Court Ruling Prolongs VW’s Diesel Woes

The Volkswagen Group has been dealt a severe setback in its efforts to put the Dieselgate scandal behind it, following a decision by Germany’s top court that may force it to compensate thousands of customers with diesel cars fitted with emissions-test-cheating software.

In a surprise ruling handed down Friday, Germany’s Federal Court of Justice rebuked the automaker’s arguments that the cheat software it fitted to various diesel models was legal under European Union law, and therefore it had no responsibility to compensate customers.

The court, acting on a case originally set to be heard Feb. 27 but since withdrawn at the behest of the plaintiff, ruled the cheat software was a “material defect.”

In a statement, the court said VW was obliged to provide customers with a car free from defects.

The decision is thought to open legal avenues to customers seeking to claim compensation on the basis that the car they were sold was not representative of that advertised. In certain cases, it may even force VW to provide customers with a brand-new car, even if the car in question has been superseded by a new model.

The automaker had sought to settle the case to avoid a ruling against it by the court. However, the court decided to table its decision despite the case being withdrawn.

Unlike in the U.S., where affected customers already have been compensated, VW has strongly resisted calls for compensation against the fitment of cheat software, or so-called defeat devices, in diesel cars sold in Europe.

More than 400,000 disgruntled European customers have joined various group action suits against the group, whose brands include Volkswagen, Audi, SEAT, Porsche and Skoda.

The customer in the case presided over by the Federal Court of Justice and originally set to be heard next week had demanded compensation from VW in the form of a new car because the Tiguan TDI purchased in July 2015, some two months before U.S. authorities uncovered the diesel defeat device, was fitted with illegal cheat software.

In response, a VW statement suggests the court decision does not allow “concrete conclusions” regarding legal claims against it.

The automaker argued the idea of compensating the customer with a new car was “impossible” as the first-generation Tiguan sold in 2015 is “totally different” from the second-generation model on sale today.

VW has regularly indicated its intention to move past the diesel emissions scandal, which is claimed to have cost it over €27.4 billion ($31 billion) and push ahead with a future model strategy focused heavily on electric vehicles.

In 2015, the automaker admitted to rigging as many as 11 million diesel cars with cheat software that allowed them to record vastly different emission levels on official government-specified tests run under laboratory conditions than those achieved on public roads.