines so far
The legal action has been brought by the Deka investment fund, which is being used a template for a further 1,600 lawsuits.
The case involves about 50 lawyers, and interest in the hearing is so great that it had to be moved from the court house to a nearby conference centre.
VW pointed out that the "lawsuit is solely and exclusively about whether Volkswagen complied with its disclosure obligations toward shareholders and the capital markets".
The company said it was "confident" it had carried out its obligations correctly. The court case is expected to take at least until next year to be fully decided.
Former executives from VW, Porsche and their sister company Audi are under criminal investigation in Germany.
The company itself has already been fined €1bn by German prosecutors over its diesel emissions scandal. It has also paid a fine of $4.3bn in the US to resolve criminal and civil penalties.
VW has admitted its responsibility for the diesel crisis.
Our assessment is that the investors are justified in pursuing damages from VW as it has caused their reputation irreparable damage. We believe that the investors will push for a total reform of the board, which may include the removal of a few key directors and high-ranking managers. We also feel that VW will introspect after this debacle and initiate a company-wide policy of strict compliance with EU regulations.