Volkswagen faces $69 billion lawsuit

By Leonid Bershidsky

VW's sales in the US and Canada have sharply increased in recent years. Photo / AP
VW's sales in the US and Canada have sharply increased in recent years. Photo / AP

The US Government's lawsuit against Volkswagen threatens the German vehicle manufacturer with such heavy penalties that it may not have been worth it for VW to be in the US market at all.

The lawsuit describes known facts.

VW installed special software in approximately 580,000 cars sold in the US that mitigated the level of nitrogen oxide (NOx) emission during tests but stopped doing so on the road, and it tried to hide the ploy from the authorities. The company has admitted as much.

The surprise is the amount of money the US Department of Justice has demanded for the violations - a potential fine of up to US$46 billion ($69.3 billion).

Even in the US, where courts commonly award enormous punitive damages, this is huge. A senior Justice Department official said the court would be unlikely to award anywhere near the full amount the Government has asked for.

But given what the prosecutor is demanding, one has to wonder whether the goal is to drive VW out of the US market.

While punitive damages are clearly a big part of the punishment the Government wants to mete out, there are two types of actual damage VW may have caused - damage to public health by the NOx emissions that apparently exceeded permissible levels by a factor of 40, and that to the owners of VW cars who were fooled into buying them as "green", eco-friendly vehicles.

Noelle Eckley Selin, an associate professor at the Massachusetts Institute of Technology, recently estimated the health cost of Volkswagen's misbehaviour at US$100 million - a "staggering number", she wrote.

She suggested that another method, used by the Environmental Protection Agency to account for people's willingness to pay to avoid disease and suffering, would put the damage at US$109.5 million.

As for the damage to car owners, it cannot logically be higher than the price they paid for the cars. Unless the car caused them illness or worse, they have benefited from ownership.

Based on Volkswagen's financial reporting, the weighted average price of a vehicle sold by the company in North America in 2009-2014, when the offending software was installed, reached US$28,815.

That would put the total cost of a buyback (using the Government's number of missold vehicles) at US$16.7 billion. So to completely erase the actual damage it has done with its cheating, VW would need to pay US$16.8 billion.

Even if the US wants to make an example of the German company, multiplying the actual damage by three, as the lawsuit does, is unjustified.

Foreign companies, however, don't get much pity when caught breaking US laws and so it is with VW.

Even in the US system, where courts commonly award enormous punitive damages, this is huge.
Leonid Bershidsky

According to, a service run by Good Jobs First, a Washington-based group promoting government and corporate accountability, US regulators have levied 11 fines of over US$1 billion for health, safety and environmental violations.

Seven of these cases involved non-US companies, and the biggest violator of them all, London-based BP, has faced US$25 billion in fines for the disastrous Deepwater Horizon oil spill, whose impact is still felt in the Gulf of Mexico almost six years after the accident.

Last year, the French bank BNP Paribas was hit with a US$8.9 billion fine for violating US sanctions against Sudan, Cuba and Iran - an amount that had French officials up in arms.

"The penalty must be proportional and reasonable," French Foreign Minister Laurent Fabius said then.

If VW's fine exceeds that levied on BP, which caused far greater environmental and economic damage, it certainly won't be proportional or reasonable.

It would, however, clearly show to non-American multinationals that there could be high costs to operating in the world's biggest economy, and that these costs could well outweigh the benefits.

VW was never big in the US and Canada, but in recent years its sales on the continent sharply increased, thanks in large part to the emphasis on eco-diesels.

Get the news delivered straight to your inbox

Receive the day’s news, sport and entertainment in our daily email newsletter


© Copyright 2016, NZME. Publishing Limited

Assembled by: (static) on production apcf05 at 24 Oct 2016 16:21:34 Processing Time: 864ms