Corporate Stupidity Leads to Massive Liabilities

If the claims about Volkswagen’s “stealth EPA software” prove true, as it increasingly seems to be the case, it will present yet another case of management arrogance that will cost corporate shareholders billions of dollars.

It is difficult to call the supposed plan to beat the EPA at the emissions game as anything but stupid and short-sighted. The first lawsuit filed will be joined by numerous others around the globe. In fact, more than 25 class actions were filed around the U.S. within four days of the cheating being alleged in national media.


Thus far, the management team at Volkswagen has provided an initial admission that it cheated on U.S. Environmental Protection Agency emissions tests. These are tests conducted for every manufacturer to determine the mileage performance of the vehicles. Those autos with good mileage numbers are promoted in marketing campaigns as cost-effective. That was the case with Volkswagen’s push to entrench its four-cylinder diesel in the U.S. market.

As is currently understood, VW equipped up to 11 million of its vehicles with software that would turn on when being subjected to EPA tests or test-like conditions. If the software detected that situation, it would cause the engine to operate in something like a safe mode, where normal power use and performance were throttled down. This allowed the test results to show substantially higher fuel economies than would result under normal use. Once on the road, the software switched off and returned the engine to full performance.

Aside from the actual offense of cheating, the environmental impact of the deception is claimed to be substantial. Each car that was sold is reported to have generated up to 40 times the allowable pollution (nitrogen oxide) that was used as a test standard.

On top of the lawsuits being filed en masse, criminal investigations are being launched, and other governmental actions are sure to be initiated. With at least a half-million vehicles known to be affected by the plot, but up to 11 million autos equipped with the “defeat software,” and potential fines of $37,000 per auto, the numbers involved are potentially staggering.

Volkswagen has retained Kirkland Ellis LLP, known for its work in defending British Petroleum after the disastrous Deepwater Horizon oil spill, as counsel.