Righting a Wrong: Volkswagen Emissions Crisis

Go Lean Commentary

On the surface, computer hacking appears to be a victimless crime. But truth be told, hacking does have victims, who can lose their careers, fortunes and lives. So manipulating computer software for malevolent reasons is an absolute “wrong”.

CU Blog - Righting a Wrong - Volkswagen Emissions Crisis and US Dealers - Photo 1bThe visual of a hacker does not only apply for some anti-social geek operating in his mother’s basement. No, sometimes, hackers are well kneeled, professional engineers, taking and executing orders from company executives.

Case in point: Volkswagen … and their computer programmers for their Engine Control Units (ECU). These individuals were instructed to manipulate these automotive computer devices to deceive emission testing equipment that their Clean Diesel engine was actually clean as advertised.

It was not!

The concept of Clean Diesel was the prize, the “Holy Grail” of the automotive industry. (The Holy Grail refers to a vessel that serves as an important motif in Arthurian literature. Different traditions describe it as a cup, dish or stone with miraculous powers that provide happiness, eternal youth or sustenance in infinite abundance.)

There are two kinds of internal combustion engines for modern automobiles: gasoline and diesel. Gasoline engines run cleaner while averaging 20 – 30 miles per gallon (mpg), but diesel is more efficient, fuel-economy-wise, averaging 50 – 60 mpg. Clean Diesel would be the best of both worlds – the Holy Grail.

Germany’s Volkswagen (VW) was the #1 automaker … in the world, ahead of Japan’s Toyota, America’s General Motors and others. They were the leader and champion in the race for diesel-based passenger vehicles. (VW owns 12 principal vehicle manufacturers including Audi, Porsche, Citroen, Bentley, Lamborghini, Bugatti, Ducati, Scania, MAN, Skoda, and others).

Apparently, they maintained that lead with some innovation … and some deceit.

CU Blog - Righting a Wrong - Volkswagen Emissions Crisis and US Dealers - Photo 4

APTOPIX Volkswagen Emissions Deal

Starting in 2015, the “walls came tumbling down” – the wrong was exposed. See the timeline here:

Title: Volkswagen emissions scandal

On Friday, 18 September 2015, the United States Environmental Protection Agency (EPA) said beginning in 2008 the automaker improperly installed engine control unit (ECU) software determined to be a “defeat device”, in violation of the Clean Air Act to circumvent environmental regulations of emissions of nitrogen oxides produced during combustion (NOx) by diesel engine 2009-2015 model year Volkswagen and Audi cars. The software detects when the cars were being subject to emissions testing, and then fully enabled ECU emission controls to successfully pass.[119][120] However, during normal driving conditions, emission control software was shut off in order to attain greater fuel economy and additional power, resulting in as much as 40 times more pollution than allowed by law.[121]Consumer Reports tested a 2011 Jetta SportWagen TDI [(see photo below)] and found in emissions mode its 0-60 mph time increased by 0.6 seconds and its highway fuel economy dropped from 50 mpg to 46 mpg.[122] Volkswagen admitted to using the defeat device, and has been ordered to recall approximately 482,000 cars with four-cylinder 2.0-liter TDI engines.[123]United States federal penalties may include fines ranging up to US$18 billion, and possibly criminal charges.[124] On June 28, 2016, Volkswagen agreed to pay a settlement of $15.3 billion, the largest auto-related consumer class-action lawsuit in the United States history.[125]

CU Blog - Righting a Wrong - Volkswagen Emissions and US Dealers - Photo 2

The EPA was first alerted to the issue by the International Council on Clean Transportation (ICCT), reporting results of research commissioned for them by West Virginia University‘s Center for Alternative Fuels, Engines and Emissions (CAFEE).[126][127] In May 2014, CAFEE published their ICCT sponsored research.[128] After 15 months of denying the emissions control systems were deliberately gamed and instead claiming discrepancies due to “technical” reasons, on August 21 Volkswagen acknowledged to the EPA and California Air Resources Board (CARB) their emission controls systems were rigged. This was followed by a formal announcement of admission to regulators on September 3 which took place immediately after the EPA threatened to withhold approval for their 2016 cars.[129] Volkswagen’s initial public response came on 20 September, when a spokesman said they would stop all US sales of the diesel models affected. Chairman Martin Winterkorn issued an apology and said Volkswagen would cooperate with investigators.[130] Since emission standards in Canada are close to those in the US, Volkswagen Canada also halted sales of the affected diesel models.[131] Tuesday, 22 September Volkswagen spokesman admit that the defeat device is installed in ~11 million vehicles with Type EA 189 diesel engines worldwide.[132]

