Out of the blue, Volkswagen — in September 2015 the largest automobile manufacturer on the planet and a powerful and respected exemplar of corporate excellence — got caught in public with its pants around its ankles, performing unspeakable acts on its smog-control obligations. This paragon of industrial virtue had the temerity, the cheek to install a computer program that switched off the emission controls on its diesel cars during regular driving and then switched them back on only during smog tests.
The nerve! The chutzpah!
In a scandal some are calling “DieselGate”, VW admits they programmed the “defeat device” code into nearly half a million vehicles sold in the US. American regulators hint that the company could face as much as $18 billion in penalties.
But wait, there’s more! Worldwide, the scandal extends to 11 million VW and Audi cars; at the same per-vehicle rate, VW could in theory be forced to pay over $350 billion in total penalties. And now private owners are suing the company for breach of contract. VW’s parent, Volkswagen Group, controls a net equity of slightly more than $100 billion, a sum that could be obliterated in a storm of penalties and damages. In other words, VW might be staring at a death sentence.
Why would so big and important a company, helmed by the best and brightest executive talent, decide to screw up so completely? What were they thinking?!? How could they not have known they’d get caught? It beggars the imagination.
With a little thought, though, this all begins to make some sense. Several clues stand out:
• Most big industries are viciously competitive. The temptation to fudge, just to get an edge, can be overwhelming. VW promised to triple its U.S. sales by focusing on diesel. Then diesel failed to live up to its high-mileage promise, so management, painted into a corner, opted to take a shortcut. Disaster ensued.
• It was a clever deceit: software, hidden deep inside a car’s computer, produces good smog control on inspection, then switches to good performance the rest of the time. The badness was completely hidden during normal operation. In the heat of business battle, the honchos at VW might have convinced themselves that their scheme would work indefinitely — that no one in government would ever figure it out. And they were almost right: the alarm finally sounded, not from a government agency, but from a non-profit and a university.
• European regulatory agencies are eager to achieve the reduced CO2 levels they can get from diesel engines, and one-seventh of Germany’s workers are in the auto industry, so bureaucrats have been inclined to look the other way on oxides of nitrogen and particulate pollution, the dirty underside of diesel.
• Diesel is the incentivized engine of choice in Europe nowadays: one third of all passenger vehicles are powered by diesels. And VW is a major player. No matter how clever its officers were, the corporation was still a big target: eventually someone, somewhere, was bound to poke around in its affairs.
• VW has a reputation for arrogance. Its culture is clannish and disdainful of American smog rules. When the Center for Auto Safety visited European manufacturers who sought to sell more diesels in the U.S., they found that VW execs stood out in one particular way: “They talked down to us.”
• It was only this year that VW finally unseated Toyota as the world’s biggest seller of cars. Toyota held that title proudly for years, and it has no skin in the American diesel game, so it’s not hard to speculate that Toyota lobbyists just might have had cause to rejoice when regulators took a harder look at VW’s diesels. The exploding scandal has hurtled Volkswagen’s stock price into a tailspin and caused consumer confidence to crater; you can bet Volkswagen’s tenure as King of the Automotive Hill won’t last long.
• And here’s the biggest, baddest reason of all: like bicycle road racers doping themselves en masse, it’s possible that all the major manufacturers are using similar cheats to overstate their fleets’ greenness. In other words, Volkswagen’s egregious violations aren’t an isolated, freak case. They may well be the tip of the iceberg.
…Can anything be done? Regulation of this industry has a history of success punctuated by embarrassing failures. Manufacturers traditionally have chafed at increased oversight; opportunities for logrolling, hand-holding, and outright fraud have been rife. When the dust settles on DieselGate, there’ll be another malefactor waiting in the wings.
To the rescue comes … all-electric vehicles. They’re cheaper to energize, they have terrific performance, and — best of all — they don’t spew the same polluting exhaust. Incentives to cheat simply vanish.
There’ll always be bad guys. But someday, with luck, we’ll no longer have air-pollution violators to worry about. Until then, feel free to gawk like a tourist at the smoking ruins of the VW diesel venture.
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