Air Date: Week of May 26, 2017

Volkswagen’s supposedly “clean diesel” vehicles in 2013. (Photo: John Biehler, Flickr CC BY-NC-SA 2.0)

In the mid-2000s, Volkswagen unveiled fuel-efficient diesel cars in the US that promised a future of affordable eco-friendly vehicles designed by one of the world’s biggest automakers. But in 2014, investigators found that the company was intentionally fooling EPA emissions testing and its cars actually pumped dangerous nitrogen oxides into the air. New York Times economics and business reporter Jack Ewing dissects the scandal and the VW corporate culture in the new book, Faster Higher Farther: The Volkswagen Scandal. He joins Steve Curwood to discuss the deception and the company’s future.

Transcript

CURWOOD: It’s Living on Earth, I’m Steve Curwood. In 2016, Volkswagen became the world’s largest auto company, edging out Toyota, but VW’s outlook has been badly dinged by a scandal involving fraudulent testing of pollution levels from its popular diesel cars. VW became famous for the Beetle back in the 1960s and 70s, and built on that reputation for moderately priced and reliable cars, including the Golf, and Passat. In recent decades, the company introduced fuel-efficient, and supposedly environmentally-friendly diesel cars to the US market -- and won a substantial market share. But in 2014, investigators found that the low emissions ratings were based on fooling the testing sensors, while in reality the cars belched high levels of toxic nitrogen oxides. New York Times economics and business reporter Jack Ewing explores the scandal in his new book "Faster, Higher, Farther". Welcome to Living on Earth, Jack.

EWING: Thanks for having me, Steve.

CURWOOD: So, give us the background here. We know that VW has paid huge fines, I think, what, $20 billion for cheating on the pollution testing from diesel, but briefly what did they do?

EWING: Well, it started way back in 2007 and they wanted to start a new strategy in the US. They were trying to figure out a way to compete with the Toyota Prius, so they hit on the idea they would sell Americans on the idea of diesel engines in passenger cars.

CURWOOD: Right, because diesel is, what, 30 percent more efficient than gasoline typically, right?

EWING: Right, yeah, diesel is more fuel efficient but the big drawback is that it burns at a higher temperature, and therefore it produces a lot more nitrogen oxides which have a whole array of harmful effects. So, as the engineers are working on this motor, at a certain point they realize they could not meet these nitrogen oxide standards in the United States, which are stricter than those in Europe, so they decided to cheat. All engines these days are controlled by a computer under the hood, so there was software in this computer that could control the whole hundreds of thousands of engine functions, one of which is the way that the pollution control system worked, and getting all this to work together was really difficult. So, they realized they could make it work some of the time, but not all the time. They decided that some of the time would be when the emissions police, so to say, were looking, so the software could actually recognize the simulated driving cycle that the regulators used when they test a car for emissions. They put the car on rollers and they go at different speeds and this is publicly known and predictable, so it was possible to come up with software that could tell when the test was going on, and turn up the pollution controls so the car would pass, and then the rest of the time they didn't really need to worry about the pollution controls because they knew nobody was looking.

CURWOOD: So, why not have the pollution controls? What was the problem with having a clean tailpipe coming out of these cars?

EWING: There's all sorts of pollutants coming out of a diesel car, and it's very hard to get them all in control at the same time, so the technology that helped lower the nitrogen oxide emissions created more particles which are also bad -- they cause cancer, the fine particles that get deep in your lungs. So, when they ran this technology full blast, it caused the particle filter to fail too quickly, and the filters are expensive. They didn't want customers to be reporting after 30,000 miles or whatever that their particle filter was busted. And so they were faced with this trade off of the particle filter, the nitrogen oxides, and they decided to spare the particle filter, they would find a way to cheat on the nitrogen oxides.

CURWOOD: Explain to me what it is that BMW and Mercedes did to meet the diesel emission standards in the US -- their process, I guess Mercedes calls it Blutech -- and why didn't VW choose to go that way?