On the first business day after the news, Volkswagen’s stock price declined 20% and declined another 17% on Tuesday, that same day a social media advertisement with Wired about “how diesel was re-engineered” was removed as well as a series of YouTube ads titled “Diesel Old Wives’ Tales”.[133][134][135] On Wednesday, 23 September, Volkswagen chief executive officer Martin Winterkorn resigned.[136] Volkswagen hired Kirkland & Ellis law firm for defense, the same firm that defended BP during the Deepwater Horizon oil spill.[137]

On November 2, the EPA issued a second notice of violation (NOV) pertaining to certain diesel 3.0-liter V6 equipped Audi, Volkswagen Touareg and Porsche Cayenne vehicles.[138] The EPA found beginning with the 2009 model year all vehicles powered by the V6 were non-compliant.[139] During testing the EPA, CARB and Transport Canada discovered software that activates pollution reduction systems when the automobiles are being driven under federal test conditions, otherwise during real world driving these devices are inactive.[140][141] Volkswagen disputed the EPA’s findings stating their software is legally permitted,[142] however shortly after Volkswagen issued a stop-sale for the EPA’s disputed vehicles and additional models the EPA did not question.[143] In November 2016, Volkswagen and its labour unions agreed to reduce the workforce by 30,000 people until 2021 as a result of the costs from the violations. However, 9,000 new jobs would come by producing more electric cars.[144] Volkswagen also announced plans to become the world leader in electric cars, producing 1 million VW-EVs by 2025 and 3 million by the group,[145] and a VW manager stated that its diesel cars would not become available in USA.[146]

On Wednesday, 11 January 2017, Volkswagen agreed to plead guilty to the emissions-cheating scandal and to pay $4.3 billion in penalties. Six Volkswagen executives were charged.[147][148] The following day, one of the indicted executives was ordered to be held without bail pending trial as it was feared that he would flee to Germany and extradition would be impossible.[149][150] For this reason, senior VW management staff were warned not to travel to the US.[151] On 23 January 2017, a US judge approved a $1.2 billion settlement in which 650 American dealers, “who, like consumers, were blindsided by the brazen fraud that VW perpetrated,” would receive an average of $1.85 million.[152]

Source: Retrieved May 5, 2017 from: https://en.wikipedia.org/wiki/Volkswagen#Diesel_emission_violations


VIDEO – Volkswagen emissions scandal: A timeline – https://youtu.be/Y5TvFY7xRDM

Published on Jun 28, 2016 – Volkswagen rigged 11 million vehicles to cheat on emissions tests, costing the company billions in fines and fixes. Here’s a breakdown of the scandal.

As related in the foregoing, after a long period of denial, excusing and shifting the blame, the leadership of VW finally accepted the inevitable:

Truth and consequence.

This is a familiar concern for the movement behind the book Go Lean…Caribbean. There are a lot of issues – right here in the Caribbean – that have been dealt with by stakeholders first accepting-acknowledging the truth – and then dealing with the painful fall-out.

Consider for example the Abolition of Slavery in the British Empire; after 60 years of advocacy the Empire finally acknowledged the “wrong” of slavery of African people. They accepted the truth and “bit the bullet” in 1834; they then compensated every slave-owner in the Empire for  the lost of their “property”. Though this was painful – economically and socially – this move gave the United Kingdom moral authority on the issue of slavery for perpetuity.

Now VW’s focus is on the long road of recovery – “righting the wrong”. According to this article in the Appendix below:

  • They have set-up a fund to compensate victims (car buyers and dealers)
  • Despite being the “butt of the jokes” – see Appendix VIDEO  the impact on the company’s reputation with car-buyers has been less severe than predicted: sales and profits have stayed strong.
  • The relationship with their dealers – especially the ones in the US – needs a lot of mending. Though they have now agreed on a settlement and is compensating them for lost of goodwill and sales – see story here:
    “We believe this agreement in principle with Volkswagen dealers is a very important step in our commitment to making things right for all our stakeholders in the United States” – Volkswagen North American Region CEO Hinrich J. Woebcken said in a statement on August 25, 2016.

