VW’s Tried-and-Tested Tactics to Avoid Paying Compensation

This strategy is simple: highlight the unique characteristics of the most demanding markets, and exploit the weaknesses of institutions elsewhere in a bid to diminish or avoid restitution.

Volkswagen has resisted increasingly vociferous demands for restitution in other parts of the world, insisting that financial compensation will be reserved for customers in the US and Canada.

The company maintains that these customers deserve compensation because they bought a vehicle specifically advertised as a “clean diesel”. It has further argued that US customers were investing in a niche technology compared with Europe where more than half of new cars sold are diesels.

In Europe, Volkswagen’s significant political clout – the company is one the EU’s largest employers and part-owned by a German Lander government – might offer some protection.

In Australia, Volkswagen Australia finally came clean with local customers in October 2015, admitting that more than 90,000 of its vehicles, including Volkswagen, Skoda and Audi models, had been fitted with the device.

Australian consumers seemed to shrug off the scandal and Volkswagen’s Australian sales increased by nearly 10% in 2015. The lack of impact may be attributable to the fact that diesel models account for less than 10% of local sales.

For the past nine months the Australian Competition and Consumer Commission (ACCC) has been investigating whether Volkswagen engaged in false or misleading representations in their marketing of the affected vehicles. If customers relied on these representations when buying their cars, they would be entitled to a range of options under the Australian Consumer Law.

Last week lawyers appearing in the Federal Court for Volkswagen Australia denied the use of defeat devices in local models and argued that the fines and compensation agreed to in the US were irrelevant for the Australian context.

Volkswagen Australia has also argued the best outcome for its customers is a technical solution, chiefly in the form of a software update.

Volkswagen’s approach reflects a crisis management strategy employed effectively by other multinationals in the past.

Multinationals have always exploited institutional differences across countries through mechanisms such as differential pricing and tax arrangements. Increasingly they are also exploiting institutional differences by offering differential remedies in case of corporate wrongdoing. The fragmentation of stakeholders in different countries may even be reinforced by the companies.

For instance, in a recent press statement Volkswagen Australia’s managing director, Michael Bartsch, was at pains to point out:

The relevant facts and complex legal issues that have played a role in coming to these agreements in the United States are materially different from those in … Australia.

In the same vein, the group’s corporate website makes it exceedingly difficult to access the crisis communications provided to individual markets. Queries are either looped back to the local (Australian) emission website or require a valid VIN number in the overseas market. Such tactics help to keep individual countries and their stakeholders apart, and prevent countries with less bargaining power from obtaining comparable restitution.

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