By on September 27, 2016

Money (Frankleleon/Flickr)

How much can we chop away while keeping the body alive?

The U.S. Justice Department’s plans for Volkswagen’s criminal fine is like a horror movie, only with corporate finances playing the role of a writhing human subject.

According to two sources close to the negotiations, the DOJ wants to extract as much monetary lifeblood from the automaker as possible, while keeping the company afloat, Bloomberg reports.

Volkswagen has already spent about $16.5 billion in the U.S. to settle the consumer and environmental fallout from its emissions-cheating 2.0-liter TDI models. Another settlement (and possible buyback) looms for its 3.0-liter models.

Overseas, the remainder of the roughly 11 million sidelined diesel models require a recall, while class action lawsuits are sprouting like a newly seeded lawn. Investor lawsuits filed in Germany are fast approaching $10 billion, and the German government could also level a criminal fine. Coupled with a sales slide in many markets, the emissions scandal has Volkswagen reeling. The DOJ must figure out a penalty that hurts, but doesn’t leave the automaker spiraling into bankruptcy.

According to Bloomberg, the DOJ wants a deal with Volkswagen by January, before the next administration arrives. If it takes too long, new appointees will replace the people working on the file.

The size of the fine isn’t yet known. Volkswagen’s chief financial officer has stated he wants the company’s average net liquidity to remain stable at about $22.5 billion (20 billion euros) to cover costs and maintain its credit standing. If needed, the company could raise extra cash through a line of credit or asset sale.

Volkswagen continues to make money, meaning it could pay the penalty in installments while still keeping 610,000 employees on the payroll.

[Image: Frankieleon/Flickr]

Get the latest TTAC e-Newsletter!

Recommended

84 Comments on “U.S. Pondering a Criminal Fine that Stops Just Short of Killing Volkswagen: Report...”


  • avatar
    threeer

    Coming soon to a store near you…Volkswagen’s Fire Sale! BOGO…buy a Passat, we’ll throw in a Polo for free (if only they actually sold the Polo here, especially in GTi guise).

  • avatar
    PrincipalDan

    Does VW have the option of saying “eff you we’re gone” – pull up stakes and not pay the fine?

    You make the penalty large enough and that has to look like an option.

    • 0 avatar
      bumpy ii

      That would simply prompt the Feds to extract their pound of flesh from Audi and Porsche, who also have exposure to the diesel scandal.

    • 0 avatar
      notwhoithink

      Whether or not they continue to do business in the US, they still have assets here that they could lose. There’s one factory, but also several facilities inside the US. Presumably there is a certain amount of money in US banks as well. It’s not as simple as packing up the tent and bugging out.

      Beyond that, if they were to do something like that then they would basically be abandoning one of the world’s biggest auto markets while burning a bridge that would make it nearly impossible for them to ever come back.

    • 0 avatar
      brettc

      They keep talking about how important the U.S. market is to them long-term, but I would guess they’ve at least talked about vacating it by now.

    • 0 avatar

      Would it be easier to shut down VW entirely and come back as a new company? Despite branding being important… If a Jetta now named a J3T²A was made by Herrscherwagen, Kaiserwagen, Behordewagen, etc… would people care?

    • 0 avatar
      rpol35

      It gets complicated – DOJ wants it to hurt and not be ruinous – the risk that DOJ runs is pushing it over the top and having VW file for Chapter 11 bankruptcy. This would force DOJ to either settle for “whatever” with the court appointed trustee for the estate or settle in an agreed to, discounted amount with the estate. The toy maker, Lionel Trains LLC, did exactly this several years ago when they got hit with a huge adverse legal settlement from a competitor. The settled penalty ended up being a lot less than the court rendered penalty.

      The penalty should be prescribed and formulaic; sounds more like it is an arbitrary and subjective penalty which is not right.

    • 0 avatar
      RobertRyan

      @PrincipalDan
      I would say so. Apple and now Google face massive Tax Bills imposed by the EU, what other US Company has not been paying it’s fair amount of Tax? This could trigger a trade war. They would have been smarter to have the punishment fit the crime.

      • 0 avatar
        jim brewer

        No, they don’t, any more than you get to skip out on your bills by leaving the state. Tax issues have nothing to do with it.

        I’m surprised that the DOJ is being so tough on them and I’ll believe it when I see it. The usual practice is to declare some kind of community service thing as a huge fine.