EWING: Well, there's basically two kinds of emissions technology, one is a sort of catalytic converter that traps the nitrogen oxides, and the other one is something that uses a tank with the urea chemical and it's sort of sprays it into the exhaust and that neutralizes the nitrogen oxide, and that second technology with the urea, it's more effective, and actually when Volkswagon was first going to launch diesel in the US, they thought about using that but they were worried it would be more expensive -- it also requires more of customer because you have to keep filling up the tank with this chemical solution in it, and in fact Volkswagon did later use that technology but they didn't make the tank big enough. I think they were worried that it would be an inconvenience for users if every 6,000 miles they had to fill the tank up, plus it would rob space from the trunk, and that was less of a problem for Mercedes and BMW because those tend to be bigger cars.

CURWOOD: So, they fooled emissions testers. How was this discovered? It's an interesting story you tell, I guess it involves some young folks from West Virginia, huh?

EWING: Yeah, it was a lot of happenstance, actually. You know, Volkswagen almost got away with it, but in 2013, they had a controversy in Europe about making nitrogen oxide standards stricter, and the carmakers over in Europe were saying, “No, that'll never work, we can’t do it, blah blah blah.” But at the same time, Volkswagen over in the United States was meeting the US standard supposedly. There's a nonprofit organization called International Council on Clean Transportation. This nonprofit organization said, “Well, how come they can do it over there and they're saying that they can't do it over here in Europe?” So, they hired West Virginia University which has an Auto Emissions Study program to test the cars on the road, and that's what was really novel about this is that they took them out on the street with this kind of Rube Goldberg type apparatus on the back that measured the emissions as it was coming out of the tailpipe, and they noticed that out on the road the Volkswagens polluted way more than they did in the lab -- 35, 40 times more. So, in 2014, they've published a study with their results but they still didn't realize exactly what found. They knew something was wrong but they figured it was a technical problem. Nobody really thought Volkswagen would be so brazen to cheat.

CURWOOD: And by the way Jack, at this point you write that the West Virginia group was also testing BMW diesels and they were coming up just fine.

EWING: Right they tested a BMW and basically the BMW equipment worked. BMWs are more expensive cars, they're bigger cars, there was more room for equipment and they had a type of technology which is better than what Volkswagen was using at that time. They published the study and the regulators in California, the California Air Resources Board happened to be at the conference where the study was presented, and say said, “Hmmmm, that doesn't sound good,” and then they started a much more detailed study, but it was another year and a half before in September 2015 when Volkswagen finally confessed.

CURWOOD: So, Jack, what does this say about the company and its ethics, and perhaps you could start by telling how VW was originally conceived by the Porsche family which founded this line of automakers.

EWING: Yeah, well it was actually the Nazis back in the 30s. They wanted to build what they call the people's car, a Volkswagen, that would make automotive transportation available to everybody. It is really a propaganda project because they never actually built that many. But Ferdinand Porshe designed what later became known as the Beetle, and then after the war it actually a British officer who got the factory going again producing the Beetles initially as a form of transportation for the British occupying army, and eventually that became the basis for Volkswagen as a car company.

CURWOOD: Ferdinand Piëch, the grandson of Ferdinand Porsche, worked his way up through the ranks of the VW organization, ultimately to take control as CEO in 1993. How was he was able to do that? How did he rise up the ranks and in what ways did he reshape how the company operated?

EWING: He really rose on his own merits. I suppose it didn't hurt being the grandson of Ferdinand Porsche, but he started at Audi as a junior executive and eventually rose to become the chief executive. At that time, it wasn't a luxury car maker, it wasn't known as one, and he was able to, with a number of interesting innovations and patients like four-wheel drive in passenger cars and diesel, for that matter, he made Audi into a premium luxury car maker to compete with BMW and Mercedes, and on the strength of that then he became chief executive of Volkswagen in 1993, but he also created, he is often blamed for creating a company culture that allowed the emission scandal to take place.

CURWOOD: What else might Ferdinand Piëch be accused or suspected of in terms of the less than stellar corporate culture of VW?

