Explained: What is the ‘dieselgate scandal’ against Volkswagen?

It was in 2015 that Volkswagen admitted to having installed emissions-cheating devices in its vehicles, which cost the company over $33 billion in vehicle refits and regulatory fines, mostly in the United States.

On Monday, Germany’s Federal Court of Justice (BGH) ruled against car manufacturer Volkswagen, the first judgment in the diesel scandal. As a result of the ruling, the company must pay compensation to the owner of a vehicle fitted with a “defeat device” meant to bypass a vehicle’s emissions control system. Volkswagen will also partially refund the owner. The ruling has set a crucial benchmark for over 60,000 such pending cases brought forward by German consumers seeking compensation over the emissions test devices.

It was in 2015 that Volkswagen admitted to having installed emissions-cheating devices in its vehicles, which cost the company over $33 billion in vehicle refits and regulatory fines, mostly in the United States. The scandal is often dubbed as the “dieselgate scandal” and Volkswagen has since admitted the device affects over 11 million cars worldwide.

What was the “dieselgate scandal”?

In September 2015, the US Environmental Protection Agency (EPA) found that in over 590,000 diesel motor vehicles, Volkswagen had violated the Clean Air Act as the vehicles were equipped with “defeat devices” in the form of a computer software, which was designed to cheat on federal emissions tests.

A defeat device is one that bypasses or renders inoperative a vehicle’s emission control system. Essentially, software of this kind is designed to detect when the vehicle is undergoing an emissions test and turns on full emissions controls during the testing period. In the course of normal driving, the effectiveness of such devices is reduced.

In the notice issued by the EPA in September 2015, it alleged that Volkswagen installed these devices in its 2009-2015 two-liter diesel vehicles, thereby violating EPA’s emissions standards since these vehicles emit 40 times more pollution than the level permitted. Some of the affected vehicles included Jetta (2009-2015), Beetle (2013-2015) and Passat (2012-2015) among others. The major excess pollutant, in this case, were nitrogen oxides.

In November 2015, the EPA issued a separate notice of violation of the Clean Air Act to car manufacturers Audi, Porsche and Volkswagen for producing and selling certain model year 2014-2016 three-litre diesel cars and SUVs that included a software device meant to circumvent the emissions standards. These vehicles emitted nine times more pollution than the standards allowed. Subsequently, Volkswagen informed the EPA that the defeat devices existed in all of its US three-litre diesel models since 2009.

In January 2016, the Department of Justice filed a complaint on behalf of the EPA against Volkswagen AG, Audi AG, Volkswagen Group of America, Inc., Volkswagen Group of America Chattanooga Operations, LLC, Porsche AG, and Porsche Cars North America, Inc. for alleged violations of the Clean Air Act. In January 2017, Volkswagen pleaded guilty to three criminal felony counts and agreed to pay $2.8 billion as a criminal penalty. Further, as separate civil resolutions of civil, environmental, customs and financial claims the company agreed to pay $1.5 billion.

What does the latest court ruling say?

Following the EPA allegation in 2015, regulatory investigations were carried out against the company in several countries including South Korea, France, Italy, Germany, UK and Canada. In September 2015, Volkswagen revealed that over 1.2 million vehicles in the UK were involved in the diesel emissions scandal. Out of the 11 million affected vehicles worldwide, over 2.8 million were in Germany. In September 2019, the Federation of German Consumer Organisations (VZBV) brought forward a case against Volkswagen on behalf of consumers in the country.

The ruling on Monday concerned a case involving the plaintiff Herbert Gilbert who bought a used Volkswagen Sharan in early 2014 for approximately €31,000. In his case, Gilbert asked that the company pay him the full purchase price plus interest. Whereas, the Volkswagen group maintained that consumers did not suffer any damage from the manipulated diesel cars. The court on Monday ruled that Gilbert be paid compensation to the tune of over €26,000, minus depreciation resulting from the kilometers he drove. The judgment also requires that plaintiffs return their cars to the company.

Why is the ruling important?

The ruling is expected to pave the way for remaining cases pending in Germany as the courts are expected to rule in favour of the plaintiffs. The company, on the other hand, has maintained that they would offer these consumers a payment, which would be less than what consumers can get through a court judgment. However, if consumers settle with the company directly they get to keep their vehicles.

German newspaper Süddeutsche Zeitung reported that the company has tried its best to delay a judge’s verdict to leave the legal position unclear as long as possible. During this time, several thousand consumers chose to settle with the company, due to which yesterday’s ruling will only impact a limited number of plaintiffs. Significantly, in the reasoning of their judgment, the judges maintained that it should be assumed that the Board of Directors knew about the manipulation because of the scale of the fraud.

On Monday, Volkswagen said that it would like to agree with the plaintiffs individually in order to avoid lengthy legal proceedings. A report in German newspaper Welt said, “…one thing is clear: All pending proceedings must now be assessed in such a way that the plaintiffs are entitled to the full purchase price, minus a discount for the kilometers already driven, but plus the usual litigation or default interest”.