VW Dealer Seeks $40M for Emissions-Scandal Losses

In this Oct. 13, 2015, file photo, a Volkswagen Touareg diesel is tested in the Environmental Protection Agency’s cold temperature test facility in Ann Arbor, Mich. (AP Photo/Carlos Osorio, File)

CHICAGO (CN) – A Volkswagen dealership that opened just weeks after the carmaker’s emissions fraud became public knowledge seeks $40 million in damages, claiming Volkswagen blamed the dealership for poor sales rather than taking responsibility for the scandal.

In 2015, Volkswagen admitted to installing defeat devices in about 11 million vehicles worldwide, more than half a million sold in the United States. The defeat devices enabled its turbo diesel injected cars, marketed as “clean diesel,” to cheat emission tests while spewing up to 40 times more nitrogen oxide on the road than allowed under federal law.

U.S. regulators confronted VW about the software after West Virginia University researchers discovered differences in testing and real-world emissions.

In January, Volkswagen agreed to pay $1.2 billion to compensate 644 U.S. dealerships for losses stemming from its diesel-emissions scandal.

Under the terms of the settlement, each dealership received an average $1.85 million to cover losses precipitated by the German automaker’s installation of emissions cheating software in nearly 600,000 diesel-powered vehicles sold in the United States.

However, not all dealerships were eligible to recover damages from the dealer settlement.

Illinois-based Iconic Motors dba Elgin Volkswagen opened its doors in the weeks following the revelation of VW’s deceit. It claims in a lawsuit filed Thursday in Chicago federal court that it suffered millions of dollars in financial losses due to the scandal.

“Worse, Volkswagen has failed to take responsibility for the damage it has caused Elgin VW, instead suggesting (implausibly) that Elgin VW’s loss of sales are the result of its own marketing and management efforts,” the complaint states. (Parentheses in original.)

Iconic Motors and its financer, Slevin Capital Investments, or SCI, say they spent approximately $13 million to purchase, construct, and equip the Elgin VW dealership facility, and the building’s design is specific to VW such that it cannot be sold to another dealer.

The companies say they were motivated to enter into a Volkswagen franchise agreement specifically because they were impressed with the company’s sales of diesel vehicles, but VW engaged in an “unabashed and intentional attempt to defraud” them.

“In one specific shocking example, less than 10 days after Elgin VW opened and in the midst of the emissions scandal, Volkswagen accused Elgin VW of ‘wasting’ money marketing to certain demographics of customers within its diverse market area,” the lawsuit states. “Volkswagen’s agent specifically stated by email on November 11, 2015: ‘[Hispanic and African-American] demos [sic] do not typically buy VWs for a number of reasons – too girly, never see the ads and if they do they aren’t macho enough, don’t lease, etc. marketing to these groups is a waste of money.’”

The German automaker paid $4.3 billion in civil and criminal penalties and pleaded guilty to conspiring to defraud the United States, obstructing justice and importing false goods. Six of its executives face criminal charges for the scheme.

It also agreed to buy back or modify 482,000 2-liter diesel engine vehicles as part of a $14.7 billion consumer settlement.

“In reliance on Volkswagen’s affirmative misrepresentations about the salability of its products and its omission about its involvement in a massive criminal enterprise – a material omission, to say the least – SCI spent in excess of $13,000,000 to fund the acquisition and construction of Elgin VW’s dealership facility. SCI would not have incurred these costs if it had known about the falsity of Volkswagen’s representations and the material omissions about its scheme and looming violations,” the complaint states.

Elgin VW and SCI dealer seek $40 million in punitive and compensatory damages for alleged RICO violations, conspiracy and fraud. They are represented by Ira M. Levin with Burke, Warren, MacKay & Serritella in Chicago.

Volkswagen did not immediately respond to a request for comment made after business hours Thursday.

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