This commentary is 3 of 4 in a series considering how to “Right a Wrong”. Surely, lying about Clean Diesel is a “Wrong”. This type of “Wrong” affected the value of the assets for all the car owners and especially damage the viability (new customers and loyalty of existing customers) of the dealership (plus their franchise values). So there are lessons that we need to glean from the “Righting of these Wrongs”. The full series is as follows:

  1. Righting a Wrong: 2008 Housing Crisis
  2. Righting a Wrong: Puerto Rico’s Bankruptcy
  3. Righting a Wrong: Volkswagen Emissions Crisis
  4. Righting a Wrong: Takata Air-Bags

As related in the first submission in this series, these “Wrongs” relate to bad actions and inaction by different actors. The image and reputations of VW “took a hit” since 2015. “Righting this Wrong” can override the bad image and the “comeback” or recovery could be their lasting legacy.

The book Go Lean…Caribbean presents a plan to elevate the Caribbean societal eco-systems; it also addresses the eco-system of the automobile industry; the quest is to incentivize an automaker – or two – to locate a plant somewhere in the Caribbean region. The book details this on Page 206. Consider some of the headlines here:

10 Ways to Develop an Automotive Industry  – Page 206

1 Lean-in for the Caribbean Single Market. The CU will allow for the unification of the region into one market, thereby creating a single economy of 30 member-states, 42 million people and a GDP of over $800 Billion. The people of the region have cars, and will continue to need cars. There is no demand shortages for the region…. The CU will take the lead in facilitating the vertical industries to supply the needs of a domestic auto industry. The CU’s economic engines allows for investment capital to finance the supply mechanisms and a media complex to forge a constant demand.
2 Do It Yourself – Domestic Manufacturer A domestic auto industry is a great source for jobs for a skilled and high-wage labor force. Fulfilling the automotive needs of the CU market will create a lot of economic spin-off activity. In the US, the Detroit 3 maintains 240,000 jobs, but impact an additional 3 million jobs in related communities; see Appendix C3. By continuing to buy cars from the US, then Detroit gets the multiplier benefits of CU auto purchases rather than the CU; the same for Germany, Japan, etc. The CU will foster the local manifestation of the global auto industry to grow the domestic economy and deduct from the trade deficit. Invitations will be made to entities like Ford, GM, Volkswagen, Fiat, Toyota, Nissan, etc to deploy a local assembly plant in a CU member-state. After one company thrives from this foothold, other firms will definitely follow.
3 Bring on the future – “Lego” – Modular PlatformsAuto manufacturing disciplines are changing. Companies, like Volkswagen (VW) have adopted a modular platform approach that allows multiple brands and models (VW: includes Audi, Citroen, Bentley, Lamborghini, etc.) to share base components: engines, transmissions, ventilation systems, etc. [185] This allows for the global distribution of plug compatible parts to be assembled for models servicing different markets. Assembly plants can be erected anywhere.
4 Embrace Alternative Energy & Hybrids
5 Optimize the Logistics Industry
6 Exploit Service and Maintenance
7 Don’t forget “After-Market” Parts
8 Help Regional Businesses Find Foreign Markets – Export
9 Promote Auto Shows
10 Re-capture Recycled Materials

VW would have been a good candidate for a local assembly plant. Upon “righting this wrong”, they would be a good suitor.

Image the jobs … and the indirect economic activity.

This is the purpose of the book Go Lean…Caribbean, to help reform and transform the societal engines in the 30 member-states of the Caribbean region. The book serves as a roadmap for the introduction and implementation of the Caribbean Union Trade Federation (CU). The Go Lean/CU roadmap applies best-practices for community empowerment and features these 3 prime directives, proclaimed as follows:

  • Optimization of the economic engines to grow the regional economy to $800 Billion & create 2.2 million new jobs.
  • Establishment of a security apparatus to protect public safety and ensure the economic engines of the region.
  • Improvement of Caribbean governance to support these engines.