    • 0 avatar
      Big Al From 'Murica

      Why leave. Just declare bankruptcy and saddle “Old VW” with the fine and sell cars under the banner of “new VW”.

    • 0 avatar
      stuki

      VW is probably screwed, but more and more companies are avoiding any presence in the US, in order to not have to deal with this kind of shakedowns.

      Manufacturing to COD Germany, then relying on multiple independent smaller importers to bring the wares to the US, is one way to go. Ditto for kit/component manufacture, with final assembly done by independents in the US. This is, effectively, the model employed by many Asian electronics manufacturers. A “US” final manufacturer, say Dell, but 90% of the value add done in less confiscatory regimes.

      • 0 avatar
        RobertRyan

        @stuki
        Agreed and I mentioned that current transplant Automotive companies, will be looking at a less hostile, more pro business environment, rather than manufacture in the US

      • 0 avatar
        Bazza

        “…in order to not have to deal with this kind of shakedowns.”

        This isn’t even remotely a shakedown. By all rights, VW should be utterly ruined and bankrupted, with top executives imprisoned as a result of their actions. They have proven to be an absolutely morally corrupted corporate culture. In that context, the fact that DOJ is trying to balance the pain is reasonable, if not laudable.

        Their open hostility to the U.S. market *should* engender, at best, a resolute indifference to their plight. Instead, we have a gaggle of Stockholm Syndrome hand-wringers who fret about how VW can wiggle out of this, and natter about repercussions if we put the boot to their neck.

        Plow this company under once and for all, and salt the earth.

        • 0 avatar
          Lorenzo

          Sounds like you’d make one tough negotiator, but he who lives by the nuclear option dies by the nuclear option. VW is a national treasure to the Germans, and it has government and labor ownership. It’s the German GM – too big to fail.

          Treat the company too harshly and there’s blowback on a massive scale, the aforementioned trade war, forcing the President and/or Congress to step in and rein in the bloodthirsty bureaucrats. The ultimate loser will then be the agency that went too far.

  • avatar
    jkross22

    VW has earned the fine, but the Bloomberg article sure makes it sound like our government is operating like the mafia.

    VW: How much will the fine be for protection?
    Uncle Sam: How much you got?

    • 0 avatar
      notwhoithink

      I don’t know, I took it to be more along the lines of “How much should we fine them? Certainly a lot, but we don’t want to put them out of business.”

      If you read the Bloomberg article then towards the end it talks about how even a $10 billion fine wouldn’t be likely to hurt VW much in the long run, particularly because these sorts of fines are generally paid over time instead of in a lump sum.

      • 0 avatar
        jkross22

        Right. Just enough so that they don’t pack up and leave. A fine offers little deterrence. Perp walks might.

        There has been no discussion on how the money from the fine will be spent. I suspect it won’t be used to offer tech classes to kids in rough neighborhoods.

        • 0 avatar
          RobertRyan

          ” The penalty should be prescribed and formulaic; sounds more like it is an arbitrary and subjective penalty which is not right.”
          Then escalate to something like the Syrian War..Treat VW like GM, rather than a leper.

    • 0 avatar
      2manycars

      You should not be surprised when government sheds its exceedingly thin sugar-coating, bares its fangs, and acts like a criminal gang running a protection racket. That is its nature. (Being “duly elected” does not change this. Elected gangsters are still gangsters.)

      To be fair though, the comparison with the mafia is a little ridiculous. After all, the mafia is much less violent and has far less blood on its hands than the federal government. The feds are guilty of far more criminality than Volkswagen (or the mafia) ever has been, as will be confirmed by any history book.

    • 0 avatar
      RobertRyan

      @jkross22
      It sounds like the US Government is more at fault than VW. It is very subjective with it’s fines, giving local entities, little more than a slap on the wrist.

      • 0 avatar
        Scoutdude

        There is nothing subjective about this, the criminal penalty is clearly listed in EPA documents as $37,500 per non compliant vehicle. So do the math, even if we just use the ~500,000 2.0 vehicles they have every right to impose a fine of $18,750,000,0o Add in a few of those 3.0 cars and it quickly exceeds $20 billion. Then don’t forget all of those cars that they are going to buy back.

        • 0 avatar
          RobertRyan

          @Scoutdude
          If they buy them back and when they might pay the fine. I suspect a lot of haggling with the US Government with US Companies as bargaining chips. eg PACCAR

  • avatar
    Kenmore

    Niska: You died, Mr. Reynolds.

