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Volkswagen: A Big Fine Might Force Us to Cut U.S. Jobs

By John Rosevear – Mar 8, 2016 at 6:05PM

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As negotiations between the German auto giant and the U.S. government over VW's emissions cheating scandal drag on, VW rattles one of the few sabers it has left. Will it matter?

Jobs at Volkswagen's plant in Chattanooga, Tennessee, could be at risk if the U.S. government demands an excessive fine, a VW executive hinted on Tuesday. Image source: Volkswagen.

The financial hit from fines related to Volkswagen's (VWAGY -0.84%) diesel emissions scandal may be so severe that the company would be forced to cut jobs in the U.S. and Europe in order to compensate.

That was the word from VW's top labor official, Bernd Osterloh, at a meeting of 20,000 workers at Volkswagen's headquarters in Germany on Tuesday, according to a Reuters report

We still don't know how badly VW's balance sheet will be bruised by the fallout from the diesel emissions scandal. But Osterloh's remarks on Tuesday were one more sign that the company is bracing for a very heavy impact -- and one more sign that the U.S. government isn't likely to let VW off easy.

Grim remarks to a big gathering of VW workers
CEO Matthias Mueller and other top VW executives also addressed the workers' gathering in Wolfsburg on Tuesday. Mueller warned that the financial hit from the scandal will be "substantial and painful" for VW, and that it will take years to fully value the financial damage. 

The U.S. Justice Department has filed a massive civil suit against Volkswagen for breaching the Clean Air Act and other laws. Under those laws, damages could reach as high as $46 billion. 

The real price is likely to be far lower, of course. The suit was probably filed in an effort to pressure VW to settle -- and VW probably do so. But even that settlement could well be the largest such penalty ever paid by an automaker.

Why the Feds are likely to hit VW extra hard
That VW could end up paying the biggest fine ever levied against a car maker might sound surprising, given that other automakers have arguably caused more harm than VW's efforts to cheat on emissions tests of its diesel-powered vehicles. A defective ignition switch installed in millions of General Motors (GM -4.37%) vehicles last decade has been linked to over 100 accident fatalities, for instance, and GM was able to settle with the U.S. government for $900 million.

VW is likely to have to pay a whole lot more. That's because there are a couple of big differences between GM's experience and VW's. First, GM's failure to recall its defective switch appears to be the result of a series of institutional blunders, not a conspiracy to evade U.S. laws. And second, once then-new CEO Mary Barra and other senior GM executives became aware of the situation, they brought it to the attention of federal regulators and were said to be very forthcoming.

VW's cheating software hasn't killed anyone directly, although some environmental experts have estimated that it may have led indirectly to some air pollution-related fatalities. But VW deliberately broke U.S. law, for years -- and then dragged its feet for a long time before coming clean. The feds hate that.

Osterloh's remarks on Tuesday were probably meant in part for the U.S. government's ears: "Fine VW too heavily," he might have been saying, "and we'll have to cut U.S. jobs."

But I have a feeling that the U.S. government is determined to make VW pay big anyway. If so, VW's shares might get cheap enough to consider buying. Stay tuned. 

John Rosevear owns shares of General Motors. The Motley Fool recommends General Motors. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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