The VW emissions scandal – the tip of the iceberg?

Published on 20 March 2017

The Volkswagen (VW) emissions scandal relates to “defeat devices” that are able to sense when the car is undergoing emissions testing and accordingly activates equipment that reduces nitrogen oxide emissions.

The development

The software then turns the equipment off during regular driving conditions, possibly to save fuel or to improve the car’s torque and acceleration. As a result, nitrogen oxide emissions during normal driving are above legal limits (at up to 40 times the legal limit in the UK).

VW admitted that approximately 11 million cars worldwide (across VW, Audi, SEAT and Skoda) are affected, including 1.2 million in the UK.

The costs

VW is set to suffer substantial regulatory penalties and civil damages of beyond an estimated £4.8 billion. It is already facing criminal investigations in several jurisdictions with up to $18 billion (£12 billion) in penalties under the US Clean Air Act. In the EU, "defeat devices" are expressly prohibited by Article 5 of the Emissions Regulation No 715/2007, providing for penalties if these are used.

Alongside the criminal penalties, there is potential for civil claims by consumers depending on the laws of each jurisdiction. In England, a civil group action has been issued. The consumers may argue that by advertising certain information on fuel consumption or emissions, a manufacturer could be giving the end consumer a warranty, in consideration of the consumer entering into a contract with a retailer, thus creating a direct contractual relationship for a claim against the manufacturer. Equally, there is the possibility of claims under the Consumer Protection from Unfair Trading Regulations 2008, which now offers consumers the right to bring direct civil claims.

Consumers must prove they have suffered loss as a result of VW’s breach. Two of the more obvious potential areas of loss to be claimed are:

• the resale value of VW cars as this has taken a hit since the scandal emerged. With over 11 million cars involved, even a small fall in value for each of those vehicles could result in a large total liability

• the difference between the rates of car tax that consumers believed they would have to pay when purchasing the car and the level they will actually be made to pay. To mitigate this particular loss in the UK, the Government has announced motorists will not be forced to pay more in car tax even if their vehicles are found to be fitted with the illegal software. However, not all countries will be taking such an understanding approach.

Product recalls and VW’s complicated manufacturing and supply chains may lead to many claims from suppliers too.

Why is it important?

The scandal provides warnings for manufacturers on the importance of product compliance. Failures to do so could result in catastrophic costs and brand/ reputation damage.

What’s next?

In relation to clean diesel, analysts remain optimistic that this is possible, although it is more suited to larger engines rather than smaller ones. Meanwhile, battery powered vehicles may need to increase market penetration in Europe for manufacturers to meet 2020/2021 emissions targets.

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