VW hit by $125m fine over Australian diesel claims

THE Federal Court has today ordered Volkswagen AG to pay $125 million in penalties, declaring by consent that the German car-maker made false representations about compliance with Australian diesel emissions standards.

And in a separate action, the Australian Securities and Investments Commission (ASIC) has begun civil proceedings in the Federal Court against Volkswagen Financial Services Australia, alleging VW contravened responsible lending provisions in relation to almost 50,000 loan contracts.

The $125 million fine is the highest on record for a breach of Australian consumer law and deepens the original in-principle settlement of $75 million (plus $4 million in legal costs) reached with the Australian Competition and Consumer Commission (ACCC) in October.

It is also in addition to a separate class action Volkswagen settled in principle with vehicle owners in September for between $87 million and $127 million.

Volkswagen AG said in a statement today that the company will “determine in the coming weeks whether it will appeal the decision of the court”.

“Volkswagen AG firmly believes that the penalty of $75 million agreed in principle with the Australian Competition and Consumer Commission to resolve the regulatory proceedings was a fair amount and is carefully reviewing the court’s reasons for deviating from that amount,” the car-maker said.

Volkswagen is hoping to put the long-running ‘dieselgate’ affair behind it in Australia, which involves some 57,000 vehicles across a broad range of models with the EA198 diesel engine that allegedly had a so-called cheat device installed to mask diesel emissions during official tests.

The company said this week that most of the affected vehicles “have subsequently had an update to the engine control software under the ongoing voluntary recall” and that “the relevant authorities have confirmed that this update satisfies European and Australian emission standards”.

It also highlighted that the case against Volkswagen Group Australia has been dismissed in its entirety with no orders made against the local subsidiary.

The case against Audi AG and Audi Australia in respect of Audi vehicles caught up in the affair has also been dismissed in its entirety, with no orders made against any of the respondents to the Audi regulatory proceedings.

The ACCC said in a statement that Volkswagen had admitted it failed to disclose to authorities the existence of ‘Two Mode’ software when it sought approval to supply the 57,000-plus vehicles into Australia between 2011 and 2015.

It said Volkswagen admitted that when switched to ‘Mode 1’ for the purposes of emissions testing, the software caused its vehicles to produce lower nitrogen oxide (NOx) emissions, but that when driven in on-road conditions, the vehicles switched to ‘Mode 2’ and produced higher NOx emissions.

“Volkswagen’s conduct was blatant and deliberate,” ACCC chair Rod Sims said.

“This penalty reflects a trend of ever higher penalties for breaches of Australian consumer law.

“Today’s $125 million in penalties were imposed under the old penalty regime of up to $1.1 million per breach. Under laws that came into effect later last year, maximum penalties are now the higher of $10 million, three times the profit or benefit obtained or, if this cannot be determined, 10 per cent of turnover.

“Essentially, Volkswagen’s software made its diesel cars, utes and vans operate in two modes. One that was designed to test well and another that operated when the vehicle was actually being used and which produced higher emissions.

“This was concealed from Australian regulators and the tens of thousands of Australian consumers driving these vehicles.

“If the affected Volkswagen vehicles had been tested while operating in the mode Australians were driving in, they would have exceeded the NOx emissions limits allowed in Australia.”

The ACCC said Volkswagen also admitted that it made false representations when applying for the vehicles to be published on the federal government’s Green Vehicle Guide website.

“Volkswagen vehicles would not have obtained the ratings that they did on the Green Vehicle Guide website if the Government had been made aware of the effect of Two Mode software on the emissions testing results,” Mr Sims said.

“Volkswagen’s conduct undermined the integrity and functioning of Australia’s vehicle import regulations which are designed to protect consumers.”

The ASIC proceedings against Volkswagen Financial Services Australia alleges that the company contravened the responsible lending provisions of the National Consumer Credit Protection Act on 49,380 loan contracts.

“The responsible lending obligations in the National Credit Act are intended to prevent consumers entering unsuitable credit contracts,” said ASIC commissioner Sean Hughes said.

While ASIC will continue to enforce the law and target poor practices, it is entirely the responsibility of credit providers to properly assess whether the consumer has the capacity to service the loan without incurring substantial hardship.”