EWING: Well, he was known for being very dictatorial, very quick to fire people who didn't meet his expectations, setting very ambitious goals for people, goals that sometimes were regarded as next to impossible. And so, it was a culture where it was very difficult to say no to top management -- that was career death at Volkswagen. And so, a lot of people believe that that allowed the scandal to become what it was.

CURWOOD: Diesel fuel passenger cars really began with VW, I guess when Ferdinand Piëch lead this team successfully adapt the fuel from trucks. But how did diesel become such an interval part of the VW branding and how did that branding change depending on the market that VW diesel cars were being sold?

EWING: The biggest disadvantage of was, it's noisy and smelly, and with the combination of pollution control equipment and engine computers and fuel injection, they were able to civilize it, and the other very important thing was that they sold European politicians on the idea that this was good for the environment, so that most countries in Europe including Germany, diesel fuel has lower taxes so it's always about 10 cents cheaper at the pump than gasoline. That's different than United States where diesel is usually more expensive. So that is really the technology that helped Volkswagen to become the biggest carmaker in Europe by far with about a quarter of the market, which is double what anybody else has.

CURWOOD: Now, what drove VW to embrace this image of environmentally friendly fuel-efficient vehicles in the US?

EWING: Well, they were desperately trying to get market share in the US. They were very strong in Europe. They were pretty strong in South America and China, but the US had really been a big problem for Volkswagen ever since the heyday of the Beetle. Even to this day, Volkswagen has never sold as many cars in the United States as they did in the late 1960s. So, they were trying get back that market share that they use to have. And so, they hit on the idea, “Well what's our unique selling point -- diesel -- and they thought they could position against the Toyota Prius and sell it to environmentally-conscious buyers because it has fuel economy, not quite as good as the Prius, but pretty close, and they were able to convince people that it was just as clean, and there was a lot of advertising behind this pitch, a lot of people who bought Volkswagens were people who were very environmentally conscious, and that's one of the things that's creating such problems for Volkswagen now, because their customer base was really quite angry when they found out they had been misled.

CURWOOD: So, at the end of the day what does the Volkswagen scandal around diesel mean for the future of diesel going forward here in the US, do you think?

EWING: I think diesel in the US … it's hard to see that it has much of a future. In Europe, you see already that the market share of diesel is going down because the carmakers realize they can't fudge things any more. They're going to have to improve the equipment. That's going to add to the cost and make it less attractive compared to gasoline, and I think the carmakers have also realized that long-term, they have to start making a shift to electric and that's the only way that they're going to meet the stricter emission rules.

CURWOOD: What are the odds of VW reinventing itself and rescuing its reputation?

EWING: Well, they’re trying. They said they're shifting their strategy to focus on electric cars they're investing in as part of the settlement in the United States they’re building a charging grid, but it's going to be tough because there's a lot of new competitors in the market. Tesla, we don't know exactly what Google and Apple are going to do, but they are obviously interested in the car industry and they have actually much more financial resources than the car companies, and Volkswagen is handicapped because of all the money they've had to pay in fines and legal settlements as part of the emissions scandal. So it's going to be a tough transition. They're not as efficient as Toyota, and it's expensive to manufacture in Germany. They have a lot of issues that existed before and this is one other big thing on top of that and the scandal is not over, there are still developments, it's still a distraction for management. So, it's very tough situation for Volkswagen.

CURWOOD: Jack Ewing is a reporter for the New York Times covering business and economics from Germany. His new book is called, “Faster, Higher, Farther: The Volkswagen Scandal.” Thank you so much, Jack.

EWING: Steve, thanks a lot for having me. I really appreciate it.

 

Links

Faster, Higher, Farther: The Volkswagen Scandal is published by W.W. Norton & Company, Inc.

Reuters: “VW resumes U.S. diesel sales after emissions scandal”

EPA: Volkswagen Light Duty Diesel Vehicle Violations for Model Years 2009-2016

Jack Ewing writes for the NYTimes