    Mal: Seemed like the thing to do.

    Niska: When you die, I can’t hurt you any more. And I want two days at least, minimum.

  • avatar
    seth1065

    I doubt this would go over well in Germany, This makes the US gov seem as some have pointed out a tad bit like a bully , esp when it seems VW is the new big cash cow replacing Phillip Morris. Not sure what the gov wants, cleaner air, a pay day, doing right by the folks who bought these cars, not to look like idiots for letting car companies have take home test and have cheating happen.

    • 0 avatar
      sirwired

      It does not appear that the Germans are real happy with VW either. While they don’t seem to be scheduling any perp walks, as long as the DoJ doesn’t put VW out of business, I’m pretty sure they understand completely.

      And VW deserves the exact hammer that is being slammed down on their head; they not only violated the law, once they got caught, instead of coming clean, they proceeded to play the feds for fools for an entire year. (If they HAD come clean, it would likely have been a few hundred $M in fines (similar to MPG shenanigans) and a stop-sale. We wouldn’t be talking buy-back and $B’s in fines.)

      It’s the difference between copping a plea deal and going all the way to a trial against overwhelming evidence. The court imposes a heavy penalty for wasting everyone’s time.

      • 0 avatar
        Scoutdude

        I agree that they screwed themselves with the first “fix” that they tried to fool CARB with.

      • 0 avatar
        RobertRyan

        @sirwired
        Remember the Chicken Tax? This could start something a lot worse, seeing both prospective Presidents want to drop FTA’s The action could be viewed in the wider perspective, as part of a retreat to extreme protective behaviour. A fair fine, yes OK, but something that is punitive , not so good.

    • 0 avatar
      RobertRyan

      @seth1065
      European / Asian manufacturers will think twice about investing in the US, other locations are not so unfriendly to business

      • 0 avatar
        thattruthguy

        Volkswagen needs the US much more than the US needs Volkswagen. And the US doesn’t demand *any* investment to do business, except storefronts that are mostly paid for by independent dealers. Volkswagen’s biggest problem with its US investments is that most Americans don’t want most of their US-made products. They’ve written off US factories before, and they’ll probably have to do it again.

  • avatar
    KevinC

    Sounds like VW needs to scratch a big check to the Clinton Crime Foundation.

  • avatar
    NickS

    $15b will do the trick, but my reading of this is that the DoJ wants to send a message that they are not getting cooperation, so it’s a shot across the bow.

    VW has shown in its nwgotiations with the EPA that it will drag its feet until it can’t. I am really at a loss to explain this “strategy”. Presumably their legal teams are smart people, right?

    • 0 avatar
      dal20402

      Ultimately lawyers are directed by their clients. We can yell and scream and dance up and down in closed-door meetings about how an obstructionist strategy with regulators will do more harm than good, but if the client fundamentally doesn’t understand how that could work or thinks they are being singled out for persecution, then the client will obstruct.

      Nothing VW has done in this case tells me anyone there feels the slightest bit of remorse about this or thinks they did anything wrong.

    • 0 avatar
      Scoutdude

      Of course they were going to drag their feet as long as they could to buy as much time as possible to try and come up with a magic solution that wouldn’t result in them buying back all those cars.

  • avatar
    dash riprock

    I imagine the European countries, other than Germany, are sicken by their inability to grab some flesh of the bone.

    Who would have thunk that the sophisticated European union would have environmental laws so much more pliable and useless than the crude and obnoxious Americans

    • 0 avatar
      DenverMike

      “…the sophisticated European Union…” didn’t require catalytic converters before 1992. Airbags are still optional there.

    • 0 avatar
      neil733

      A lot of the problems with the European regulations stem from them initially being copied from the US, which were copied from California, which were created to solve a particular smog problem in LA. This means that today’s regulations for Europe mandate test conditions based on the southern Californian coastal climate – converted from Fahrenheit to Celsius, but that doesn’t make it any more relevant to much of Europe. The regulations assumed that vehicles that meet legal requirements in the test conditions would still be reasonably clean in other conditions, but it now appears that this is not the case.

  • avatar

    Sink the Bismarck… leave enough life rafts for personnel, so they may return to Ze Heimat and recuperate for Ze Wiedergutmachung.

  • avatar
    SCE to AUX

    A multi-year criminal corporate conspiracy against the US government, its states, and its citizens should be severely punished.

