VW Dieselgate: The guessing game is on

When details of the lawsuit in the US hit the news in Germany on Tuesday morning, Volkswagen stocks took another beating. VW shares fell as much as 6 percent to a six-week low in early trading, the biggest drop on Germany's blue-chip DAX index.

The main reason for investors to abandon the Volkswagen ship were the two-digit billion dollar figures mentioned in the news coverage: French news wire AFP speculated about claims of more than $20 billion (18.6 billion euros), while British based Reuters posted a story estimating that Volkswagen could face up to $90 billion in a worst-case scenario.

That was not only way above regulators' initial estimate of VW's liabilities - it topped those estimates many times over: In September, US regulators initially said Europe's biggest carmaker could face fines in excess of $18 billion.

The Reuters calculation is based on the possibility that VW could be forced to pay fines up to $37,500 per vehicle. The complaint says illegal devices to impair emission control systems were installed in nearly 600,000 vehicles in the US. So, Reuters calculates, if all four violations of the law quoted in the complaint could be proven by US authorities, the total fines could add up to $90 billion.

A shocking amount for investors, but unrealistic according to auto industry pundits like Ferdinand Dudenhöfer. "The $90 billion figure is a dubious guess", said the researcher, who teaches at the University of Duisburg-Essen in the German state of North Rhine-Westphalia. The estimate must have arisen as a result of "drinking too much champagne at New Year's Eve," Dudenhöfer added dismissively.

Bigger fine than expected

Although US lawsuits are typically settled at a fraction of the theoretical maximum penalty, some analysts pointed out that the size of the claim meant Volkswagen could face a larger bill than previously anticipated.

"The announcement serves as a reminder, a reality check of VW's still unresolved emissions issues," Goldman Sachs analysts wrote in a note, maintaining their "sell" recommendation on the stock.

The civil lawsuit, announced on Monday, added to the growing number of lawsuits attacking VW since the German company admitted in September to installing devices to cheat emissions tests in several 2.0 liter diesel vehicle models.

Nevertheless, analysts believe any fine will be far below the theoretical maximum. Although US authorities sued Toyota for up to $58 billion for environmental violations around the turn of the century, they eventually agreed on a settlement that cost the Japanese carmaker only about $34 million.

GM's ingnition switch settlement

In 2015, General Motors agreed to pay a $900 million fine for hiding a fatal ignition-switch defect tied to at least 174 deaths. That was less than a third of GM's $2.8 billion in profit in 2014. But the icing on the cake was that not a single General Motors employee had to face criminal charges, even after the company acknowledged that high-level delays and deception had contributed to roadway deaths.

"I have a saying about GM: There's no problem too big that money can't solve,” Clarence Ditlow, executive director of the Center for Auto Safety, was quoted in the business section of the Washington on September 17, 2015. GM was "buying [its] way out of a criminal prosecution," Ditlow added in an article headlined "Why General Motors' $900 million fine for a deadly defect is just a slap on the wrist."

In a separate deal GM agreed to pay more than $1 million to each of the victims or their families. General Motors was willing to pay even in cases in which victims failed to wear a seat belt in their fatal accidents, or when they were speeding or under the influence of drugs or alcohol, the Detroit Free Press reported.

Harsh wording

Volkswagen could be another story, however, because the company is not based in the US. "We continue to believe that no one is able to make anything other than a wild guess on potential fines," Equinet analyst Holger Schmidt said.

But like anonymous political sources in Berlin quoted by German media, Schmidt is concerned about the resolve of the US authorities. According to the analyst, the US seems to be determined to profit from VW's misdemeanor by using lawsuits and other means to weaken the European automaker's position in the US domestic market.

The harsh words of US Assistant Attorney General John Cruden might suggest just that: "The United States will pursue all appropriate remedies against Volkswagen to redress the violations of our nation's clean air laws," Cruden, who is also the head of the Justice Department's environment and natural resources division, said.

Negotiations for lower penalty likely

VW's earlier admissions eliminate almost any possibility that the automaker could defend itself in court, according to Daniel Riesel of Sive, Paget & Riesel P.C., who defends companies accused of environmental crimes.

To win the civil case, the government does not need to prove the degree of intentional deception at VW - just that the cheating occurred, Riesel said: "I don't think there is any defence in a civil suit." Instead, the automaker will seek to negotiate a lower penalty by arguing that the maximum would be "crippling to the company and lead to massive layoffs," Riesel said.

But according to Ferdinand Dudenhöfer, "Volkswagen might have to face harsh penalties, but they won't derail a company like VW," given that before the emissions scandal, Volkswagen's announced it had liquid assets of roughly $25 billion. The financial burden will likely prove bearable for the company. Still, "the biggest news is that the US government has charged VW, and that it has done it so soon," he said.