VW’s Diesel Shenanigans: Bigger headaches yet to come

Winterkorn BJ3- Picture courtesy Bertel Schmitt

Volkswagen may have to pay an $18 billion fine for its emissions shenanigans, and a good chunk of the hypothetical punishment was already exerted. This morning, the Volkswagen share was down 22 percent, Volkswagen’s shareholders received a $14 billion haircut. The matter raises a few questions, like, what took the EPA so long? And, is this just the prelude to a nuclear meltdown of a few large EU car makers? And, of course: “Is Piech behind all that?”

The EPA was righteously appalled to find out that Volkswagen diesel “cars contained software that turns off emissions controls when driving normally and turns them on when the car is undergoing an emissions test,” as enforcement officer Cynthia Giles told reporters. OMG, really? How naïve can they be? Defeat devices are as old as emission controls. When computers entered cars some 40 years ago, they soon more or less routinely contained software that turned a car into a clean kitten when on the dyno, and into a pig when on the road. Cheater 1.0 saw that only one axle was turning, and deduced that the car was sitting on a dyno. This was a boon to makers of much more expensive twin roll dynos, which were “much harder to fool,” as a German TUV engineer told me in the last millennium. As technology became more sophisticated, so became the cheater software. In an age where we believe that a car should be smart enough to drive itself, even the dumbest car computer should become suspicious when the vehicle travels at 55 mph while standing still.

Cheating became so prevalent that a “Prohibition of defeat devices” entered the U.S. books in 2007. The rules also say that the EPA “may test or require testing on any vehicle at a designated location, using driving cycles and conditions that may reasonably be expected to be encountered in normal operation and use, for the purposes of investigating a potential defeat device.” It may, but it didn’t.

Finally, a little known group, the International Council on Clean Transportation, did what should have been obvious: Stick a probe into the exhaust pipe, and actually drive the car around the country. In this real world test, “the Jetta exceeded the U.S. nitrogen oxide emissions standard by 15 to 35 times. The Passat was 5 to 20 times the standard,” says Bloomberg. The EPA opened an investigation into Volkswagen more than a year ago. Finally, Volkswagen admitted to be using a defeat device, if they wouldn’t have confessed, the EPA still would be sitting in the dark.

Volkswagen is not the only company to use electronic deception. In 1998, Honda and Ford paid $267 million and $7.8 million respectively (home team advantage) for similar monkey-business. A few years earlier, Cadillac had to recall 500,000 cars with a computer that injected more fuel into the engine whenever the A/C was on. When it did so, the catalytic converter could not cope with the carbon monoxide, which was spewed into the air. Technically, no defeat device. However, cars usually are driven with the A/C on, but tested with the A/C off.

The possible $18 billion fine is nothing compared to what a similar scandal would cause in Europe. Diesel cars are still an oddity in the U.S. In Europe, however, they are more than mainstream. In Germany, about half of the new cars are diesel powered. In neighboring France, the share is even higher. A stop sell of diesel cars in Europe is a nightmare scenario for Volkswagen. Asked by Spiegel whether Volkswagen uses these devices in Europe also, Volkswagen did not supply an unqualified “nein,” and answered with a wishy-washy “our EU cars comply with all emission regulations that were in effect when the cars are registered.” Daimler tried to distance itself from Volkswagen, but did so with a likewise wishy-washy statement, saying “The issue described by the press does not apply to Mercedes-Benz Cars.” Of course it doesn’t.

A year ago, tests performed in Europe by the same International Council on Clean Transportation prompted Spiegel Magazine to headline “Diesel cars: Manufacturers cheat about emissions.” Volvo was the biggest oinker. Only BMW was clean. BMW also tested well during the ICCT’s U.S. tests. Today, Germany’s government announced a probe into possible falsifications of emissions data in Europe. For years, the green-leaning German car club VCD smelled cheats, and demanded real world tests. Today it said: “It is a fair assumption that not only Volkswagen, but that also other carmakers manipulate emission data, and that not only in the U.S.A.” The stock market seems to agree that the matter will spill from the U.S. to other markets. Today was a preview of the bloodbath to come.

Meanwhile in Wolfsburg, Volkswagen CEO Martin Winterkorn is “is caught in a familiar logical trap: either he was complicit in illegal activity or he was ignorant of it,” says Fortune, adding that “both interpretations give ammunition to his enemies, led by ex-chairman Ferdinand Piëch.”

Volkswagen’s hallway radio, the company’s proprietary rumor mill, meanwhile sees Piech as the man pulling the strings. The big question echoing in Wolfsburg’s hallways is “Why does this become public just two weeks before a crucial Supervisory Board meeting?” In that meeting, Winterkorn is expected to receive a two year extension of his contract, something the scandal could influence. The hallway radio is convinced that the defeat device was approved at the highest levels, just like noisy steering columns do. The hallway radio is convinced that Piech was fully aware of the approaching freight train.