VW Emissions Scandal Echoes GM India Controversy

MUMBAI – Volkswagen’s admission to the Indian government it sold 314,000 diesel-powered vehicles equipped with software that produced false emissions-test results may not damage much more than the automaker’s reputation.

India’s spotty enforcement of liability and consumer-protection laws make it likely the automaker will face no government penalties as long as it proceeds with its voluntary recall of VW-, Skoda- and Audi-brand vehicles sold in the country.

In a message to owners posted on its website, VW India says: “We hold great responsibility towards our products and customers and we write with conviction that all affected vehicles are safe from a technical standpoint and are in perfect roadworthy condition.

“We therefore again ask for your patience, kind cooperation and understanding in this matter.”

Indeed, VW gives no indication the scandal is changing business as usual. “These events will not affect launch of new models in India. We have a commitment to strengthen our position in the Indian market,” a spokesperson says, adding the new models will have “effective emissions controls.”

Indian regulators acted promptly after VW publicly admitted in September it rigged 482,000 diesel vehicles sold in the U.S. with so-called defeat devices that concealed nitrogen-oxide emissions 40 times the allowable limit. U.S. regulators earlier this month said the devices were used in another 10,000 VW, Porsche and Audi models with a different diesel engine.

The Automotive Research Assn. of India, an agency within the Ministry of Transport, determined a variance of 5% to 6% between test results and on-road emissions measurements in the vehicles it tested. But the difference is not as great as what the U.S. tests showed, because allowable limits of Indian emissions are lower than those in the U.S. or European Union.

Emissions Cheating, Part I

Even with evidence that VW misrepresented emissions data, the automaker need look no further than a similar case involving General Motors India to see its actions might not carry a severe penalty.

GM India reported to authorities in July 2013 it was recalling 114,000 Chevrolet Tavera multipurpose vehicles built over the preceding eight years. The MPVs obtained invalid certification after staffers who realized the engines generally were falling short of emissions standards removed those engines that did comply, and installed them in vehicles that were sent to government agencies for testing.

The revelation led to the dismissal of Sam Winegarden, GM Powertrain global chief; Anil Mehrotra, GM India’s chief financial officer; and about 20 other employees. There was no collusion between the GM employees and Indian agencies that conducted the tests, Lowell Paddock, GM India’s managing director and president, said at the time.

A government panel that investigated the Tavera irregularities concluded in October 2013 that GM had committed corporate fraud. An unnamed official told the Business Standard newspaper: “There will be a financial penalty. But if the road transport ministry, after reviewing the report, thinks there is individual culpability as well, it can instruct the state governments concerned to initiate police investigations against the senior leadership for fraud, cheating and personal gain.”

Under Indian law, GM India could have faced a penalty of up to Rs110 million ($1.7 million) for misrepresenting emissions data to the federal ARIA testing agency.

GM India issued the Tavera recall under the direction of Paddock, who said he reported the testing irregularities to authorities. (Paddock nevertheless was transferred in February 2014 to a GM management position outside India and was replaced as managing director by Arvind Saxena, a veteran sales executive hired away from VW India.)

“We determined there was an emissions problem. We investigated it and identified violations of company policy,” the automaker said in a statement. “We developed a solution to the emissions problem and recalled the vehicles to serve our customers. We held people accountable. We advised the Indian authorities.”

That seemed to satisfy the Indian government, which received several  recommendations from the investigative panel on how to tighten testing procedures to prevent a recurrence of the Tavera fraud. But to date no financial penalties have been assessed and no individuals have been prosecuted.

Emissions Cheating, Part II : Getting Off Scot-Free?

The Indian Foundation of Transport Research and Training issued a new call for penalizing GM in the Tavera case when the initial Volkswagen revelations emerged in September. According to a Business Standard report, “IFTRT said the Indian consumer is being taken for granted and automotive makers go scot-free in absence of any mandatory auto recall policy in India and lack of compulsory product liability laws to protect the consumers and road users.”

The revival of criticism of GM India comes amid a lengthy sales slump. Light-vehicle deliveries in 2013 fell 5.7% from prior-year, when the Tavera scandal broke, then plunged 33.7% year-on-year in 2014, according to WardsAuto data. Sales in the first 10 months of 2015 were down 62.5% from year-ago.

Fallout in India from VW’s emissions scandal remains to be seen. Sales of all VW light vehicles from January through October rose 5.0%, compared with 5.5% industrywide, but there could be ramifications for Audi. Rival Mercedes outsold the VW luxury brand by only 80 units from January through October and could widen the gap if Audi’s reputation is damaged.

“The concern over VW car emissions has been overdone,” says Vivek Seghal, chairman of Indian auto-parts supplier Motherson Sumi. “There is not a single country that did not have serious recalls. These are short-term woes which will disappear once we get into stride.”