The Volkswagen emissions scandal, also known as Dieselgate, was a costly scandal that impacted the automotive industry. Volkswagen equipped 11 million cars worldwide with defeat devices, which detected when vehicles were being tested for compliance with emissions rules and adjusted engines accordingly. The vehicles emitted up to 40 times more pollution than permitted levels. The scandal cost Volkswagen up to €33.3 billion in fines, penalties, financial settlements, and buyback costs. The scandal sparked investigations into other diesel emissions scandals and discussions over open-sourcing software for public scrutiny. The scandal also highlighted difficulties abiding by technical compliance in the automotive industry.
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The Volkswagen Emissions Scandal: A Costly Corporate Scandal
It was one of the costliest corporate scandals of all time, one that left a venerable brand in tatters. A scandal that allowed one of the biggest companies in the world to claim ESG credentials, while still polluting the atmosphere. It’s a scandal that still haunts the automotive industry to this day, and it’s what I’ll be covering in this video, so don’t go anywhere.
Financial Disclaimer
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Introduction
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The Volkswagen Emissions Scandal
Now, that’s all done and dusted. Let’s find out which naughty company got itself busted. The Volkswagen Emissions Scandal, sometimes known as Dieselgate or Emissionsgate, dates back to September 2015 when the United States Environmental Protection Agency (EPA) issued a notice of violation of the Clean Air Act to German carmaker Volkswagen. The agency had found that Volkswagen had intentionally programmed turbocharged direct injection TDI diesel engines to only activate their emissions controls during laboratory testing.
Volkswagen admitted to installing what are called “defeat devices” in millions of its diesel-powered cars. This saw technical software detect when cars were being tested for compliance with emissions rules. This software then adjusted the diesel-powered engines so that they passed the compliance tests. However, in normal use, it was discovered that these engines emitted far more pollution, including up to 40 times more nitrogen dioxide than the permitted levels, and this had all been going on for years.
The Fallout
Now to this day, it’s still largely unknown how many employees and executives knew about these defeat devices, what they were doing, and why. But what’s even more staggering is that Volkswagen, which had always positioned itself in the minds of automotive aficionados as one of the most advanced and cutting-edge vehicle producers, deployed this emissions cheating software in about 11 million cars worldwide, including 500,000 in the US in model years 2009 through to 2015.
If you’re wondering how Volkswagen managed to get away undetected with its pollution scheme for so many years and how it was finally caught by regulators, here’s some background for you. In 2014, the California Air Resources Board (CARB) commissioned from the International Council on Clean Transportation (ICCT) a study on emissions discrepancies between European and US models of vehicles. Summing up the data on 15 vehicles from three different sources, among those recruited for this task was a group of five scientists at the West Virginia University Center for Alternative Fuels, Engines, and Emissions.
These five scientists used a Japanese onboard emission test system and detected additional emissions during live road tests on two out of three diesel cars. The ICCT furthermore purchased data from two other sources. The data-driven outcome induced international regulators to investigate Volkswagen, which subsequently caused its stock price to fall in value by a third in the days immediately after the news broke.
The combination of bad news partnered with the growing concerns regarding the potential wrongdoing within the Volkswagen organization led VW Group CEO Martin Winterkorn to resign. On top of that, the head of brand development at Volkswagen, Heinz Jacob Neuser, Audi Research and Development head Ulrich Hackenberg, and Porsche Research and Development head Wolfgang Hats were also suspended in light of the allegations. In April 2016, Volkswagen announced plans to spend 16.2 billion Euros on rectifying the emissions issues and planned to refit the affected vehicles as part of a recall campaign.
Volkswagen Pleaded Guilty to Criminal Charges
But then, in January 2017, Volkswagen pleaded guilty to criminal charges and signed an agreed statement of facts which drew on the results of an investigation Volkswagen had itself commissioned from US lawyers. The statement set out how engineers had developed and built the defeat devices because diesel models could not pass US emissions tests without them and deliberately sought to conceal their use.
Consequently, in April 2017, a US federal judge ordered Volkswagen to pay a whopping 2.8 billion dollar criminal fine for “rigging diesel-powered vehicles to cheat on government emissions tests.” Subsequently, ex-CEO Winterkorn was charged in the United States with fraud and conspiracy on the 3rd of May 2018.
The Cost
But what’s even more staggering about all this is that as of June 2020, the scandal had cost the German manufacturer up to 33.3 billion due to fines, penalties, financial settlements, and buyback costs. At present, various government and civil actions are ongoing in the US and the European Union, where most of the affected vehicles are located. While these vehicles remain legal to drive in the EU, consumer groups and governments have sought to make sure that Volkswagen has compensated owners appropriately, as it has had to do in the US.
The Fallout
The scandal raised awareness over the higher levels of pollution emitted by the vast majority of diesel-powered engines from a wide range of car manufacturers, which under real-world driving conditions exceeded legal emission limits. For instance, a study conducted by the ADAC, the largest European motoring organization, showed the largest emissions deviations from producers like Volvo, Renault, Jeep, Hyundai, Citroen, and Fiat. This naturally resulted in investigations opening into other diesel emissions scandals.
A Possible Way Out
On that note, a discussion was sparked on the topic of software-controlled machinery being generally prone to cheating. With a possible way out of this system entailing the open-sourcing of the software for public scrutiny. And with that, it’s time to get a bit technical. Here’s the science bit, concentrate.
The Technical Background
The 1980s saw the development of three-way catalytic converter technology, which was very effective at reducing nitrogen dioxide in petrol engine exhaust. However, it did not work well for diesel vehicles. As, unless treated, these emit 20 times more nitrogen dioxide than petrol engines. To deal with this dysfunctionality, in 2005, a number of managers at Volkswagen intended to purchase the rights to Mercedes’s bulky, expensive, and high-maintenance treatment system called blu-tec for reducing diesel exhaust pollution.
Other VW managers rejected blu-tec and preferred to develop their own cheaper solution called LNT. The LNT team won, but surprise, surprise, their solution didn’t actually work. Overall, abiding by technical compliance in the automotive industry has often proven to be incredibly hard. For instance, since 2016, 38 out of 40 diesel cars of all brands tested by ADAC reportedly failed a no nitrogen dioxide test based on government standards.
Conclusion
Nonetheless, VW promoted and marketed what seemed to be the technological miracle of fast, cheap, consumer-friendly green diesel vehicles. On paper, that is. In reality, the system failed to combine low fuel consumption with compliant nitrogen dioxide emissions. In 2006, VW actively chose to program its engine control units to switch from lower fuel consumption and high emissions to low emission compliant mode when an emissions test was detected.
Essentially, this led Volkswagen-designed engines to emit nitrogen dioxide levels well above the permitted limit in daily operation and to comply with the US nitrogen dioxide standards when being tested, thereby constituting what is commonly referred to as a defeat device. In fact, in 2015, the German news magazine De Spiegel reported that at least 30 people at management level in VW had known about the deceit for years. Of course, VW denied these allegations entirely.
This scandal serves as a reminder of the dire consequences that can arise when companies deliberately deceive regulators and consumers. It is hoped that this serves as a lesson to other companies to be honest and transparent in their dealings to avoid reputational and financial damage.
