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The FTC Sues Volkswagen for Deceptive Advertising: What It Means

By John Rosevear - Mar 29, 2016 at 1:05PM

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The U.S. Federal Trade Commission has sued Volkswagen, claiming that its "Clean Diesel" ads were false advertising and demanding that VW compensate customers who bought the cars. Here's what this new case (probably) means for the beleaguered German automaker's efforts to settle its emissions-cheating mess.

Image source: Volkswagen.

Last week, Volkswagen (VWAGY -1.25%) told a federal judge that it needed more time to figure out how it's going to fix 580,000 cars that it programmed to cheat on emissions tests.

Now, the feds are upping the pressure on the beleaguered German automaker: The U.S. Federal Trade Commission (FTC) sued VW on Tuesday, charging that its claims that the cheating diesel vehicles were environmentally friendly were false advertising.

What the FTC said: The FTC's complaint "alleges that [from 2008 to 2015] Volkswagen deceived consumers by selling or leasing more than 550,000 diesel cars based on false claims that the cars were low-emission, environmentally friendly, met emissions standards and would maintain a high resale value," the Commission said in a statement. 

The FTC's suit also alleges that VW helped others (dealers) deceive consumers, and argues that installing the cheating software was itself an unfair business practice.

"For years Volkswagen's ads touted the company's 'Clean Diesel' cars even though it now appears Volkswagen rigged the cars with devices designed to defeat emissions tests," said FTC Chairwoman Edith Ramirez. "Our lawsuit seeks compensation for the consumers who bought affected cars based on Volkswagen's deceptive and unfair practices."

The FTC is asking the court to order VW to "compensate American consumers who bought or leased an affected vehicle between late 2008 and late 2015," and to enjoin VW from doing anything like this again.

What it means for VW: Theoretically, this suit could add a costly new wrinkle for VW, by forcing it to buy back some or all of the affected cars. Reports have suggested that federal and California state regulators have been pressuring VW to buy back some or al of the roughly 580,000 affected VWs and Audis in the U.S., and this suit might add to that pressure. A full buyback could cost VW $5 billion or more. 

But for those trying to keep track of how much this scandal could eventually cost VW, this new lawsuit probably doesn't add a whole lot to VW's potential exposure. VW has already been sued by the U.S. Department of Justice (DOJ) for violating environmental laws; that case could theoretically result in as much as $46 billion in damages. 

The FTC filed its suit in the same federal court district (Northern District of California, San Francisco Division) that is hearing the DOJ's suit. It's very possible that the two cases will be merged, and that any big settlement agreement between the government and Volkswagen will cover both cases. 

What's next for VW in this litigation: Last week, the judge in the DOJ's suit told VW that it has until April 21 to agree to a plan to bring the cars into compliance with U.S. laws, extending a previous deadline by about a month.

Negotiations between VW and federal and California regulators over a plan to fix the cars and settle the various charges have been ongoing for weeks. Reports have suggested that VW's senior management has been balking at regulators' demands. It's possible that this new suit will spur them to agree to a settlement. We'll find out sometime between now and April 21.

John Rosevear has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. 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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