Top car-makers face €14 billion fine for emissions failures

23 January 2020 6 min. read
More news on

As Europe looks to cut down on its emissions footprint to offset the worst effects of climate change, 13 of the continent’s leading automotive manufacturers face a combined fine of €14.5 billion. According to new estimates from PA Consulting, Volkswagen will face the heaviest individual fine, being hit with a €4.5 billion bill after a surge in uptake for its petrol-powered vehicles.

The Volkswagen emissions scandal, also known as Dieselgate, first came to light in September 2015, when the US Environmental Protection Agency issued a notice of violation of the Clean Air Act to the Volkswagen Group. The agency found that Volkswagen had intentionally programmed turbocharged direct injection (TDI) diesel engines to activate their emissions controls only during laboratory emissions testing which caused the vehicles' NOx (a generic term for the nitrogen oxides) output to meet US standards during regulatory testing, but emit up to 40 times more NOx in real-world driving.

It emerged that Volkswagen deployed this software in about eleven million cars worldwide, including 500,000 in the United States, in model years 2009 through 2015. In April 2017, this led a US federal judge to slap a $2.8 billion criminal fine on Volkswagen for "rigging diesel-powered vehicles to cheat on government emissions tests." An "unprecedented" plea deal followed, which formalised the punishment Volkswagen had agreed to.

While this seemed like a hefty fee at the time, however, it paled in comparison to the €29 billion in public health damages the actual scandal had resulted in. According to research from the Radboud University Nijmegen in relation to social consequences derived from Volkswagen’s fraudulent activity, considerably more noxious pollutants, particularly nitrogen oxide, were pumped into the air than legally permitted. As a result, the scientists contended that the extra emissions resulted in the loss of 45,000 healthy life years globally, of which 44,000 were based in Europe.

Forecast 2021 emissions penalty

Three years later, Volkswagen has since paid around €30 billion in similar fines, meeting this bill. However, lessons do not seem to have been learned, and the brand is now just one of the names being bandied about in relation to mandatory EU CO2 emissions targets, having failed to comply with the regulations. According to new research from British-origin advisory firm PA Consulting, all of Europe’s 13 top car manufacturers will miss their 2021 targets and will subsequently face fines of more than €14.5 billion.

The global innovation and transformation consultancy found that after four years of steady progress, emissions of the companies increased across the board – mainly due to strong demand for high-powered heavier cars, along with a lack of low-emission options in showrooms. This last factor has inadvertently translated into a massive uptake in petrol-powered cars, following Dieselgate, leading to a boom in emissions.

The manufacturer set to take the biggest hit from the EU’s fines is Volkswagen – which could be in line to pay a €4.5 billion bill thanks to its high sales volumes across Europe. Fiat-Chrysler, Ford and Renault-Nissan-Mitsubishi are the other companies PA anticipates will be fined more than €1 billion due to their emissions footprint, though the largest impact from the fines based on EBIT will be handed to Jaguar Land Rover. The firm will likely be charged €93 million, which represents 400% of its 2018 profit.

Commenting on the findings, PA Consulting automotive expert Michael Schweikl said, “Car makers will need to adapt to an enormous change in what they do as they move from the technology of combustion engines to low-emission electric vehicles. While much exciting technological development is already underway, manufacturers cannot underestimate the complexity, cost and cultural change required.”

Time running out

The problem is that while huge fines might deter players further down the automotive pecking order, they do not seem to be a cause for concern for top market incumbents. Volkswagen’s fines since 2017 may have been unprecedented, but the firm seems happy to suck up fines as long as it is able to sell enough cars to still make money. At the same time, fining companies for their behaviour retrospectively appears increasingly impotent from a regulatory view.

As the climate crisis continues to deepen, a 2018 report from the United Nations' Intergovernmental Panel on Climate Change claimed that significant action in the coming 12 years was needed to prevent the worst case scenario for climate change later in the century. Fines in a few years will not ultimately prevent emissions from automotive firms making a material impact on the crisis in the here-and-now.

One thing Schweikl highlighted automotive firms could do to effect immediate change is to modify marketing, sales and pricing strategies to boost the take-up of low-emissions vehicles. A recent survey from Capgemini found that 67% of UK consumers had scarcely even considered such options, while only 6% had actually purchased an e-vehicle. The figures were comparatively bad for e-vehicles across the rest of the continent – something which will be essential in getting manufacturers closer to their emissions targets.

Schweikl stated, “Possible solutions could include; discounting electric and plug-in hybrid vehicles to boost their sales, taking high-polluting vehicles off the market; developing service schemes that increase low-emission vehicle use; exploring mergers with other car makers and the supply chain as FCA and PSA show; and developing open platforms, like Volkswagen’s MEB platform, to extend electric tech… But they need to take these actions in 2020 to reduce CO2 emissions further in the future and win new customers.”