  • avatar
    dal20402

    The US is just one of many countries around the world that were affected by VW’s fraud and will seek punishment. And then there will be liability to the buyers, quite aside from regulatory punishment. I don’t see how VW will survive this. I think in the end there will be some sort of bankruptcy or receivership proceeding and a major asset sale.

    • 0 avatar
      SCE to AUX

      I used to think that, but Germany will certainly deem Volkswagen ‘too big to fail’.

      The company might be diminished, but I can’t see Germany just letting 600k jobs vaporize. Of course, even bankruptcy doesn’t mean they fold.

    • 0 avatar
      RobertRyan

      @dal20402
      You are risking a massive trade war, that will affect many US Companies, for what gain?

      • 0 avatar
        dal20402

        What about what I’m saying implies a trade war? All I’m saying is that I think VW’s worldwide liabilities from this scandal will, when all is said and done, massively exceed its assets. I think it’s a bankrupt company walking.

        If the German government wants to step in and arrange a bailout to preserve the jobs, that makes sense — but just as GM ended up under new ownership when the US bailed it out, VW would end up under new ownership.

      • 0 avatar
        Scoutdude

        I fail to see how other countries getting their respective piece of VW’s quickly diminishing pie will cause a trade war.

        • 0 avatar
          RobertRyan

          @Scoutdude
          It employs 600,000 Globally. Apple and Google, US based corporations, think it is Ok, not to pay tax on their operations in Europe. A good basis for a trade war. President Obama hinted that the European actions at the US Companies ,could start one.

      • 0 avatar
        DenverMike

        A trade war?? Shamwow would be the biggest loser. Btw, BMW sells more cars in the US than Germany.

      • 0 avatar
        ajla

        “You are risking a massive trade war, that will affect many US Companies, for what gain?”

        youtube.com/watch?v=9cgrEA6eQ_g

  • avatar
    Paragon

    My take on it is something like this. Cue up the music: “…..and you’ll be sorry that you messed with the US of A…..” Uncle Sam’s got your name at the top of his list, for sure.

  • avatar
    NN

    I wonder if some of the recent Skoda trademark filings could be some sort of corporate hedge. Yes, they are part of VW, but VW could sell/spin them off in some manner to limit liability; exit the US market and Skoda could come into the existing US dealership networks with essentially the same cars that are being manufactured by the VW group. A long shot…but maybe not as crazy as it seems

  • avatar
    broISbest

    While I don’t think vw should be absolved of wrong doing, I’m concerned about what happens if they are pushed too far. As an owner of a non diesel vw, this problem has likely already affected my re-sale/trade-in price. I’ve accepted that. But, the further this goes, it stands to reason that the value of my vehicle will continue to be more negatively affected beyond what its depreciation curve pre scandal would have been. Diesel sales make up about a quarter of recent sales at best. That leaves a large majority of non diesel owners bearing some level of financial burden for this.

  • avatar
    markogts

    But “who” is Volkswagen? There are thousands of people working there, only a handful of which commited the crime. Give millions, instead of billions, fines to those managers, let them live the rest of their life on food stamps, but leave the company alone.

    • 0 avatar
      shaker

      “Give millions, instead of billions, fines to those managers, let them live the rest of their life on food stamps, but leave the company alone.”

      If only that’s the way it worked.

      Once you’re part of a legal entity, you suffer the sins of your superiors.

  • avatar
    RobertRyan

    @markogts
    Best post here. If you act like the Mafia, you will be treated like them.

    • 0 avatar
      Scoutdude

      Which of course is why our government it going after them so hard, to send a message to all the other companies that they will not stand for them operating like the Mafia, ie thinking that the laws don’t apply to them.

      • 0 avatar
        RobertRyan

        @Scoutdude
        No, the Mafia is the US Agency that wants to prosecute them,. At the moment Apple has a pending Euro 19 Billion fine and Google will be facing something similar for Tax Evasion as regards European sales

        • 0 avatar
          Scoutdude

          You should try standing on your head and see if that corrects your view of the world. VW broke the law, and when they were caught they broke the law again in an attempt to cover it up. When that was discovered they claimed they didn’t break the law instead of trying to actually correct the problem. They also denied that there were problems with their other vehicles when in fact they knew they cheated there too and of course that too was proven to be a lie and again they are dragging their feet instead of fixing the problem.

          They just stopped a hair short of telling US regulators to F-off your laws don’t apply to me.

