CalSTRS v. Volkswagen

Good morning!

The legislative summer recess is coming to an end, so enjoy the weekend because next week is the start of a long month.

And now to dig right into our Morning Read, The Sacramento Bee has our top story today about the Volkswagen scandal: 

“California’s $188 billion teachers’ pension fund is stepping up the pressure on Volkswagen in a European lawsuit over the German automaker’s air-pollution scandal.

“The California State Teachers’ Retirement System, the second-largest U.S. public pension fund, has obtained a court order that will enable its attorneys to unearth potentially crucial corporate records relating to Volkswagen’s tainted diesel vehicles.

“The order came a month after CalSTRS joined other institutional shareholders in suing Volkswagen in Germany, claiming their investments in the company have been damaged by its diesel pollution scandal. CalSTRS’ shares of Volkswagen were worth $52 million as of Dec. 31.”

Legislature:

• Back on Monday.

Gov. Brown:

• No public events scheduled. 

Tips: matt@calwatchdog.com

Twitter: @calwatchdog @mflemingterp

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Thanks to California regulators, Volkswagen hasn’t yet found a way out of worldwide trouble. Federal agencies have flexed their muscles in tandem. “U.S. regulators rejected Volkswagen AG’s plan for recalling nearly 500,000 diesel-powered cars,” as the Wall Street Journal noted.

“The Environmental Protection Agency, which is working with California regulators on the VW fraud, had already said it was not satisfied with the recall plan and requested more information from the company,” the New York Times noted. And the Justice Department, “which had opened its own investigation, filed a civil complaint against the company, accusing it of exceeding EPA air quality standards and violating the Clean Air Act.”

The California Air Resources Board, meanwhile, warned that “Volkswagen’s proposals failed to address how the fix would affect the engine’s performance, emissions and vehicle safety,” according to the Journal. “Some experts are concerned that a fix that strengthens the vehicle’s emissions control could reduce fuel economy and overall performance.”

The Board continued its extraordinarily stern treatment of Volkswagen, stemming from a protracted investigation of the company’s secret effort to skirt the rules on emissions tests for diesel vehicles. The Board “said that a recall plan presented in November and December was ‘incomplete, substantially deficient and falls far short of meeting the legal requirements’ to be approved,” as the New York Times reported. And it slammed the company, which was sent reeling this fall and winter by collapsing car sales, for dragging its feet. “The state agency added that VW was taking too long to devise a fix.”

Faulty plans

In its criticisms, the Board singled out problems with the vagueness of the company’s projections based on its own proposed fix. “The Air Resources Board lists a number of reasons why Volkswagen’s proposal was rejected, but it specified that among the most important reasons for the rejection was the fact that ‘the proposed plans do not sufficiently address impacts on the engine, the vehicle’s overall operation, and all related emissions control technologies, including the OBD [On Board Diagnostics] system,'” according to Ars Technica. “In other words, Volkswagen failed to specify whether the fix to reduce nitrogen oxide (NOx) emissions would impact the car’s gas mileage or its projected lifespan.”

That meant the Board felt as if VW had prevented it from doing its job. “As a result, the Board lacked enough information to tell whether the proposed fixes ‘are even technically feasible,’ according to a letter from Annette Hebert, the board’s chief of auto emissions compliance,” the San Francisco Chronicle reported.

Deep trouble

Although the Board’s ruling affects under 76,000 cars, Ars noted, the EPA’s concurrence meant VW continued to face a comprehensive challenge to its business. “VW reiterated that it is working on a solution and is meeting with EPA officials this week in Washington to submit a reworked proposal,” the Washington Post noted. “But the statements from the California board and the EPA demonstrate the lengths VW will have to go to fix its cars and regain the trust of regulators.”

Harm to VW for its malfeasance has been direct and substantial. Sales have fallen 5 percent, as the Post added. “The worldwide scandal has hammered Volkswagen’s sales, prompted hundreds of lawsuits and forced the German automaker’s former CEO to resign, although he insisted he knew nothing about the defeat devices,” according to the Chronicle.

As CalWatchdog reported previously, California’s Air Resources Board was instrumental in blowing the lid off of Volkswagen’s lengthy emissions scam, which quickly drew the attention of national and foreign regulators reaching from Washington, D.C., to Germany. The Board threw down a gauntlet in November, demanding the recall and repair of affected cars and a formal plan from the company as to how it intended to achieve compliance.

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California’s powerful environmental regulator has ordered the recall of all Volkswagens, Audis and Porsches equipped with software secretly installed to defeat emissions tests.

“On November 25, the California Air Resources Board sent an In Use Compliance letter notifying Volkswagen, Audi and Porsche to start the process necessary to recall and repair illegal emissions software in all 3-liter diesel vehicles, model years 2009–2015, sold in California,” NACS reported. “According to a press release, the automakers have 45 business days to assemble their plan and deliver it to CARB.”

The figures were added atop the 482,000 cars Volkswagen had previously admitted to rigging, as Bloomberg noted. “That revelation, concerning 2-liter diesel engines from the 2009 through 2015 model years, sparked criminal probes in Europe and the U.S. and led to the resignation of the company’s chief executive officer.”

