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VW diesel compensation is on track in US but not elsewhere

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It has been a year and a half since the diesel emissions scandal at the German carmaker Volkswagen first came to light.

Since then, the company has agreed to pay substantial compensation to people in the US who bought cars equipped with illegal software, capable of disguising their true emissions levels.

But Volkswagen has not yet made any payments to buyers in the UK or elsewhere in Europe, even though millions of cars sold in the region were also fitted with similar software.

Nor does it have any plans to do so.

However, efforts are now being made to force the company to change its mind, orchestrated by the European Commission. The Department for Transport has been involved in the discussions.

Defeat devices

The scandal first became public in the US in September 2015.

It emerged that roughly 600,000 diesel vehicles had been fitted with "defeat devices" - software which could recognise when a car was being tested, and turn on its emission controls systems.

They could then be turned off again when the car was being used on the road. That would improve its performance, but also dramatically increase the levels of harmful nitrogen oxides it produced.

The software had been developed by VW's engineers because they realised that their cars were not capable of both passing strict US emissions tests, and offering high levels of performance.

But the scandal was not confined to the US. It soon became apparent that cars sold all around the world had also been fitted with defeat devices - including about eight million in Europe.

They included cars sold under the Audi, Skoda, Seat and Porsche brands, as well as Volkswagens.

Consumer anger

News of what Volkswagen had been doing prompted angry reactions from buyers, many of whom demanded compensation.

In the US, they got what they wanted.

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Under the terms of a $10bn settlement with the Federal Trade Commission, VW agreed to buy back or repair all of the affected vehicles, and provide their owners with a cash sum of at least $5,000.

Buyers in Canada received a similar settlement, but only after taking out a class action lawsuit against the company.

In Europe, things have been rather different. Although Volkswagen is in the process of recalling the affected vehicles and modifying them, it has refused to provide any recompense for buyers.

Legal niceties

There is a good reason why Volkswagen has made payments in the US. It simply had no choice. What it was doing was clearly illegal.

The company has admitted that it deliberately set out to circumvent the emissions testing process, and designed its defeat device accordingly. It also lied to regulators about what it was doing.

The US authorities take a very dim view of this kind of thing. As a result Volkswagen is facing a total bill in the US of $21bn.

That includes large criminal and civil fines, as well as the cost of buybacks and compensation. If VW had decided to fight the charges rather than settling, it could have been even bigger.

It has also pleaded guilty to criminal charges of conspiracy to commit fraud and obstruction of justice.

Europe complicated

In the UK and other European countries, the situation is more complicated.

Although it is in the process of recalling millions of vehicles fitted with software capable of cheating emissions tests, Volkswagen denies actually doing anything illegal.

It says, for example, it "does not accept that a defeat device prohibited under UK law was fitted to any of the affected UK vehicles".

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It also insists: "This issue has not caused any loss of engine performance or any increase in running costs. Nor has it changed fuel economy figures, CO2 emission figures or the vehicles' tax status.

"In addition the value of the vehicles has not been negatively affected by this issue."

So no compensation, it argues, is needed. Similar arguments are used in other European countries.

Put simply, Volkswagen doesn't believe that in Europe the "defeat devices" were actually defeat devices - in the strictest legal sense.

It also maintains that the software wasn't actually needed to pass emissions tests in Europe, which were less stringent than those in the US.

Combined action

Nevertheless, efforts are under way in Brussels to force Volkswagen to pay up.

Last week the European Commission hosted a meeting of 22 consumer protection authorities from across the continent.

They agreed to prepare collective action against the company.

It is understood this could involve individual authorities imposing co-ordinated fines on Volkswagen for alleged breaches of consumer law, as well as taking a joint "administrative decision", which could be used to support litigation against the company in national courts.

According to people within the Commission, the main aim is to put pressure on the carmaker, in the hope that it will voluntarily provide compensation.

A spokesman for the Department for Transport said afterwards that the government took "the unacceptable actions of VW extremely seriously" and was "pushing them to compensate the UK consumer".

Even if these efforts fail, VW could yet be forced to make substantial payouts.

It is facing a range of class action lawsuits, representing hundreds of thousands of disgruntled buyers - and if it loses, the bill could be very steep indeed.

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