Volkswagen Scandal Prompts EPA to Target Auto Industry

In the wake of the recent allegations that Volkswagen ("VW") has effectively falsified vehicles emissions testing for years, the U.S. Environmental Protection Agency ("EPA") has focused its vast enforcement capabilities on the automotive industry. In fact, EPA has given auto manufacturers notice of its intent to scrutinize the entire industry, not just VW. In a letter dated September 25, 2015, EPA stated that vehicle manufacturers can expect additional vehicle testing going forward. The letter warns manufacturers that EPA will be bolstering its efforts to discover any potential devices meant to reduce the effectiveness of vehicle emissions control systems (commonly known as "defeat devices").

EPA and the California Air Resources Board ("CARB") have accused VW of selling hundreds of thousands of diesel vehicles in the U.S. that were equipped with a defeat device in the form of software that could detect when the vehicles were undergoing emissions testing and turn on the vehicle's emission controls only during the testing period. EPA claims that when the vehicles were not undergoing emissions testing, the emission controls were automatically turned off, permitting the vehicles to emit nitrogen oxide ("NOx") at up to 40 times the federal standard.

The accusations have garnered worldwide attention, and already led to the resignation of VW's CEO, Martin Winterkorn. VW has indicated that millions of vehicles worldwide may be affected, and the new CEO, Matthias Mueller, will begin perhaps the most expansive and expensive recall effort ever undertaken beginning in January 2016. The company now faces criminal investigations by U.S. and German prosecutors, and will also likely be saddled with significant civil penalties. For its violations of federal law and regulations alone, VW could face civil penalties as high as $18 billion. On the state level, the Attorney Generals of Texas and West Virginia have already filed suits against VW, and more states are sure to follow. Individual VW owners as well as automobile dealers across the country have also filed more than 400 lawsuits. A petition to consolidate these cases into a single multidistrict litigation will be heard by the Judicial Panel on Multidistrict Litigation on December 3, 2015.

EPA's letter states that, pursuant to its regulatory authority, it may "require testing on any vehicle at a designated location, 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." EPA warns manufacturers that this testing, which is in addition to standard emissions tests, may add more time to the testing process. EPA also indicates that it may begin requiring manufacturers "to supply production vehicles for testing upon request."

The accusations against VW and EPA's letter serve as an explicit warning to vehicle manufacturers and suppliers that the current testing regime is suspect and defeat devices will be actively hunted by EPA. It is interesting to note that VW's vehicle emission problems were uncovered not by EPA or CARB, but as a result of a 2014 West Virginia University study prepared for the International Council on Clean Transportation. Vehicle manufacturers and suppliers would be well served by reviewing their vehicle emissions control manufacturing and testing processes and protocols to ensure that they comply with EPA and California standards.

It is only a matter of time before EPA or CARB begin to implement the more rigorous testing regime designed to detect defeat devices. In addition, EPA and CARB will also closely scrutinize all of the information provided in the application for certification. Ensuring that manufacturing and testing processes and protocols meet the relevant standards will give management confidence that both regulators and consumers can trust their products.

For more information on emissions testing requirements or any vehicle emissions issues, please contact Ken von Schaumburg at kvonschaumburg@clarkhill.com | 202-772-0904, Mark Steger at msteger@clarkhill.com | 312-985-5916, or your Clark Hill attorney.