Aug 2, 2017

Why It Seems Like Open Season on Car Companies: QuickTake Q&A

Almost two years after Volkswagen admitted to engineering its diesel vehicles to cheat emissions tests, it feels like much of the automotive industry is under investigation for trying to deceive drivers and regulators. 

With the ink still drying on more than $24.5 billion in VW's settlements with consumers and government agencies, its compatriots and competitors face investigations and lawsuits from California to Germany over similar allegations. The crisis is gathering pace. German automakers have been accused of operating a two-decade technology "cartel" to impose a premium on consumers while stifling innovation. Audi and Mercedes have recently recalled cars, emissions-rigging claims are multiplying in U.S. courts and regulators in Europe are ramping up scrutiny.

1. Who's accused?

Volkswagen admitted in late 2015 that it rigged about 11 million diesel vehicles to cheat emissions tests the world over. The car maker has settled its suits with consumers and regulators in the U.S. and is in the process of fixing or buying back the cars. Eight of its executives have been indicted in the U.S.; one has pleaded guilty and awaits sentencing.

Mitsubishi Motors admitted last year to doctoring fuel-economy ratings. General Motors Co., Fiat Chrysler Automobiles NV, Daimler AG, Renault SA and PSA Group have all faced diesel-cheating regulator probes or lawsuits this year. Audi, a VW unit, was sued over claims that it installed so-called defeat devices not just in diesel cars, but also in at least six models of 3.0-liter gasoline engines. Robert Bosch GmbH, the world's largest auto-parts supplier, is fighting allegations it supplied the technology allegedly used by at least four carmakers to beat pollution tests.

2. Why are so many companies in trouble?

Most of the environmental cases in the U.S. deal with stringent emissions standards put in place by the Environmental Protection Agency in 2001. Car makers were given until 2010 to comply. Chrysler and the maker of its engines, for instance, bet they could beat the competition to market. They did so, in 2007, but with a truck allegedly incapable of meeting those standards over its lifetime, according to a consumer lawsuit, which says Chrysler's diesel Dodge Ram trucks from 2007-2012 were rigged to cheat tests.

3. Then why is VW the poster child for emissions cheating?

Chrysler has been accused of having done it first, but VW already admitted fault to cover cheating-related expenses that range from buybacks to compensating dealers and settling criminal charges. The car maker still faces hundreds of lawsuits in Germany and a criminal probe. Chrysler could soon join VW in taking a hit to its reputation due to diesel cheating. The Italian-American automaker received an EPA notice of a Clean Air Act violation in January. The issue is being probed by the U.S. Justice Department, Securities and Exchange Commission and several states' attorneys general.

4. Is this the first time car makers have been caught cheating?

Emissions cheating dates back to at least the 1970s, when car makers were rolling out automobiles that turned off anti-pollution systems when the air conditioning was on. Others had sensors to activate pollution controls only at testing temperatures. In 1973, U.S. regulators accused VW of cheating. It settled with a $120,000 fine. GM paid $45 million in 1995 after being accused of circumventing pollution controls.

5. Is emissions the only issue?

Not by a long shot. Takata Corp. agreed to plead guilty and pay $1 billion to settle an investigation over more than 100 million faulty air bags linked to 17 deaths worldwide before ultimately filing for bankruptcy. The GM ignition-switch debacle was blamed for the loss of at least 120 lives and led to $2.1 billion in fines and legal settlements.

In addition, lawyers and government investigators in recent years have delved into Toyota accelerator pedals, Honda's underreporting of fatal accidents and injuries, incomplete safety recalls by Fiat Chrysler and overstated fuel economy by Ford, Hyundai Motor and Kia Motors.

6. What do the different scandals have in common?

Lawyers. Though researchers first uncovered VW's cheating in September 2015, attorneys followed up with their own investigations of car makers -- first VW, then its Audi and Porsche units, then Mercedes and Fiat Chrysler. Some of the same lawyers behind the VW diesel case also filed the Audi gasoline-engine lawsuit and the Chrysler case and continue to investigate additional potential violators of the U.S Clean Air Act. Meanwhile, the researchers at West Virginia University who first detected VW's excess emissions continue to search for pollutant-spewing automobiles.

7. What's going on in Europe?

The European Commission issued warnings in February to five countries including Germany, France and the U.K. for failing to address "repeated breaches of air pollution limits." That doesn't necessarily mean cheating, though -- European law allows car makers to exceed legal levels of nitrogen oxide emissions in certain circumstances.

In July, BMW AG, Daimler and VW, along with its Audi and Porsche units, were sued in the U.S. over claims they shared competitive information about vehicle technologies with one another from 1996 through at least 2015 in violation of antitrust laws.

8. What? European law allows for pollution breaches?

Cars in Europe are equipped with devices that control nitrogen oxide emissions, but these may be legally disabled in order to protect the engine or ensure safety. Figuring out to what purpose the systems were designed requires very detailed measurements, which means that some cheating mechanisms will probably never be discovered. Tests have shown that some cars emit nitrogen oxides that are as much as 10 times higher than the EU limits.

9. So will there be an EPA-style crackdown in Europe?

Probably not. While regulators are working hard to crack down on emissions violations, politicians are reluctant to heavily penalize these companies, of which a handful are partly state-owned and among the region's biggest employers. Plus, the EU doesn't have a regulator with EPA-style enforcement powers, and the system's more complicated because national governments -- and not the EU -- approve vehicles for the road.

10. What's all this doing to the global auto industry?

With diesel's credibility now in question, car makers are putting more resources into electric vehicles. That kind of innovation is expensive, and the fines they're facing are potentially huge. In November, VW agreed on a deal with employees that will slash as many as 30,000 jobs worldwide to save 3.7 billion euros ($3.9 billion) and aid its recovery efforts. VW's financial ability to make investments in model updates and self-driving vehicles is being hampered by scandal costs that so far exceed $23 billion.

11. How do consumers know whom to trust?

Car makers have won back customers after previous cheating scandals, just not right away. VW, which had thrived on a global reputation as automotive royalty, has been tarnished by its self-professed deception. The question for consumers will not only be if or when to trust these automotive brands, but whether to trust new technologies. That's exactly why it's so important for VW and other car makers to figure out their path forward in a future of lower emissions and higher scrutiny.


Bloomberg

by Kartikay Mehrotra and David Welch