Their executives knowingly installed the software which undermined the emissions of toxic fumes which have been known to cause thousands of deaths
By Sheahan Nasir Bhuiyan
Germans over the years have built a reputation for reliability and trustworthiness with a penchant for excelling in engineering to such a point that the rest of us joke they have no sense of humour. Nothing exhibits this further than the German automotive industry. Employing around 775,000 people, it is one of the brightest jewels in the German economic crown, and the industry has won numerous accolades over the years, including the prestigious International Car of the Year and its European counterpart, more so than any other country in the world. The industry is considered to be the most innovative and competitive according to an Ernst & Young survey, and brings in around 20% of German income. It is no surprise therefore that one in every five cars around the world carries a German brand. From your BMWs to your Porches the one thing that is safe to assume is that you can trust these cars. That is, until now…
On September 18th 2015, the United States Environmental Protection Agency (EPA), after an investigation that commenced in May 2014, announced that Volkswagen, makers of the world famous Beetle, violated America’s Clean Air Act. Volkswagen (VW) has admitted that they installed a so called “defeat device” in their diesel cars which is a software that can detect when the car is being tested for emissions and change the performance accordingly to be in line with the requirements. The United States has stricter regulations against diesel emissions than in Europe and VW in a bid to increase their presence in the American market engaged in such underhanded activities.
To understand the context a little better, there are some things to note here. Diesel has been promoted as a cleaner and cheaper alternative to petrol because of lower carbon emissions. It is not a very popular source of fuel in the US compared to Europe, and VW aimed to change that by promoting “Clean Diesels” which met US EPA standards. While carbon emissions are low, diesel engines do produce Nitrogen Oxides and other gases which have been estimated to cause approximately 58,000 deaths a year in the United States alone. The software allowed the engines to produce very little of these substances in a testing environment but once they were out on the road, the investigation revealed that the engines produced toxic fumes up to 40 times the permitted levels. 40 times. The EPA’s findings revealed the existence of this software in 482,000 VW cars in the US alone. VW since then has admitted that the software exists in 11 million cars worldwide including 8 million in Europe.
The revelation sent shockwaves around the world. The Automotive Industry took a massive hit, with stock prices plunging down all around. VW alone saw its value diminish by 30%, wiping out EUR 26 billion of its value. In response to the claims, what followed at VW was the swift resignation of CEO Martin Winterkorn who claimed that he was completely unaware of any wrongdoings but still accepts responsibility for the fact that this has happened under his watch. He was replaced by Matthias Mueller, who was the man in charge of Porsche, a subsidiary of VW. Mr. Mueller has vowed to restore customer faith by getting to the bottom of this and has promised to “leave no stone unturned”. VW has also stated that it will begin recalling close to 500,000 vehicles in the US from January 2016. It has set aside EUR 6.5 billion to cover the financial hit it will face in the coming months. However, the amount is expected to go beyond the amount set aside. Apart from the costs associated with recalls, there are numerous other costs including fines, compensation claims, and other lawsuits. The EPA itself can fine VW $37,500 for each car with the software to take the total amount to around $18 billion. One cannot help but draw comparisons to the Deepwater Horizon disaster for British Petroleum (BP has been fined close to $20 billion). Except for one crucial difference. Deepwater Horizon was an accident. This incident for VW was deliberate. Their executives knowingly installed the software which undermined the emissions of toxic fumes which have been known to cause thousands of deaths. This is criminal activity and as such those responsible should be charged accordingly. For too long, those responsible in similar cases have walked away from the company with no criminal charges. The good news is that Sally Yates, the US Deputy Attorney General has insisted that fining businesses will come after pursuing civil and criminal charges.
The consequences of this scandal will affect the entire automotive industry beyond the fall of share prices. The question now is how many other manufacturers engage in such behaviour. Due to the lax testing facilities both in the US and in Europe, it was possible for VW to get away with this for so long. It would be naive to assume that VW are the only ones who employ illegal methods. It is absolutely essential that the proper regulating authorities ensure that manufacturers abide by the laws and ensure the safety and well-being of their customers. Will this mean that diesel engines will be abandoned since they actually do not provide the benefits they claimed to have? Quite possibly, but that’s not necessarily a bad thing. Necessity is the mother of all inventions as they say and the death of diesel will surely give rise to the adoption of cleaner, more efficient technology and the multi-billion dollar race to come up with such should speed up.
Germany has been shaken as a result of this and their stellar reputation as the leaders of reliability and trustworthiness is now in question. However, Angela Merkel is confident that VW will bounce back from this and that Germany will still be a great place for the automotive business. It will be a significant next few years for VW and its new leaders and let us hope that they can “steer” them clear from future scandals.
