The fallout from the Volkswagen diesel emissions cheating scandal is still settling and the final penalties for the #1 automaker in the world and most essential company to the German economy have yet to be decided.
The conventional wisdom is that Volkswagen will face a combination of penalties for its multi-year covert program of installing cheating software on vehicles to help them cheat on required emissions testing. The U.S. Government is going to hit them with a massive fine that could be up to $18 billion. The EPA estimated 482,000 cars in the U.S. fall under the penalty, and VW could be fined up to $37,500 for each and every one of them.
Will it really be that much?
This isn’t to say that the Volkswagen penalty will be $18 billion in reality. Things like this rarely hit the maximum. But the EPA is going to try and settle on a figure that will make future violations of the regulation “no longer financially feasible”. They want to make the penalty painful enough to be a deterrent.
And they’re also going to take into account the sophisticated nature of Volkswagen’s cheating efforts. It’s one thing to inadvertently slip up and unknowingly violate a rule on the books. It’s another thing to develop a covert program with dedicated technology to help you slip by the rules in a calculated manner.
The bigger part of the ice berg
The other part of the penalty will center on the requirement for VW to recall and fix the existing cars on the market that have the cheating devices installed. You’ve got probably 50,000 of them in the United States, but then there’s over 10 million other cars worldwide that may be affected, too. That’s where the larger potential cost comes in. Analysts figure it could cost up to $30 billion to fix all of those cars around the world.
And none of this counts the upcoming class action lawsuits that Volkswagen could potentially be facing from consumers who feel (rightfully) that they were duped into buying a Volkswagen that had a unique combination of awesome performance and great environmental friendliness, only to find out they weren’t any greener than another less-expensive car they could have bought instead.
It would be foolish for Volkswagen to underestimate the impact of consumer sentiment here (and we're not necessaily saying that's what they're doing). Automotive engineers have pointed out that it’s one thing for VW to fix the cars by taking the devices off. But doing so will affect the performance of the car to a point where consumers may be dissatisfied with its performance. The whole reason these VW diesel cars were liked was because they seemed like cars that gave awesome performance while, at the same time, being better than other cars for the environment. Now it turns out that was all a mirage. The recalls can fix the emissions problems, but the cars won’t ever be the same after that. And if you’re someone who bought one of them, you’re rightfully going to feel pretty mad.