VW Diesel Scandal Threatens to Further Ensnare German Supplier Bosch

Volkswagen AG’s (IW1000/7) cheating scandal threatened to further ensnare Europe’s biggest supplier of auto parts after U.S. lawyers claimed Robert Bosch GmbH began playing a key role in developing technology to hoodwink emissions tests as early as the late 1990s.

Bosch was an “active participant in a massive, decade-long conspiracy with VW,” according to an amended court filing from attorneys representing vehicle owners. The case’s focus is shifting to Bosch after VW negotiated a preliminary U.S. settlement that doesn’t include the German supplier. Bosch declined on Thursday to comment on the latest allegations.

The move against Bosch -- already a defendant in the VW lawsuit in San Francisco -- is the latest sign of the pressure remaining on multiple fronts in the scandal, even after VW’s $15.3 billion deal with U.S. authorities last month. Volkswagen still faces criminal probes, efforts by car owners in Europe to get U.S. Justice Department documents to buttress their own civil suits and a sales ban on many VW models in South Korea.

“We don’t know the exact details of what happened at this point, but what’s clear is that the fallout involves companies beyond VW,” said Marc-Rene Tonn, an industry analyst at Warburg Research in Hamburg. “The fallout from the VW diesel cheating is complex and broad, and it’ll continue for a long while yet.”

Bosch, which isn’t part of VW’s U.S. settlement, doesn’t see the need to put more money aside for legal costs, leaving its provisions for such issues at 650 million euros ($735 million), spokesman Rene Ziegler said on Thursday.

Volkswagen shares dropped as much as 1.2% and were down 0.9% to 120.65 euros as of 1:43 p.m. in Frankfurt trading. Bosch is closely held.

Bosch Software 'Ingeniously Designed' to Defeat Emissions Test

The “ingeniously designed defeat devices” were armed with software provided by Bosch, according to the filing in San Francisco federal court. They were crafted to recognize when the car was being tested in a lab or smog station to feign clean emissions and compliance with pollution standards. All the while, according to the filing, Bosch marketed “clean diesel” technology in the U.S. and lobbied regulators to approve the vehicles included in VW’s settlement. The filing asserts that Bosch also participated the scheme to prevent U.S. regulators from uncovering the device’s true functionality.

VW’s settlements to get 482,000 emissions-cheating diesel cars off U.S. roads cover car owners, the U.S. government and 44 states. They will cost the company about $15.3 billion if the agreements are fully adopted. That includes VW’s $603 million accord with states in the U.S. that isn’t part of the settlement to be considered for final approval later this year.

Volkswagen continues to be the target of criminal probes in the U.S., Germany and South Korea. The carmaker said this week it’s working to reach a final settlement with the U.S. Justice Department and other regulators. It also faces lawsuits by car owners in Europe, where most of the 11 million rigged vehicles were sold, as well as environmental and claims in the U.S.

South Korea on Thursday expanded its investigation into the fabrication of emission and noise-level test results to all foreign car brands after earlier this month fining Volkswagen 17.8 billion won ($16 million) and blocking the sale of 80 VW models until fixes are made.

The U.S. case is In Re: Volkswagen “Clean Diesel” Marketing, Sales Practices and Products Liability Litigation, MDL 2672, U.S. District Court, Northern District of California (San Francisco).

By Kartikay Mehrotra and Elisabeth Behrmann