Congress to Volkswagen: We Want Our Tax Credits Back

As a top VW official prepares to testify before a House panel tomorrow, the Senate Finance Committee is asking hard questions about $50 million in tax credits given to VW's cheating diesels.

John Rosevear
John Rosevear
Oct 7, 2015 at 4:20PM

Image source: Volkswagen.

Volkswagen (NASDAQOTH:VWAGY) U.S. chief Michael Horn is set to testify before the U.S. House of Representatives Energy and Commerce Committee on Thursday.

It's likely to be an unpleasant day for Horn. Representatives are angry with VW after the discovery that the German automotive giant rigged many of its cars with software that cheated on emissions tests.

But it's the U.S. Senate -- among many others --  that may be gearing up to take a hard shot at Volkswagen.

The Senate wants to talk about those "clean diesel" tax credits
The Senate Finance Committee released a letter on Wednesday that was sent by Chairman Orrin Hatch and ranking Democrat Ron Wyden (Oregon) to Horn and his boss, new VW CEO Matthias Mueller.

The letter is a doozy. It starts out by noting that the committee has "oversight jurisdiction of all tax matters" and has the authority to investigate "possible fraud and abuse" -- and it's going to investigate the tax credits that were given to buyers of certain diesel-powered VW products. 

Under laws designed to encourage automakers to make greener cars (and to encourage people to buy them), certain types of vehicles are eligible for tax credits -- including so-called "clean diesels."

"In 2008, Volkswagen certified to the Internal Revenue Service that the 2009 Volkswagen Jetta TDI Sedan and SportWagen qualified for $1,300 in tax credits per vehicle sale," the letter said. "Volkswagen sold at least 60,000 of these vehicles by July 1, 2010, after which the credit amount was reduced in half until December 31 of that year."

The letter then notes that VW has essentially admitted that those cars weren't "clean" because they didn't comply with emissions laws -- and that it rigged them to (falsely) pass the tests anyway.  And then it gets to the point: "These figures suggest that well over $50 million in tax subsidies went to purchasers of these vehicles, depending on the number of purchasers who claimed the credit."

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You can see where this is going, right? Congress wants its money back.

VW board holds "crisis talks" as big deadlines loom
Separately, Reuters reported that VW's supervisory board held "crisis talks" on Wednesday, as a deadline to respond to the German government approached. German officials have demanded that VW present a plan for fixing all of the affected vehicles (in Germany, at least) by the end of the day on Wednesday. 

VW is under tremendous pressure to explain what happened, who was responsible, and how it will fix the 11 million affected vehicles around the world. The company is in turmoil, with senior executives scrambling to come up with answers -- and to make harsh cuts to spending in anticipation of the massive fines it will soon owe.

The owners of the vehicles are also demanding answers. Will VW's "repair" reduce their cars' performance or fuel economy? It's likely that aggressive targets for both were why VW's engineers chose to cheat in the first place: Emissions controls can hinder performance and reduce fuel economy.

The upshot: VW needs to come up with answers, fast
The Reuters report quoted an unnamed source "close to the matter" as saying that VW's senior management has a "certain degree of fright" ahead of Horn's testimony in Congress. Officials in both the U.S. and Germany are demanding answers, or will be shortly -- and VW is running out of time to come up with some.

Horn's testimony before the House panel is likely to be big news on Thursday. Assuming that VW delivers some sort of plan to German regulators tonight, we may know much more about the origins -- and cost -- of the scandal by Thursday evening.