Volkswagen supplier to pay $35M fine in diesel emissions scandal

Dive Brief:

IAV, a supplier of software, electronics and tech support for automakers, will pay a $35 million fine for its role in Volkswagen's infamous "Dieselgate" scandal, according to a release from the Department of Justice (DOJ).
Volkswagen owns 50% of IAV's shares and is its largest customer, according to the DOJ. The supplier will plead guilty to charges of conspiracy and violating the Clean Air Act and is scheduled to appear in court Jan. 18, 2019.
"IAV and its co-conspirators knew the vehicles did not meet U.S. emissions standards [and] worked collaboratively to design, test, and implement cheating software to cheat the U.S. testing process," the DOJ wrote.

Dive Insight:

The rapid pace of development in the automotive industry has led to close collaboration between automakers and their Tier 1 suppliers. Sharing of R&D between the two parties can help to more quickly develop solutions for electric and autonomous vehicles and in many cases has improved relationships between supplier and buyer.

But the close relationship between IAV and Volkswagen wasn't leveraged for the good of the industry.

Investigations by the FBI and EPA Criminal Investigation Division found numerous instances of collaboration between the two parties to develop and implement "defeat" software, which is used to cheat on U.S. vehicle emissions test.

In one example, an IAV employee agreed to a Volkswagen employee's request to design software that would recognize whether the vehicle was undergoing a U.S. emissions test or being driven on the road. If the software recognized the vehicle was on the road, it would allow emissions of significantly higher levels of nitrogen oxides, "sometimes 35 times higher than U.S. standards," DOJ said.

It appears the initial request to create defeat software came from Volkswagen, but IAV further propagated it. An IAV manager was made aware of the defeat devices and instructed employees to continue working on the project, DOJ said.

Volkswagen's strong stake in IAV may have played a role in the supplier's compliance. IAV likely would have felt pressure to acquiesce the requests of its largest customer rather than risk losing a major share of its business. The investigation, however, reveals IAV is guilty as well by knowingly going along with the diesel plans.

"The agreement notes that IAV played a minor role in the offense and that the company has already taken steps to enhance its compliance programs and internal controls," IAV said in a statement.

Through conspiring together, the buyer and supplier have become entangled in Dieselgate — and now both actors in the supply chain are paying the price.