Dive Brief:
- Volkswagen supplier IAV GmbH is in discussions to arrange a settlement with federal prosecutors, the Wall Street Journal reported, over its alleged participation in the German automaker's emissions cheating scandal. Volkswagen owns 50% of IAV, which operates in Michigan.
- IAV is expected to face accusations that it aided in Volkswagen's conspiracy to equip diesel-powered vehicles with software, enabling vehicles to illegally pass emissions tests.
- Penalties assessed for Volkswagen in the wake of the scandal equal more than $20 billion, which includes a $2.8 billion criminal penalty. Ultimately, the total will also incorporate the cost of vehicles carrying the false emissions software.
Dive Insight:
In a scandal such as this one, it's not uncommon to see finger pointing on all parts of the supply chain.
The company may claim ignorance and blame its supplier for providing it with rigged parts. Meanwhile, the supplier may argue it acquiesced to the company's request.
With the negotiations ongoing, we don't know exactly how much IAV knew about its own involvement in the emissions cheating conspiracy. It's possible Volkswagen did not fully disclose the details of the diesel rigging to IAV. On the other end of the spectrum, Volkswagen may have been fully open with IAV, and the supplier went along with the request to protect their business relationship.
If the latter is true, financial reasons could be behind the vendor's decision to go along with Volkswagen's cheating conspiracy. IAV likely sees its relationship with a large manufacturer such as Volkswagen to be highly lucrative, and one it wants to maintain long term.
Volkswagen's part-ownership is also a factor — if the automaker isn't happy with its supplier, it could sell the vendor. And with an emissions cheating cloud hovering about IAV, companies may not be in a rush to do business with the supplier.
In negotiations with federal prosecutors, IAV has reportedly said it has limited resources to cover any financial penalties that could result from the case, according to the Wall Street Journal.
Suppliers must ask themselves, when the ethics of a customer's request are murky, are the financial gains worth the potential costs — both monetary and in reputation — that could result down the road?
