Tough road ahead for Volkswagen in US

Volkswagen faces a criminal probe, myriad customer lawsuits and a grilling before hostile legislators in the United States over its emissions cheating scandal, dampening its prospects in a key auto market.

At the top of the worries is a Department of Justice criminal probe into Volkswagen, confirmed to AFP on Tuesday by a person familiar with the matter.

That is in addition to a probe led by the Environmental Protection Agency and the California Air Resources Board into Volkswagen's equipment intentionally developed to allow its diesel cars to meet pollution limits during official testing.

But the software, known as a "defeat device", turns off while the car is being driven, allowing the car to spew out health-damaging pollutants, including up to 40 times the legal amount of nitrogen oxide emissions.

"It's too early to predict what will be the results of the investigation," said Jacob Frenkel, a former US federal criminal prosecutor now at Shulman Rogers law firm.

From the prosecutor's standpoint, key questions concern Volkswagen's response, including how it punishes employees directly responsible for the wrongdoing, Frenkel said.

Frenkel predicted a higher criminal penalty for Volkswagen than those paid by Toyota ($1.2 billion) over accelerator problems and General Motors ($900 million) for defective ignition switches linked to at least 124 deaths.

He said those companies were fined for delaying needed vehicle recalls, whereas Volkswagen has already admitted it deliberately cheated on US clean-air standards, including the remarkable statement from Volkswagen America chief executive Michael Horn that the company "totally screwed up."

- Congressional grilling ahead? -

Volkswagen is also likely to receive a tough once-over in the US House of Representatives energy and commerce committee, which announced plans for a hearing in the coming weeks.

"Auto consumers may have been deceived -- that what they were purchasing did not come as advertised," said Republicans representatives Fred Upton of Michigan and Tim Murphy of Pennsylvania.

"The American people deserve answers and assurances that this will not happen again. We intend to get those answers."

The lawmakers have not announced witnesses yet for the session, but there is a long tradition on Capitol Hill of inviting embattled executives to appear for tough questioning.

Law firms are also lining up to take on the German company, the world's largest automaker by sales in the first half of 2015.

The Seattle law firm Hagens Berman has filed a class-action suit against Volkswagen with clients in more than 20 states alleging fraudulent concealment, false advertising and violations of federal and state laws.

"I paid premium for a Golf TDI because I was promised that it was 'Clean Diesel,'" said a claimant cited by Hagens Berman.

"I was told that the emissions were better than a standard gas automobile. In addition, I was also promised high fuel economy. I now feel I have been defrauded by these claims."

These cases will also undoubtedly weigh on new sales for Volkswagen as it battles for market share with GM, Ford, Toyota and other giants.

"I think there is a basic violation of trust here and a violation of trust for Volkswagen buyers who are basically very loyal here in the USA," said Jack Nerad, analyst at Kelley Blue Book.

"It is in Volkswagen's best interest to publicly address steps to fix this mess as soon as possible before it loses its customer base for good," said Jessica Caldwell, an analyst at the auto website Edmunds.com.

The emissions debacle will also likely hinder Volkswagen's ambitions to make diesel cars a bigger share of the US auto fleet.

The cheating device is on nearly 500,000 diesel cars in the US market, and Volkswagen admitted Tuesday it was on 11 million cars worldwide.

Volkswagen's slate of diesel offerings includes Passat and Jetta sedans and compacts like the Golf cars.

Those are among the nearly 50 diesel models currently available on the US market, according to Diesel Technology Forum, a lobbying group.

But diesel currently accounts for just three percent of US vehicle sales, according to JD Power.

Diesel "will stay a niche market," Kelley's Nerad predicted.

Source: AFP