A poorly received April Fools’ Day joke by Volkswagen about changing the company’s name blew up in VW’s face this week and wound up serving as a reminder of the “Dieselgate” scandal the German automaker would like everyone to forget.
Another German automaker, Daimler AG, also got a vivid reminder this week the dieselgate scandal isn’t fading away as shareholders literally questioned top executives about the company’s own diesel-related problems.
The queries come in the wake of legal aftermath of efforts to get around emission standards that were growing tighter all around the world under pressure from climate change.
Daimler entangled in diesel scandal
Daimler agreed to pay $1.5 billion to settle claims by U.S. Environmental Protection Agency and the State of California that the automaker tried to sidestep emission regulations. During the company’s virtual annual meeting, Daimler executives tried to defuse the issue by telling shareholders the settlement with the EPA and California carries no admission of wrongdoing.
The company settled on the recommendation of lawyers, actually several teams of lawyers, who warned that continuing the litigation would expose the company to an expensive and uncertain outcome.
The automaker, however, has yet to settle with regulators in Germany, which continue to press Daimler for recalls of thousands of vehicles for expensive repairs and fines for what amounts to corporate misconduct. In addition, owners of Daimler and Mercedes-Benz vehicles have sued the company and as have thousands of individual shareholders.
“The investors contend that Daimler AG did not immediately disclose inside information in connection with the emission behavior of its diesel vehicles and that it had made false and misleading public statements. They further claim that the purchase price of the financial instruments acquired by them (in particular Daimler shares) would have been lower if Daimler AG had complied with its disclosure duties,” Daimler noted in a section of the company’s 2020 Annual Report to which executives constantly referred while being grilled during the meeting.
Company vows to defend against claims
Daimler officials believe the allegations and claims are without merit and will fight them. According to the report, the company’s potential liability is about $2.8 billion euros, or $3.78 billion. However, several shareholders said Daimler was underestimating the potential cost.
“In Germany, a large number of customers of diesel vehicles have filed lawsuits for damages or rescission of sales contracts. They assert that the vehicles contained inadmissible defeat devices and/or showed impermissibly high emission or consumption values. They refer to, in particular, the German Federal Motor Transport Authority’s recall orders (see above). Given the current development of case numbers, we expect a continued high number of lawsuits being filed in this respect,” the report added.
Volkswagen has paid approximately $38 billion for the Dieselgate scandal.
“Daimler’s ability to defend itself in proceedings could be impaired by the fine notice issued by the Stuttgart district attorney’s office, the civil settlements with the U.S. authorities and by the underlying allegations and other unfavorable allegations, as well as by findings, results or developments in any of the information requests, inquiries, investigations, administrative orders, legal actions and/or proceedings,” the annual reported observed.
Nor does the settlement with the EPA does not end the litigation Daimler faces over the diesel engines Daimler faces in the United States.
Facing multiple lawsuits
In a separate lawsuit filed by the State of Arizona in January 2019, the plaintiff claims that, amongst others, Daimler AG and MBUSA deliberately deceived consumers in connection with advertising Mercedes-Benz diesel vehicles.
“Consumer class actions containing similar allegations were filed against Daimler AG and further Group companies in Canada in April 2016 and in the United Kingdom since May 2020 as well as against Daimler AG in Israel in February 2019. In a separate lawsuit filed by the Environmental Protection Commission of Hillsborough County, Florida in September 2020, the plaintiff claims that, amongst others, Daimler AG and MBUSA violated municipal regulations prohibiting vehicle tampering and other conduct by using alleged devices claimed to impair the effectiveness of emissions control systems,” the report said.
The lengthy discussion of the litigation around the diesel emission did bring out it’s increasing complexity and Daimler’s growing pile of bills for lawyers. Daimler executives declined to disclose the size of the legal bills to date, however, despite several questions from shareholders, who submitted their inquiries in writing in advance of the meeting.