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Volkswagen CEO: Using Deceptive Software Was Wrong

Volkswagen CEO Martin Winterkorn pledges cooperation as investigators delve into alleged emissions test cheating.
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Volkswagen AG CEO Martin Winterkorn on Sunday issued an apology in response to allegations from the US Environmental Protection Agency and the California Air Resources Board that VW and two of its subsidiaries had used software to cheat on vehicle emissions tests.

"I personally am deeply sorry that we have broken the trust of our customers and the public," said Winterkorn in a statement. "We will cooperate fully with the responsible agencies, with transparency and urgency, to clearly, openly, and completely establish all of the facts of this case. Volkswagen has ordered an external investigation of this matter."

On Sept. 18, the EPA issued a Notice of Violation accusing Volkswagen AG, Audi AG, and Volkswagen Group of America of deliberately employing a "defeat device" to allow four-cylinder Volkswagen and Audi diesel cars from model years 2009-2015 to appear to meet emissions standards during testing.

During actual use, however, the affected vehicles emitted 10 to 40 times more pollutants than allowed, according to the EPA.

As trading resumed on Monday, Sept. 21, stock of Volkswagen AG was down about 20% in the wake of the EPA/CARB charges. For Clean Air Act violations, VW could be fined up to $37,500 per vehicle, which would amount to $18 billion for 482,000 affected vehicles. There may be additional litigation.

The EPA has not said how much it will seek in fines, but a similar case in 1998 may offer some guidance.

That year, the EPA and the Justice Department announced the largest Clean Air Act settlement up to that point, an $83.4 million civil penalty against seven truck makers -- Caterpillar, Cummins Engine Company, Detroit Diesel Corporation, Mack Trucks, Navistar International Transportation Corporation, Renault Vehicules Industriels, and Volvo Truck Corporation.

In 2015 dollars, that fine would be about $122 million, based on a cumulative inflation rate of 46.2%. That's significantly less than the statutory maximum.

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The EPA and Justice Department claimed that the truck makers sold 1.3 million vehicles with defeat devices that disabled emission controls while on the road. The EPA estimated that the vehicle makers would spend an additional $850 million to develop cleaner diesel engines and bring old engines into compliance.

Last year, South Korean automakers Hyundai and Kia agreed to pay a $100 million civil penalty to resolve alleged Clean Air Act violations.

Beyond direct financial fallout, Volkswagen will have to contend with brand damage. For example, Consumer Reports on Sunday suspended its recommendation of two Volkswagen models, the Jetta diesel and the Passat diesel. The publication will wait until VW fixes the emissions system to re-test the cars.