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VW faces first big German court date over 'dieselgate' scandal

Court to examine if VW should have informed investors sooner about "defeat devices"

Lawyers carrying into court documents in connection with the Volkswagen "dieselgate" scandal on the first day of the proceedings in Germany against the car maker.

Frankfurt am Main

THE first major German court case against Volkswagen over the "dieselgate" scandal that has shaken up the car industry got under way Monday, as investors pursue the world's largest carmaker for billions in compensation.

From 10 am (0800 GMT) the regional court in Brunswick started examining whether the car giant should have informed investors sooner about so-called "defeat devices" that it built into 11 million cars worldwide to fool regulatory emissions tests.

On the first day, "we are hoping for first indications from the judges about their view of the facts and the legal position", said Andreas Tilp, a lawyer representing investment fund Deka.

The shareholder's "model case" against VW is supposed to clear up more than 200 questions common to some 3,650 claims totalling around nine billion euros (S$14.4 billion), with judges expected on Monday to highlight timelines and priority issues in the massive case.

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At issue is a 40 per cent plunge in Volkswagen stock over two days in September 2015, which wiped billions off its market value.

After markets closed on Friday, Sept 18 that year, US authorities accused the group of using the defeat devices - engine software designed to cut harmful emissions during regulatory tests, only to allow them to rise again during on-road driving.

Investors said that they could have avoided painful losses had executives - who are legally obliged to share promptly any information that could affect the share price - informed them sooner of the cheating.

Ahead of Monday's hearing, Volkswagen lawyer Markus Pfueller said the group was "confident" that it had "complied with its disclosure obligations toward shareholders and the capital markets".

So far, dieselgate has cost VW more than 27 billion euros in fines, vehicle buybacks and recalls and legal costs, mostly in the US.

Judges are expected to take at least until next year to rule.

Deka lawyers argued that board members knew about the fraud and should have revealed it between the offending software's first deployment in 2008 and September 2015.

For its part, VW blamed a handful of engineers acting without authorisation for the scheme, and said that the information that it had before the American authorities intervened was not significant enough to warrant warning capital markets.

At the centre of attention in the court case will be Martin Winterkorn, the trained engineer who claimed to know "every nut and bolt" of Volkswagen's entire range of models and ran the company as chief executive from 2007 to 2015.

VW said in 2016 that Mr Winterkorn - who stepped down after the scandal became public - was sent a "memo" highlighting emissions irregularities in the manipulated EA189 engine, without confirming whether he ever read it.

Backed by government tax incentives, German and other European carmakers bet big on diesel in the 1990s and 2000s as a lower-carbon alternative to petrol engines.

But the "dieselgate" scandal has revealed the flip side of the technology, nitrogen oxide emissions that can be harmful to health.

Investigations into Volkswagen and other manufacturers are dragging on.

Another investor probe starting Wednesday, against Porsche SE, the holding company with a controlling stake in VW, could be stalled or superseded by the Brunswick case.

Rupert Stadler, CEO of VW subsidiary Audi, is in custody on suspicion of fraud and issuing false certificates, and VW-owned Porsche, Mercedes-Benz manufacturer Daimler and components supplier Bosch are in prosecutors' sights.

Meanwhile, the fallout for German society has been far wider-ranging. The EU has toughened emissions testing with a new procedure known as WLTP, which comes into force this month. Car companies are hoping that a flood of new battery-powered vehicles will help meet tighter fleet-wide carbon dioxide targets that bite from 2021, rather than ever-more efficient diesels.

And courts are increasingly pressuring German cities to clean up their air, with a diesel ban on two major roads in Hamburg and city-wide exclusion zones for older vehicles coming in Stuttgart and Frankfurt.

Consumers have reacted to the prospect of more bans by shunning diesel, sending its share of the new car market plunging from 46.5 per cent in August 2015 to 32.6 per cent last month.

Potentially even more terrifying for carmakers is a law allowing collective class action-style lawsuits that Berlin aims to pass before the statue of limitations runs out for VW. "Some two million owners could benefit," Justice Minister Katarina Barley said in May. AFP

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