Had the CU been in force when this VW Emissions Cheating scandal popped, the technocratic deliveries would have really made a difference … on protecting the people of the Caribbean.

The points of effective, technocratic stewardship of industrial enterprises have been elaborated upon in previous blog-commentaries. Consider this sample:

http://www.goleancaribbean.com/blog/?p=8982 GraceKennedy: Profile of a Caribbean Transnational Industrial Firm
http://www.goleancaribbean.com/blog/?p=8650 Auto Industry – Now it’s Detroit’s turn to rescue Silicon Valley
http://www.goleancaribbean.com/blog/?p=7847 PC Industry swoons in the face of new trends
http://www.goleancaribbean.com/blog/?p=5034 Patents: The Guardians of Innovation
http://www.goleancaribbean.com/blog/?p=4240 Immigration Policy Exacerbates Worker Productivity Crisis
http://www.goleancaribbean.com/blog/?p=3384 Auto Industry – Plea to Detroit: Less Tech, Please

Overall, the Go Lean book stresses the community ethos, strategies, tactics, implementations and advocacies to reform and transform the economic, security and governing engines of Caribbean society. This effort will be technocratic! It will “plan do and review”. We must properly administer the testing and certifying our “polluting” industrial endeavors. This vision was anticipated from the beginning of the Go Lean book, opening with these pronouncements in the Declaration of Interdependence (Page 12 – 14):

xi. Whereas all men are entitled to the benefits of good governance in a free society, “new guards” must be enacted to dissuade the emergence of incompetence, corruption, nepotism and cronyism at the peril of the people’s best interest.  The Federation must guarantee the executions of a social contract between government and the governed.

xii. Whereas the legacy in recent times in individual states may be that of ineffectual governance with no redress to higher authority, the accedence of this Federation will ensure accountability and escalation of the human and civil rights of the people for good governance, justice assurances, due process and the rule of law. As such, any threats of a “failed state” status for any member state must enact emergency measures on behalf of the Federation to protect the human, civil and property rights of the citizens, residents, allies, trading partners, and visitors of the affected member state and the Federation as a whole.

xxiv. Whereas a free market economy can be induced and spurred for continuous progress, the Federation must install the controls to better manage aspects of the economy: jobs, inflation, savings rate, investments and other economic principles. Thereby attracting direct foreign investment because of the stability and vibrancy of our economy.

xxvii. Whereas the region has endured a spectator status during the Industrial Revolution, we cannot stand on the sidelines of this new economy, the Information Revolution. Rather, the Federation must embrace all the tenets of Internet Communications Technology (ICT) to serve as an equalizing element in competition with the rest of the world. The Federation must bridge the digital divide and promote the community ethos that research/development is valuable and must be promoted and incentivized for adoption.

xxxiii. Whereas lessons can be learned and applied from the study of the recent history of other societies, the Federation must formalize statutes and organizational dimensions to avoid the pitfalls of communities like East Germany, Detroit, Indian (Native American) Reservations, Egypt and the previous West Indies Federation. On the other hand, the Federation must also implement the good examples learned from developments/communities like New York City, Germany, Japan, Canada, the old American West and tenants of the US Constitution.

Yes, the book Go Lean … Caribbean asserts that we can have our own automotive industry here in the Caribbean homeland.

This is a Big Deal! But this plan is conceivable, believable and achievable.

The purpose of this commentary is to learn from other people, companies and communities that have had to “Right Wrongs”. We want to learn those lessons and apply them in our homeland, so that we can be a better society. Industrial policy could be affected – jobs are involved – our Caribbean society needs to be better at reforming and transforming our industrial eco-system.

Now is the time for all stakeholders – governments, industry and car-buyers – in the Caribbean to lean-in for the empowerments described here-in for our own regional automotive industry. We must do better with promoting industrial developments – being a partner – than our predecessors. This will make all of the Caribbean a better place to live, work and play. 🙂

Download the free e-book of Go Lean … Caribbean – now!

Sign the petition to lean-in for the roadmap for the Caribbean Union Trade Federation.


