$12M Vs. $14B
Volkswagen will begin the first recall in South Korea in a year and four months after the carmaker's scandal that installed emissions-defeating software on its cars to fabricate results broke out.
The Ministry of Environment announced on January 12 that it has approved Audi Volkswagen Korea’s recall plan. It conducted an inspection on the company’s recall plan for two months from October to November last year and found out that there is no significant change in car performance even after removing its illegal software. It has been a year and four months after Volkswagen got caught cheating emissions tests in the United States in September 2015.
The Environment Ministry said in November 2015 that Audi Volkswagen was found fabricating emissions results for 15 models of 126,000 vehicles. Accordingly, it canceled the certification of the cars, slapped a 14.1 billion won (US$11.95 million) fine on the carmaker and ordered a recall. The ministry declined Volkswagen’s first recall plan by reason of lack of contents in June last year. The carmaker filed another plan in October and the government conducted tests on software, emission, vehicle functions and fuel efficiency for two months starting from October with the Transportation Pollution Research Center under the National Institute of Environmental Research and the Korea Automobile Testing & Research Institute.
After the inspection, the Ministry of Environment requested for complementary data on fuel pressure, exhaust-gas reducing device and recall implementation plans to Volkswagen on November 30. Volkswagen submitted the complementary data on December 28, 2016, and it satisfied the ministry’s requirement.
The first model tested is the Tiguan compact sport utility vehicle (SUV), which was sold the most in South Korea among Volkswagen’s models. As the company’s’ recall plan has been approved, Volkswagen will notify 27,000 Tiguan owners and begin the recall procedure as early as by the end of this month. In addition, Volkswagen plans to compensate local consumers of its 126,000 vehicles with a 1 million won (US$848) “car repair coupon” in South Korea.
Although the matter has come to the finish, it seems inevitable for the government to avoid criticism. In October last year, Volkswagen agreed to pay US$14.7 billion (17.34 trillion won) in an agreement that permits 475,000 owners of 2.0-liter diesel vehicles to either sell them back or get them fixed in the U.S. However, Volkswagen provides 126,000 owners with only a 1 million won (US$848) coupon worth 126 billion won (US$106.82 million) in South Korea.
In addition, Volkswagen will pay a US$4.3 billion (5.07 trillion won) penalty in the U.S., while paying only a 14.1 billion won (US$11.95 million) fine in South Korea. This is because the Clean Air Conservation Act called for automakers to pay a fine per car model with the upper limit of 1 billion won (US$847,817) at that time when the scandal erupted. After that, the government has increased the penalties from 3 percent to 5 percent of their sales revenue and the upper limit per model to 50 billion won (US$42.39 million). When the revised conditions are applied, Volkswagen must pay 234.8 billion won (US$199.07 million) instead of 14.1 billion won (US$11.95 million). However, the changes are not retroactive. This is why Volkswagen will pay just a 14.1 billion won (US$11.95 million) penalty.
An official from the Ministry of Environment said, “We have drastically improved lacking standards of domestic law. About 4,000 consumers filed 70 civil suits so there still remains a possibility that Volkswagen will pay additional compensation according to the court’s decision.”