          • 0 avatar
            RobertRyan

            @Scoutdude
            Apple and Google have that attitude with EU regulators. Many standing on the sidelines, waiting to see if they can tax them as well

          • 0 avatar
            Scoutdude

            Again that has absolutely nothing to do with the mess VW created for itself. Keep in mind the US is not the only country that they cheated in and not the only country looking to extract penalties out of VW.

    • 0 avatar
      DenverMike

      Well whom ever VW is, they screwed with the Feds all along the way. Ya play, ya pay. VW said they wanted the maximum fine allowable. No, they screamed it! And they should know, that’s per car, not per offense. So the Feds are just along for the ride.

  • avatar
    NeilM

    And here’s a perfect illustration of the problem: VW’s shareholders, and indirectly its ordinary employees, take the hit from fines, penalties and the cost of remedial measures. Meanwhile those who committed the actual offense get what, some public shaming and maybe lose their jobs? Oh, and the opportunity to claim that it wasn’t their idea and that they were only obeying orders.

    This is the classic “Search for the guilty, punishment of the innocent.”

    Well I have another view of what should be done. Following the 1757 execution of Admiral Byng in Britain for dereliction of duty, Voltaire wrote in his novella Candide that “In this country it is good to kill an admiral from time to time, in order to encourage the others.”

    Until some of these corporate weasels suffer some actual punishment for their misdeeds, there’s not much encouragement for the others to toe the line.

    Neil

    • 0 avatar
      DC Bruce

      Finally, someone gets close to the point. A corporation is a legal person, not a real one. Blasting the corporation down to rubble injures a lot of non-culpable parties: shareholders and rank and file employees. Only indirectly does it hurt management.

      Wouldn’t it be better to go after management, including the Board of Directors, directly?

      • 0 avatar
        RobertRyan

        @DC Bruce
        Yes much better idea. Get the Corporate types who started the mess. Problem is not much of a track record of that in the US. How many people who started the Rubber Loans, that triggered the GFC are behind bars?

    • 0 avatar
      Drzhivago138

      Ah, good to see someone following the Darth Vader school of command.

      “You have failed me for the last time, Admiral. Captain Piett?”

      “Yes, milord?”

      “Make ready to land our troops beyond the energy field and deploy the fleet so that nothing gets off the system. You are in command now, /Admiral/ Piett.”

      [nervously] “Thank you, Lord Vader.” [Admiral Ozzel collapses]

    • 0 avatar
      DenverMike

      A criminal enterprises can’t hide behind the skirts of innocent employees. They just hitched themselves to the wrong wagen.

    • 0 avatar
      NickS

      Neil,

      I don’t disagree but the US doesn’t have a very good track record when it comes to prosecuting executives for malfeasance, corruption,, conspiracy and the rest of it. Martha stewart, Bernie madof, the enron guys, a couple of bit players here and there, what else. We’ve had the robo-signing of mortgages as just one example and did anyone go to jail? It was a crystal clear illegal activity.

      For enforcement to mean something you have to jail executives, or fine the corporation to the max. Usually here in the US we settle most cases for some “big” fine that is laughably small compared to the profits from the criminal activity.

      I am not sure the DoJ really wants to prosecute German executives. If they do, I won’t mind, but to me at least it would look suspiciously like a double standard. They could just as well try their hand with some execs in American companies.

      I have more faith in German prosecutors’ willingness to go after their CEOs. They did uncover some complex and illegal activity with Siemens, ferostahl and other icons of German industry and sent german execs to jail.

Read all comments

Back to TopLeave a Reply

You must be logged in to post a comment.

Recent Comments

  • Garak: I swapped the winter tires on yesterday, and after half a mile heard telltale clunking from the rear. Forgot...
  • mcs: Nissan Leaf is 28 inches: https://youtube.com/watch?v=Y9 plRzRZ_PY
  • mcs: You can also pick up a level 2 charge at campgrounds that have sites equipped with NEMA 14-50 power.
  • mcs: “but can’t blow smoke through the stacks.” 1,000 horsepower gives you other options for smoke...
  • Lou_BC: I don’t like the fording depth of 24 inches. It doesn’t need an air intake like an ICE engine so...

New Car Research

Get a Free Dealer Quote

Who We Are

  • Matthew Guy
  • Timothy Cain
  • Adam Tonge
  • Bozi Tatarevic
  • Chris Tonn
  • Corey Lewis
  • Mark Baruth
  • Ronnie Schreiber