Why Carmaker Cheating Probes Stay in High Gear: QuickTake Q&A

(Bloomberg) -- More than two years after Volkswagen AG admitted to engineering its diesel vehicles to cheat on emissions tests, much of the automotive industry is now under scrutiny for trying to deceive drivers and regulators. Ford became the latest company to become embroiled in the issue, with drivers in a U.S. lawsuit claiming some 500,000 Super Duty pickup trucks were rigged to beat emissions tests. German automakers have been accused of operating a two-decade technology “cartel” to impose a premium on consumers while stifling innovation, including pollution controls. Emissions-rigging claims are multiplying in U.S. courts and regulators in Europe have continued to push new cases. Among other things, Volkswagen, BMW AG and Mercedes-Benz parent Daimler AG bowed to a demand by German authorities to recall 5 million diesel cars.

1. What’s Ford said to have done?

Ford Motor Co. was sued for allegedly installing so-called defeat devices in its 250 and 350 Super Duty pickup trucks dating back to 2011. Attorneys for drivers argue that the pickup trucks spew 50 times the legal limit of the pollutant nitrogen oxide and that defeat devices they likened to VW’s were used to cheat emissions tests. The lawsuit points to seven years of false advertising, including claims that the trucks lead their class in fuel economy and had been tested for real world driving conditions. The suit claims Ford worked with the world’s largest auto-parts supplier, Germany’s Robert Bosch GMBH, to mask the vehicles’ flaws. Bosch faces similar accusations in cases against VW, Fiat Chrysler Automobiles and General Motors Co.

2. Who else is accused?

Volkswagen admitted in late 2015 that it rigged about 11 million diesel vehicles to cheat emissions tests the world over. The carmaker has committed to spending about $24.5 billion in the U.S. and Canada to settle lawsuits and buy back or repair some 560,000 vehicles, which it has begun to do. Eight executives have been indicted in the U.S.; two have pleaded guilty and been sentenced to up to seven years in prison. Mitsubishi Motor Corp. admitted to doctoring fuel-economy ratings. GM, Fiat Chrysler, Daimler, Renault SA and PSA Group have all faced diesel-cheating regulator probes or lawsuits. 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.

3. 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. Carmakers were given until 2010 to comply. Chrysler and the maker of its engines, for instance, bet that 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.

4. How did the scandal spread to Europe?

The European Commission issued warnings in 2017 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 carmakers to exceed legal levels of nitrogen oxide emissions in certain circumstances, including permitting temporary shutoffs of a car’s pollution-control systems. In July, BMW, 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.

5. Why is VW the poster child for emissions cheating?

Chrysler has been accused of having done it first, but VW already admitted fault as it covered cheating-related expenses that range from buybacks to compensating dealers and settling criminal charges. The carmaker 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 2017. The issue is being probed by the U.S. Justice Department, Securities and Exchange Commission and several states’ attorneys general.

VW’s Penance for Cheating Takes Shape With California Wish List

6. Is this the first time carmakers have been caught cheating?

Emissions cheating dates back to at least the 1970s, when carmakers 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.

7. Are 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.

8. 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 carmakers -- 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 study pollutant-spewing automobiles.

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. German government officials took a step toward tightening oversight in August 2017 when they summoned executives from top carmakers, who agreed to recall more than 5 million diesel cars in the country to adjust emissions systems as well as provide incentives to trade in older vehicles.

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

With diesel’s credibility now in question, carmakers are putting more resources into electric vehicles. That kind of innovation is expensive, and the fines they’re facing are potentially huge. In late 2016, 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 the costs of resolving the scandal.

11. How do consumers know whom to trust?

Carmakers 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 carmakers to figure out their path forward in a future of lower emissions and higher scrutiny.

The Reference Shelf

• A QuickTake explainer on the slow road to cleaner cars.
• A QuickTake Q&A on Volkswagen’s long way back from scandal.
• A deep dive into Takata’s 60 million car bombs.
• How a father’s handing Chevy keys to his daughter led to her death.
• VW seeks to clear air in its next settlement.
• An investor lawsuit against VW has a lot riding on it.
• A Bloomberg View column on why VW didn’t have to compensate Europeans.
• A feature on Bosch and its role in global diesel cheating scandals.

--With assistance from Margaret Cronin Fisk and Ania Nussbaum

To contact the reporters on this story: Kartikay Mehrotra in San Francisco at kmehrotra2@bloomberg.net, David Welch in Southfield at dwelch12@bloomberg.net.

To contact the editors responsible for this story: Craig Trudell at ctrudell1@bloomberg.net, Michael Hytha at mhytha@bloomberg.net, John O'Neil, Heather Smith

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