To be sure, Volkswagen and Takata have their own challenges. As the investigations into Volkswagen’s diesel engines with higher than reported emissions levels and Takata’s exploding airbags continue, it now appears the nature of vehicle testing and the rising amount of fines federal regulators are willing to level are the new normal for the automotive industry.
Volkswagen AG, which continues to struggle with the after effects of its admitted cheating on U.S. emissions tests, announced earlier this week that an internal investigation has revealed “unexplained inconsistencies” in the carbon dioxide emissions from 800,000 of its vehicles. This announcement came the day after the U.S. Environmental Protection Agency said it found illegal emissions defeat devices on 3.0 liter diesel engines used in larger Volkswagen sport-utility vehicles such as Porsche’s Cayenne, Audi’s Q5 and Q7, and Audi A6 and A8 sedans. The vehicles the EPA tested reportedly had increased nitrogen-oxide emissions up to nine times the allowable standard.
The next day, Volkswagen said it would halt sales of newer model vehicles with 3.0 liter diesel engines while it reviews the new U.S. test data. The stop-sale includes 2013-2016 model-year Volkswagen and Audi vehicles and 2014-2016 Porsche Cayenne sport-utility vehicles. The company says this development could cost it another $2.2 billion.
As a result of the Volkswagen investigation, the EPA already announced it will significantly change the way it tests for diesel emissions after being tricked by the software in Volkswagen cars for seven years. In a letter to car manufacturers, the EPA said it will add on-road testing to its regimen, “using driving cycles and conditions that may reasonably be expected to be encountered in normal operation and use, for the purposes of investigating a potential defeat device.”
There are also new developments regarding Takata, the maker of millions of potentially faulty airbags that can explode and shoot metal fragments at drivers and passengers. The National Highway Traffic Safety Administration (NHTSA) announced it is levying a penalty of up to $200 million on Takata for failing to disclose the airbag defect to regulators in a timely manner. It’s worth noting that this is the largest civil punishment ever imposed in the auto industry by federal regulators.
First, Takata is being fined $70 million, and secondly, the Japanese company could face an additional $130 million penalty if it fails to abide by its consent order with the NHTSA, which includes the appointment of an independent safety monitor. As part of the agreement, Takata is required to phase out the manufacture and sale of inflators that use phase-stabilized ammonium nitrate propellant. Investigators believe the chemical plays a role in contributing to the defect.
“For years, Takata has built and sold defective inflators,” said U.S. Transportation Secretary Anthony Foxx. “It refused to acknowledge that they were defective. Delay, misdirection and refusal to acknowledge the truth allowed a serious problem to become a massive crisis.”
The amount of Takata’s fine isn’t really surprising, given that regulators issue increasingly aggressive penalties against manufacturers which break auto safety laws. For instance, last year, General Motors was penalized $35 million for not promptly reporting a defective ignition switch. Honda received a $70 million penalty earlier this year, in part, for failing to report hundreds of death and injury claims to the government. Then last summer, Fiat Chrysler agreed to pay as much as $105 million to the government for failing to complete safety recalls.
Volkswagen and Takata are under increasing scrutiny from federal regulators, and it now appears, as the EPA and the NHTSA both become more aggressive, that will be the industry norm. Perhaps what’s most interesting isn’t that there are recalls, because that’s to be expected given the increasing complexity of modern vehicles. Instead, what stands out to me anyway, is that fines rapidly climb for companies that are aware of defects but don’t respond promptly. What’s more, when automotive companies are aware of defects but deny it, the fines are even higher. Frankly, that seems fair.
What are your thoughts on either of these companies, recalls, or fines for delayed recalls?