Throwing the Towel In
Volkswagen Korea, the local unit of German automaker Volkswagen, has decided not to take legal action against the South Korean government's decision that affected its 80 models. Earlier, the automaker said it was considering legal steps after the Ministry of Environment (MOE) revoked the certification of 83,000 vehicles of its 80 models of for cheating on emission and noise level tests.
According to industry sources on August 29, Audi Volkswagen Korea notified the MOE last week that it decided not to take legal action against the government’s latest sales ban and decertification decision through discussion with the headquarters in Germany.
In November last year, the authorities ordered Audi Volkswagen Korea to recall 126,000 diesel-powered vehicles after revoking their certifications for cheating on emission tests. This year, it additionally revoked the certifications of 83,000 cars after it found out that the company manipulated documents on emissions and noise level tests through the investigation by the prosecution. The 126,000 cars under a recall order and the 83,000 cars that the South Korean government decertified on the 2nd accounted for 68 percent of 307,000 cars that all brands under Volkswagen Group, such as Audi, Volkswagen and Bentley, has sold here since 2007.
An official from Audi Volkswagen Korea said, “We decided to accept the opinion of the MOE to normalize the business and not to take legal steps against the ministry to carry out discussion. We plan to schedule discussions over the recertification progress with the MOE.”
Audi Volkswagen Korea seems to have decided not to take legal action against the government since it believes that there is no advantage in the legal steps. This is because it is clear that the company fabricated the documents on emission and noise level tests and it will be forced to pay huge fines additionally according to the revised law when the company loses the lawsuit against the government. Previously, the South Korean government slapped a fine of 17.8 billion won (US$15.85 million) on Audi Volkswagen Korea. However, the fine will increase to 68 billion won (US$60.55 million) according to the revision of the Clean Air Conservation Act, which raises the ceiling on fines per vehicle model from 1 billion won (US$890,472) to 10 billion won (US$8.9 million), when the company loses the lawsuit.
Above all, when the lawsuit against the government proceeds, the recertification process for vehicles, whose certifications are canceled and which are banned to sell, will be practically suspended and the company will have difficulties to conduct normal business. With the MOE’s decision, Volkswagen is almost forced to cease operation as it can sell only two vehicle models – the Touareg and CC. When the recertification fall into arrears, dealers can't help but suffer greatly in business operation.
In fact, Audi sold 1,504 cars last month, ranked third in the Korean imported car market. However, its sales figure dropped a whopping 42.5 percent from the same period a year earlier. Volkswagen sold as low as 425 vehicles over the same period, down 85.8 percent from a year ago and 76.8 percent from the previous month. Due to the sales ban, the company’s sales in August are expected to decrease further. The pressure that dealers, who are struggling to run business, will leave and customers’ dissatisfaction will be amplified under the current conditions when taking legal action was a burden on the company. In addition, the MOE’s latest movement to expand an investigation into the fabrication of emission and noise level test results to all foreign car brands also affected the decision of Volkswagen Korea.
An official from the industry said, “Audi Volkswagen Korea must have felt that it should accept the current situation, rather than be in confrontation with the government, and normalize sales immediately through the recertification if the company will not withdraw from the Korean market. When the current situation continue, its brand image will hardly hit.”
Instead of taking legal steps, Audi Volkswagen Korea is said that it offered the MOE to discuss the recertification process and cars equipped with EA 189 diesel engines which are under recall order as soon as possible. Although the two parties avoided a legal battle, there is a long way to go. It will take at least 3 months to receive the recertification of cars which should be recertified. The MOE made it clear that it will carry out a thorough inspection when Volkswagen apply for the recertification to resume business. An official from the MOE said, “We will thoroughly inspect the recertification process according to principles with or without Volkswagen’s legal action.”
In addition, the recall order caused by manipulation of emission tests is considered a serious challenge. The MOE found that Volkswagen faked the document on emission tests at the end of November last year but recalls on 120,000 cars have been put on hold indefinitely even after 9 months. The MOE disapproved Volkswagen’s recall plan three times this year in January, March and June. The ministry said that they can resume discussion on recalls only when Volkswagen Korean admits to faking the document.
In this regard, Volkswagen still denies the document forgery. The fabricated emission test results is also related to compensation for consumers’ damages. So, the recall problems caused by fabrication of emission tests are expected to continue when Volkswagen doesn’t change its stance.