Volkswagen’s stock dropped almost 30 percent after it was announced on Friday that the company violated the Clean Air Act. Now, the company faces fines and lawsuits that could cost them billions of dollars.

 

The Environmental Protection Agency (EPA) found out that Volkswagen installed a device in many of their diesel vehicles that can detect when it’s going through emissions testing. When the test takes place, the device is programmed to turn on the car’s emissions control systems, which then tricks the tester into believing these controls are always activated.

 

Volkswagon does emissions testing

(CBC)

“The charges are truly appalling: that Volkswagen knowingly installed software that produced much higher smog-forming emissions from diesel vehicles in the real world than in pre-sale tests,” said Frank O’Donnell, president of Clean Air Watch.  

 

The automotive manufacturer may have to recall up to 11 million vehicles, which would be very costly to the company. Ever since the scandal started, analysts have been trying to calculate the potential liabilities that Volkswagen may be facing. According to JPMorgan analyst Jose Asumendi, Volkswagen could have liabilities up to $45 billion; however, he also mentioned that this is the worst-case scenario.    

 

Volkswagen’s potential financial problems have only gotten bigger now that investors are starting to file lawsuits over the drastic drop in stock prices. It’s been estimated that over 80 federal lawsuits have been filed against Volkswagen in response to the scandal. Many U.S. shareholders are attempting to join the legal battle, but they may find it difficult since Volkswagen is a foreign-based institution, which potentially protects the company from U.S. security laws. Houston state attorney Michael Swick remains confident that his lawsuit against Volkswagen over damage to public health caused by their diesel vehicles will be a success.      

 

“I have been practicing this type of litigation for 20 years, I have seen all kinds of fraud,“ said Swick. “There is no defense to what they’ve done. I don’t think they have anything they can use to defend their actions.”

 

Will Volkswagen be able to turn things around? Can they afford to lose these lawsuits? Leave a comment or talk to me on Twitter @Karbowski_Devon.