Volkswagen has admitted to what is, quite possibly, one of the most outrageous frauds in the history of the automotive industry. The world’s biggest automaker admitted that for seven model years, it deceived environmental officials around the world about the emissions from its diesel-powered cars. It has since revealed that 11 million cars around the world were altered in order to deceive officials about how clean they really were.
Last year, the international Council for Clean Transportation, a 10-year old group that works to make road, marine, and air transportation more environmentally friendly, discovered something fishy when it tested the Volkswagen Jetta and Passat. While they gave off harmful levels of nitrogen oxide on the road, the lab results showed they were clean. Nitrogen oxide contributes to ozone and smog, and has been linked to asthma and other respiratory problems.
Peter Mock, the European managing director of the ICCT, told his American counterpart, John German, about the test results. German was certain that the American versions would be clean, since American emissions standards are more stringent than those of the European Union. However, when a team from the ICCT and West Virginia University drove a Jetta and Passat from San Diego to Seattle, they were stunned at what they found. The Jetta put out 15 to 35 times the legal limit for nitrogen oxide, while the Passat put out five to 20 times the legal limit. The ICCT immediately alerted the Environmental Protection Agency, who launched an investigation in May 2014.
On Friday, EPA officials dropped a bombshell. Volkswagen had admitted to installing a “defeat device” in its “clean diesel” cars that allowed the car to detect when it was undergoing emissions testing. Under normal driving conditions, the device was turned off. By EPA estimates, this resulted in the cars spewing 40 times as much nitrogen oxide than is permitted by the Clean Air Act. The devices were included in Jettas, Beetles, and Golfs manufactured from 2009 to 2015, Passats manufactured in 2014 and 2015, and Audi A3s manufactured from 2009 to 2015.
Volkswagen only admitted the deception when EPA officials hinted they wouldn’t certify Volkswagen’s 2016 diesel models for sale in the United States. Initially, the EPA ordered Volkswagen to recall 482,000 cars. However, on Tuesday morning–Tuesday afternoon in Europe–Volkswagen revealed that based on its own internal review, 11 million cars around the world contained a “defeat device.” The great majority of them are almost certainly in Europe, where it is by far the largest automaker. Volkswagen has set aside $7.3 billion–the equivalent of half a typical year’s profits–to cover the cost of fixing the cars, as well as what is almost certain to be a mountain of fines and legal bills.
The 2016 versions of Volkswagen’s “clean diesel” cars were already on their way to American dealerships, but Volkswagen announced it would not offer them for sale, and would stop selling the 2015 versions as well. Not surprisingly, Volkswagen’s stock has taken a beating. It dropped 16 percent on Monday in trading on the Frankfurt Stock Exchange, and lost another 18 percent on Tuesday. In a colossal understatement, CEO Michael Winterkorn apologized for having “broken the trust of our customers and the public.” The head of Volkswagen’s American operations, Michael Horn, was even more blunt, saying that “we have totally screwed up.”
Olaf Lies, a member of Volkswagen’s supervisory board, told CNBC that when all is said and done, “there will be personnel consequences in the end.” To clear up any confusion, Volkswagen, like other German companies, has a two-tier board of directors. The executive board handles most day-to-day operations, while the supervisory board oversees the executive board on behalf of the shareholders. For Lies to say something like this when the internal investigation is still ramping up can only mean one thing–a lot of people are going to get fired.
By all rights, a good number of those people need to be before a judge as well. While the General Motors ignition switch snafu involved willful ignorance of a defect, this involved deliberate deception of both consumers and environmental officials. The only thing making the GM fiasco worse is that it could be proven that those defective switches caused people to die. Sadly, no one is going to jail for that–at least for now. Hopefully things will turn out differently with this deception by Volkswagen. Given the scale of this deception, it will be a travesty if someone doesn’t go to jail.