VW diesel engineer Liang to be sentenced in the US | Business| Economy and finance news from a German perspective | DW | 24.08.2017
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VW diesel engineer Liang to be sentenced in the US

VW's emissions scam has stained the firm's reputation and even undercut Germany’s well-cultivated image as a bastion of excellence, precision and environmentalism. One of those behind the scandal is set to be sentenced.

Volkswagen's startling diesel-emissions scandal is again going to be in focus this Friday as the US District Court in Detroit is expected to sentence one of its masterminds, James Robert Liang.

The 63-year-old former VW engineer already admitted that he had helped write the illegal software used by the German auto behemoth to circumvent stringent US emission tests on its diesel-powered vehicles.

Liang pleaded guilty last September to conspiring to defraud American regulators, commit wire fraud and violate the US Clean Air Act. The charges carry a maximum penalty of five years in prison. But prosecutors are recommending only a three-year prison sentence, citing Liang's cooperation with the authorities following his indictment as the reason for their recommended leniency.

Liang provided "an insider's perspective of a company that had lost its ethical moorings in pursuit of increased market share and corporate profits," they said.

Liang's sentencing would demonstrate a significant shift in the Justice Department's handling of white-collar crime. The US government has faced stark criticism for failing to prosecute executives in the financial services industry in the wake of the 2007-08 financial crisis.

So observers say US officials don't want the same to happen with the auto industry and allow those responsible for the wrongdoing to go scot-free. Seven other current and former upper-tier managers of Volkswagen have been indicted so far.

Read more: US issues arrest warrants for former VW executives

Still, no former or current board member has been charged, triggering accusations that the firm's top executives are not being held accountable. But authorities say more people may be charged as additional evidence is gathered.

Aggressive strategy

Liang's conviction would once again highlight how even a company that's regarded as a national icon and known for its quality as well as reliability was not immune to engaging in malfeasance and deception in its sheer pursuit of profit and fame.

The seeds of VW's scandal were sown in the period around 2007, after an ambitious and demanding Martin Winterkorn became CEO. His engineering background and assiduous attention to detail were complemented by his authoritarian-style management that inspired both fear and respect among his subordinates.

Martin Winterkorn

VW CEO Martin Winterkorn set an aggressive goal for the German firm to overtake the US's General Motors and Japan's Toyota to emerge as the world's No. 1 automaker.

That was also the time when automotive manufacturers worldwide began mulling over alternatives to the venerable and polluting internal-combustion engine, such as electric cars and hybrids.

VW, though, put its money on so-called "clean diesel" cars. The German carmaker pushed hard to increase its sales in the US, a key and competitive automotive market where VW performance was underwhelming to the point of being pathetic. VW once captured American public imagination with its legendary Beetle in the 1960s and 70s, but its market share in recent years has failed to cross even 3 percent. So VW saw an opportunity to expand its sales in the world's second-biggest vehicle market with the help of a new generation of diesel cars.

VW diesel car

VW diesel cars were marketed as offering better fuel economy than gasoline-powered ones with lower emissions and robust performance. VW even had a goal of selling 1 million vehicles in the US by 2018.

The scandal

VW engineers stumbled on to a problem, however. The carmaker's diesel engines weren't meeting the strict pollution limits and tough mileage regulations in the US. The engineers were also put under enormous pressure by the senior management's commitment to diesel. Unable to fix the problems and come up with a viable vehicle that is emissions-compliant, they hatched a sophisticated, yet deceptive, workaround.

They installed flawed computer code that reduced emissions only when the vehicle was undergoing a standardized US emissions test. When on the road, though, the car would emit hazardous exhaust that exceeded the legally mandated limits. For instance, VW's "defeat devices" concealed nitrogen oxide emissions that were sometimes as high as 40 times the permitted levels.

The faulty software initially did the trick for VW, as it could show that it was building better-performance diesel vehicles that were also friendly to the environment. The firm sold over 12 million such vehicles worldwide, including some 580,000 units in the US between 2009 and 2015.

But the party came to an end when the cheating was unearthed in 2015 during a study by researchers at West Virginia University's Center for Alternative Fuels Engines and Emissions.

Read more: The research team that caught Volkswagen

The revealing of the extraordinarily ingenious malfeasance incensed VW car owners, particularly in the US and Europe, and drew withering censure.

It has cost VW an immense fortune, with the company forced to pay $4.3 billion (3.65 billion euros) in criminal and civil penalties, the largest fine ever imposed by the US government on an automaker. GM's $900 million settlement over ignition-switch defects and Toyota paying $1.2-billion fine for car-safety issues pale in comparison. On top of the fines, VW has had to shell out billions of dollars to cover customers' class-action lawsuits and other settlements.

The global carmaker has so far set aside more than 22 billion euros to cover fines and compensation related to the scam, but experts estimate the final bill could be much higher.

Many of the diesel vehicles sold by VW also qualified for subsidies under various green programs both in the US and Europe. This could lead to more fines and claims for compensation in future. The company still faces a slew of legal challenges worldwide relating to the scam.

Read more: What the emissions scandal means for the environment

The firm's US growth strategy has been in shambles since the revelation of the deception. VW's US sales slumped 7.6 percent last year to 322,000 vehicles. Sales in Europe also slowed.

Reputational cost

Money aside, it's the harm to its image that's more damaging to the company. The affair has cast a dark shadow over the reputation of a behemoth that is viewed by many Germans not just as a corporate giant but as their country's top-notch national symbol.

Volkswagen-Konzern (picture-alliance/dpa)

VW is Germany's biggest company by a wide margin, making and selling mass-market and premium cars, as well as trucks and buses under a dozen distinct brands, led by Volkswagen, Audi and Porsche.

The conglomerate boasts revenues of over 200 billion euros and manufactures over 10 million vehicles annually in production facilities in 27 countries. The group employed over 600,000 workers worldwide in 2016; around 120,000 of them based in Germany. The company is at the core of the country's globally renowned automotive sector, which directly and indirectly provides one in seven jobs in the EU's economic powerhouse.

The scandal therefore enraged Germans even more than others and triggered worries that it would forever tarnish their nation's reputation for quality, reliability and excellence.

But problems with defeat devices are not new for Volkswagen. The company faced a similar issue in the early 1970s when it was fined by US authorities for equipping its vehicles with temperature-sensing equipment that turned off the car emissions system at certain times.

Watch video 01:41

VW tries to clean up its act with new e-car

Change in strategy

After the Dieselgate scandal came to light, VW was forced to change its course and unveil a new strategy to recoup its lost prestige and reposition it on a market that is on the cusp of monumental changes.

Winterkorn stepped down from his position and his successor Matthias Müller declared a shift in focus toward clean-energy vehicles, aiming to become a global leader in the production and sale of electric cars by 2025. By then, the company plans to sell 1 million electric cars per year, and emerge as a global market leader in electromobility.

Read more: VW strives to be leader in e-cars, self-driving vehicles

Nevertheless, VW is regarded as a late entrant and faces stiff competition from various players, who are far more ahead of the German firm in this area. They include companies like American e-car maker Tesla. Despite its numerous problems, VW still became the world's best-selling carmaker in 2016, the first time the company held that position.

But given the broad spectrum of legal, financial and technological challenges VW faces, it's unclear how long the company will retain the coveted spot as the world's largest automaker.

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