“La sabiduría de la vida consiste en la eliminación de lo no esencial. En reducir los problemas de la filosofía a unos pocos solamente: el goce del hogar, de la vida, de la naturaleza, de la cultura”.
Lin Yutang
Cervantes
Hoy es el día más hermoso de nuestra vida, querido Sancho; los obstáculos más grandes, nuestras propias indecisiones; nuestro enemigo más fuerte, el miedo al poderoso y a nosotros mismos; la cosa más fácil, equivocarnos; la más destructiva, la mentira y el egoísmo; la peor derrota, el desaliento; los defectos más peligrosos, la soberbia y el rencor; las sensaciones más gratas, la buena conciencia, el esfuerzo para ser mejores sin ser perfectos, y sobretodo, la disposición para hacer el bien y combatir la injusticia dondequiera que esté.
MIGUEL DE CERVANTES Don Quijote de la Mancha.
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22 de septiembre de 2015
Putting a Price on Volkswagen's Emission-Fraud Mess
The $18 billion figure being bandied about is probably too high, but the tab will be in the billions
An $18 billion liability figure attached itself on Friday to Volkswagen's diesel disaster. Tuesday morning brought news
that the German carmaker has set aside $7.3 billion (€6.5 billion) to
cover a scandal spreading worldwide. How to make sense of these
impressive-sounding numbers?
As we all know, Volkswagen has
apologized for selling hundreds of thousands of diesel cars in the U.S.
with software specifically designed to evade government pollution tests.
That's bad, but it gets worse. As regulators in multiple countries have
weighed in to say they would also investigate VW imports, the company
disclosed that the irregularities on diesel-emission readings extend to
some 11 million vehicles globally.
At this early stage, putting a
precise price tag on the ultimate cost of pollution penalties, criminal
fines, private settlements, and the like is virtually impossible. But we
can begin to break down some likely elements of the pecuniary damage VW
faces.
The EPA's big, discounted fine
The
$18 billion liability figure reflects the maximum per-car clean-air
penalty the Environmental Protection Agency could, in theory, assess.
For those who like to see the math: Some 482,000 four-cylinder VW and
Audi cars, sold in the U.S. since 2008, multiplied by $37,500 for each
non-compliant vehicle.
Volkswagen
Chief Executive Officer Winterkorn (left) and Michael Horn, president
and chief executive officer of Volkswagen Group of America (right), with
two other VW executives at the the 2015 North American International
Auto Show.
Photographer: Andrew Harrer
That's
the way a very angry American judge might calculate civil damages, if
there were a trial. But there won't be a trial. Volkswagen Chief
Executive Officer Martin Winterkorn said on Sunday that his company is
“deeply sorry” for the emissions-cheating scandal and will do
“everything necessary in order to reverse the damage this has caused.”
On Monday night, Michael Horn, head of the brand in the U.S., elaborated
at an ill-timed promotional event in New York. “Our company was
dishonest with the EPA, and the California Air Resources Board, and with
all of you,” Horn told reporters. “And in my German words: We have
totally screwed up.”
Horn's German words can also be translated as: We will settle this fiasco as rapidly as possible. In
exchange for sending their lawyers promptly to the negotiation table,
Volkswagen will probably get a significant discount from the EPA on the
maximum statutory pollution penalty. Just how much of a discount,
though, will turn in part on the criminal investigation.
The criminal probe: a further $1 billion?
Prosecutors
from the the Justice Department’s Environment and Natural Resources
Division will look for evidence of knowing fraud by VW engineers and
executives. Since the company has admitted that it rigged diesel
vehicles to pass lab tests, even though they emitted as much as 40 times
the legal limit of pollutants on the road, it seems highly likely that
investigators will find fraud.
That
will probably lead to three results: a corporate criminal plea by
Volkswagen, a criminal fine assessed by the Justice Department, and
criminal charges against individuals. The VW case will become a test for
the Obama administration's newly stated commitment to holding
particular corporate employees and officials responsible for wrongdoing
attributed to their employer. That's bad timing for VW diesel-emissions
team members. Earlier this month, the Justice Department announced with
some fanfare that companies that want credit for cooperating with
investigators must name individuals that they allege are responsible for
misconduct. Look for VW to acknowledge collective guilt and point the
finger at offending individuals whom the company will accuse of
betraying its otherwise supposedly high-minded values.
A satellite image of the 2010 Gulf of Mexico oil spill.
Photographer: DigitalGlobe via Getty Images
We have some potentially helpful comparison points. Just a few days ago, General Motors agreed
to pay $900 million to resolve a federal criminal investigation of
ignition-switch flaws linked to at least 124 crash deaths and the recall
of 2.59 million cars. So far, no individuals have been criminally
charged in the GM case, but prosecutors have said the probe is
continuing. In an earlier case concerning cars that allegedly
accelerated spontaneously, Toyota reached a $1.2 billion settlement with
the Justice Department, the largest-ever U.S. criminal penalty for a
car company. (GM and Toyota didn't face the kind of civil pollution
liability VW has all but conceded; on the other hand, the deceptively
dirty diesel engines didn't kill anyone—at least, not in an immediate
sense.)
Let's say VW is willing to pony up $1 billion or so in
criminal penalties and to make examples of some of its soon-to-be-former
employees associated with the emissions manipulation ...
Then there's civil liability and private plaintiffs
I'd
wager that to make the clean-air infractions go away, the company would
have to at least double that amount on the civil side, for a grand
total of $3 billion to $4 billion of U.S. government liability. The key
to such a deal will be time. VW will seek to pay over a period of
years. The government will probably go along with that. In July, BP
agreed to settle its government environmental liability related to the
2010 Gulf of Mexico oil spill for $18.7 billion. BP's deal allows it to
pay over 18 years, which makes the arrangement far more feasible for the
British energy giant.
Satisfying the EPA and Justice Department
is not the end of the liability story for VW. State attorneys general
are going to want in on the money grab. And some of the most potent
private plaintiffs' law firms in the country are already filing or assembling lawsuits
seeking compensatory and punitive damages for hundreds of thousands of
car owners whose vehicles are worth thousands of dollars less today than
they were last week. Yet another category of suits will seek
compensation for shareholders who have seen the value of their VW stock
shrink by more than a third since the scandal broke last week.
Given
what VW has already conceded, these private suits will have what the
trial lawyers politely call "settlement value." When the suits get
bundled together into class actions—at least one for economic tort
damages and a second for securities fraud—that value will climb from the
hundreds of millions of dollars Ainto the billions (again, with the
likelihood of some time delay in terms of actual check-cutting.)
An early estimate of VW's total liability
For
a first cut at VW's total U.S. liability, I'd start with something in
the neighborhood of $6 billion. That doesn't address the penalties the
company faces in Germany and numerous other countries, none of which
have liability systems as expansive as that of the U.S. but all of which
are going to want to teach VW a lesson. In this light, the company's
$7.3 billion set-aside starts to look overly optimistic.
And then there's the dent to Volkswagen's credibility in consumers' eyes—a form of damage that could prove incalculable.