Appendix Title: Volkswagen – A long road to recovery
Sub-title: The carmaker’s efforts to move on from its emissions scandal are thwarted

THERE are two ways of dealing with a worrying problem in a car engine. One is a complete overhaul; the other is to tinker under the bonnet and hope the trouble goes away. Volkswagen’s efforts to deal with an emissions-cheating scandal that emerged in September 2015 are of the tinkering type. The German carmaker is desperate to draw a line under its ill-fated decision to fit software to 11m diesel cars that detected emissions tests and artificially reduced the amount of nitrogen oxide pumped out. But the disconcerting rumbles continue.

The latest setback came on November 6th, when VW said that a German investigation of market manipulation was examining the role of Hans Dieter Pötsch, chairman of its supervisory board. The probe, which began in June, is looking at whether Martin Winterkorn, VW’s former chief executive, and Herbert Diess, who oversees the core VW brand, should have disclosed the emissions cheating before the company publicly admitted wrongdoing. This is deeply uncomfortable for both VW and Mr Pötsch, who used to be the chief financial officer and was nominated to become chairman on the day the crisis began. It is also a reminder that questions linger about who at the firm knew what.

Adding to VW’s woes, a German newspaper reported on the same day that American regulators had found that another variety of cheating software, which artificially lowered emissions of carbon dioxide, was still being fitted to several models of Audi luxury cars until May 2016. This may expose VW to further compensation, fines and legal entanglements.

The share price has fallen by 24% since the scandal broke, and VW has had to set aside €18.2bn ($19.9bn) to cover the cost of compensating owners and fixing affected cars. Yet the damage is less than many people expected. The impact on the company’s reputation with car-buyers has been less severe than predicted: sales and profits have stayed strong.

But VW now badly needs to put the diesel affair firmly behind it. Coping with the storm has claimed management resources that should have been dedicated to the urgent task of improving the performance of the mass-market VW brand, says Patrick Hummel of UBS, a bank. The costs of making cars bearing the core brand (as opposed to those at Skoda, SEAT and other marques) are sky-high, partly because VW makes so much in Germany, and profit margins are slender.

Investors will surely look more kindly on VW when all the risks, including those at Audi, are plain, and they can better gauge the likely financial consequences. But that will take a while. Despite agreeing on fixes and compensation deals in America, and pledging to rectify vehicles in Europe, VW still has to satisfy American authorities that it will do the same for larger diesel engines that were also affected. It must also resolve the matter of criminal fines in America and fight a lawsuit brought by disgruntled shareholders in Germany.

Meanwhile many in the car industry are questioning whether VW is letting its crisis go to waste by mostly carrying on as normal, without making radical changes to its culture. Matthias Müller, the current chief executive, is giving local managers more leeway to tweak car designs and other product features: that is a good thing, according to Citigroup, another bank. This sort of freedom would have been unthinkable under Mr Winterkorn but is essential in a business where tastes vary so widely in different markets. But Mr Müller’s commitment to making the savings that VW needs is unclear. Granted, in a few weeks he will conclude a “future pact” with workers at the carmaker’s core brand. It will govern cuts in costs, employees’ productivity and overall strategy. However, few expect it to go far enough.

If it does fall short, that will be partly because Mr Müller is a long-serving insider picked by the Porsche and Piëch families, who control over half of VW’s voting shares. Even if the families had been bold enough to bring in someone from outside, minded to act more decisively, such a boss would have met resistance from trade unions and from the state of Lower Saxony, where VW is based and which has a 20% stake in the company. Both wield much influence on its powerful supervisory board. In time, the failure to rebuild thoroughly may come to be seen as a mistake.

Source: Posted November 10, 2016; retrieved May 5, 2017 from: http://www.economist.com/news/business/21710009-carmakers-efforts-move-its-emissions-scandal-are-thwarted-long-road-recovery


Appendix VIDEO – John Oliver: Volkswagen – https://youtu.be/Cdif-zK4z14

Published on Sep 28, 2015 – From HBO’s Last Week Tonight with John Oliver. WARNING: Adult Language.
All rights belong to HBO. Check out the official channel here: https://www.youtube.com/user/LastWeek…

  • Category: Comedy
  • License: Standard YouTube License
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