Flexing its muscle

The new letter marked just the latest twisting of the screws from the Board, which has aggressively pursued action against the auto maker. “The notice from the California Air Resources Board came less than a week after state and federal regulators disclosed that Volkswagen Group automakers installed software to cheat emissions tests on more diesels than initially thought,” AP reported. “The U.S. Environmental Protection Agency and the California Air Resources Board said last week the software was on about 85,000 Volkswagen, Audi and Porsche vehicles with 3-liter, six-cylinder engines going back to the 2009 model year.” Cars were programmed, according to the New York Times, to trigger a “special eco-friendly mode with lower emissions of nitrogen oxides” when they detected that a lab test had begun.

The Board was instrumental in flushing out Volkswagen’s malfeasance, helping blindside the company by making the revelations public. In a remarkable twist, the Board recently confirmed comments made by director Mary Nichols, published in a German business magazine, “suggesting that the German government may have had information as early as 2010 about Volkswagen AG’s difficulties meeting restrictions on nitrogen oxide emissions in the U.S.,” the Wall Street Journal reported. “Ms. Nichols said she was surprised that Ms. Merkel had such specific knowledge of the problems with nitrogen oxide emissions that German manufacturers faced.”

Just last month, it slapped the company with the second of two notices of violation. “On September 25, the California Air Resources Board sent letters to all manufacturers letting them know we would be screening vehicles for potential defeat devices,” Richard Corey, the Board’s Executive Officer said. “Since then ARB, EPA and Environment Canada have continued test programs on additional diesel-powered passenger cars and SUVs. These tests have raised serious concerns about the presence of defeat devices on additional VW, Audi and Porsche vehicles.”

An unending scandal

The damage to Volkswagen has been substantial: “Dealers labored for most of the month with inadequate saleable inventory on their lots,” as the Orange County Register reported, with the auto maker saying “sales of its namesake brand declined 25 percent from a year earlier, largely because the company couldn’t sell any diesel-powered cars.” The company, which confessed it had cheated emissions tests on its diesel cars, halted their sale, falling back on only its gasoline-powered vehicles.

Trouble has spread overseas as well. Although Volkswagen had previously said it was unsure whether the cheating software violated European regulations in addition to U.S. and Californian ones, German regulators recently announced that it did. “The determination by German regulators that VW had cheated could affect a flurry of European consumer litigation, though it is unclear what fines the company might face in Europe,” the Times observed. “While European Union member states were supposed to enact penalties for cheating on automotive tests several years ago, few have done so.”

Manipulating tests

Board chairwoman Mary Nichols, a close longtime ally of Gov. Jerry Brown, revealed that the board was organizing itself for what she called a “major enforcement action,” according to Reuters. “The state is also preparing to oversee a recall of vehicles in California equipped with the device that allowed it to pass laboratory tests measuring their output of the air pollutant NOx, which contributes to smog, Nichols said.”

Initially, VW cars tested in the board’s lab passed inspection. But when the International Council on Clean Transportation discovered huge discrepancies in VW’s emissions during real-world tests, state and federal regulators closed in. “The California watchdog and the U.S. Environment Protection Agency opened an investigation into Volkswagen in May 2014,” Bloomberg reported. “The company said it had identified the reasons for the higher emissions and proposed a fix. That resulted in a recall of nearly 500,000 U.S. vehicles in December to implement a software patch.”

But those changes weren’t enough. The board suggested road tests didn’t vindicate the patch. “Sure enough, nitrogen oxide emissions were still in violation of California and U.S. laws. The agency shared those findings with Volkswagen and the EPA on July 8,” Bloomberg noted.

The board’s assertiveness reflected an intention to make up for its failure to detect the emissions using more frequent road tests. But spokesman Dave Clegern told the Sacramento Bee that the board had been hobbled by the pace of technology, insisting “the agency didn’t have access until three years ago to the portable emissions testing devices needed to road-test diesel cars for emissions.” Now, along with the EPA, the board has moved to put automakers on notice that scrutiny has been heightened. Although there’s no evidence another automaker has evaded standards, Clegern said, “it’s better to be safe.”

Private action

In addition to spreading outrage among environmentalists, VW’s deception raised immediate questions about its direct impact on people’s health. “The engines that VW tweaked to run quickly and efficiently also spewed out a form of pollutant that, over time and in big numbers, can be lethal,” the Orange County Register observed. “Based on academic research about the health effects of nitrogen oxides, numbers of vehicles on the road and the miles driven, the affected cars may have killed dozens of people in California and more than 100 nationally.”

As was to be expected, Volkswagen has been hit with a barrage of lawsuits. Two suits “have been filed in San Diego and Los Angeles over Volkswagen tampering with emissions testing on VW and Audi models to deceive regulators,” reported NBC San Diego. In Sacramento federal court, plaintiffs sought certification for a class action suit “on behalf of ‘tens of thousands’ of Californians who purchased or leased one or more of the diesel VWs secretly equipped by the manufacturer with a device that defeated emissions tests by federal and state regulators,” according to the Sacramento Bee. “Model years 2009 to 2015 are targeted in the complaint.”

Meanwhile, irate VW dealers found themselves “paralyzed” by the crisis, according to the Los Angeles Times. Because they’re not employed by Volkswagen, they have escaped liability for its wrongdoing but wound up unable to sell product or reassure customers. “The Environmental Protection Agency has refused to certify the 2016 line of Volkswagen diesels, and the company has issued a stop-sell order to its dealers, preventing them from selling new diesel cars and certified used ones,” the Times noted.