On September 18, 2015, the US Environmental Protection Agency (EPA) publicly announced in a “Notice of Violation” that irregularities in relation to nitrogen oxide (NOx) emissions had been discovered in emissions tests on certain vehicles of Volkswagen Group with type 2.0 l diesel engines in the USA. In this context, Volkswagen AG announced that noticeable discrepancies between the figures achieved in testing and in actual road use had been identified in around eleven million vehicles worldwide with type EA 189 diesel engines. On November 2, 2015, the EPA issued a “Notice of Violation” alleging that irregularities had also been discovered in the software installed in US vehicles with type V6 3.0 l diesel engines.
In the months following publication of a study by the International Council on Clean Transportation in May 2014, Volkswagen AG’s Powertrain Development department checked the test set-ups on which the study was based for plausibility, confirming the unusually high NOx emissions from certain US vehicles with type EA 189 2.0 l diesel engines. The California Air Resources Board (CARB) – a part of the environmental regulatory authority of California – was informed of this result, and, at the same time, an offer was made to recalibrate the engine control unit software of type EA 189 diesel engines in the USA as part of a service measure that was already planned in the USA. This measure was evaluated and adopted by the Ausschuss für Produktsicherheit (APS – Product Safety Committee), which initiates necessary and appropriate measures to ensure the safety and conformity of Volkswagen AG’s products that are placed in the market. There are no findings that an unlawful “defeat device” under US law was disclosed to the APS as the cause of the discrepancies or to the persons responsible for preparing the 2014 annual and consolidated financial statements. Instead, at the time the 2014 annual and consolidated financial statements were being prepared, the persons responsible for preparing the 2014 annual and consolidated financial statements remained under the impression that the issue could be solved with comparatively little effort as part of a service measure.
In the course of the summer of 2015, however, it became successively apparent to individual members of Volkswagen AG’s Board of Management that the cause of the discrepancies in the USA was a modification of parts of the software of the engine control unit, which was later identified as an unlawful “defeat device” as defined by US law. This culminated in the disclosure of a “defeat device” to EPA and CARB on September 3, 2015. According to the assessment at that time of the responsible persons dealing with the matter, the scope of the costs expected by the Volkswagen Group (recall costs, retrofitting costs and financial penalties) was not fundamentally dissimilar to that of previous cases involving other vehicle manufacturers, and, therefore, appeared to be controllable overall with a view to the business activities of the Volkswagen Group. This assessment by the Volkswagen Group was based, among other things, on the advice of a law firm engaged in the USA for approval issues, according to which similar cases in the past were resolved amicably with the US authorities. The publication of the “Notice of Violation” by the EPA on September 18, 2015, which, especially at that time, came unexpectedly to the Board of Management, then presented the situation in an entirely different light.
Additional special items in connection with the diesel issue amounting to €3.2 billion (previous year: €3.2 billion) were recognized in the reporting period. The main reasons for the expenses are the administrative fine orders totaling €1.8 billion imposed by the Braunschweig public prosecutor and the Munich II public prosecutor’s office in connection with the diesel issue, as well as higher legal risks and legal defense costs and an increase in expenses for technical measures.
Apart from the above, there are no conclusive findings or assessments of facts available to the Board of Management of Volkswagen AG that would suggest that a different assessment of the associated risks (e.g. investor lawsuits) should have been made.
Further details can be found in the “Diesel Issue” section of the management report.
In the award proceedings regarding the appropriateness of the cash settlement and the right to compensation for the noncontrolling interest shareholders of MAN SE, the Higher Regional Court in Munich made a final decision at the end of June 2018, ruling that the right to annual compensation per share must be increased. The cash settlement per share, raised in a first instance ruling by the First Regional Court in Munich, was confirmed.
In August 2018, the control and profit and loss transfer agreement with MAN SE was terminated by extraordinary notice as of January 1, 2019.
Cash outflows for compensation payments and the acquisition of shares tendered amounted to €2.1 billion in the period to December 31, 2018. There was a corresponding decline in the amount of “put options and compensation rights granted to noncontrolling interest shareholders” reported in the balance sheet.
Further information can be found in the “Litigation” section.