And the cost of deception was high.
By George Harvey
Volkswagen (VW) stock lost a third of its value on Monday and Tuesday, September 21 and 22. The total value of all VW stock lost was well over $20 billion. Stockholders were hit hard.
The cause of the problem was deception. VW had cheated on emissions. The deception, however, was on a scale that is almost unimaginable. It was not a matter of fudging data on a form. Every VW diesel car built over a period of seven years had software built into it that would sense whether the car’s emissions were being tested and alter performance of the engine accordingly. And the alteration was not minor. The emissions of some of the cars were forty times the maximum allowed.
Faced with growing scandal that could include losing the right to import cars into the United States, VW finally admitted what it had done. It was then that the stock price fell precipitously.
The story of how this happened is worth telling. Two green activists, Peter Mock, in Germany, and John German, in the US, had set out to try to show that the VW diesel system actually was as clean as they claimed. They felt confident it was, because it passed US air pollution tests, and they wanted to prove other vehicle makers could similarly reduce pollution levels. They asked the University of West Virginia, which had some specialized testing equipment, for help. The equipment could measure the actual performance of the car on the road, instead of in a laboratory.
According to reports, a 1,300 hundred mile trip from San Diego to Seattle showed that the nitrogen oxide (NOx) emissions of a VW Jetta exceeded the maximum allowed by factors of fifteen to thirty-five times. NOx is an important atmospheric pollutant with potentially serious effects on health. Bypassing the emissions standards gives the cars more acceleration power and better mileage than they otherwise would have.
VW has had to recall nearly 500,000 cars sold in the US which have the cheating software. The total number of cars that were equipped with it worldwide is 11 million, according to a statement from VW.
VW has announced that it is putting aside $6.5 billion to pay fines resulting from its cheating. According to an article in the Los Angeles times, however, the EPA could fine VW as much as $18 billion, or $37,500 per car sold in the US. Furthermore, the fallout could be very broadly felt throughout the world. Australia, India, Italy, and South Korea are all starting investigations to see what cheating might have been done in their countries, according to news reports.
The damage to VW is not limited to fines. Diesels sold in the US that are being recalled have to pass standards. They will have to undergo alterations that will reduce performance, and this will doubtless displease more than a few customers. Additionally, however, VW members of management that who were involved with the deception could face very long prison terms. The CEO of VW has already resigned.
For those who might wonder whether VW could have been the only auto manufacturer that cheats on emissions, CleanTechnica put together a report. It says EPA inspectors consider searching for cheating devices and software as normal parts of their jobs, with Chrysler, Ford, and GM all having been caught trying to cheat. They did not do anything close to the damage VW did, however, and so they did not suffer the fines VW will undoubtedly have to pay.
Nor are automotive manufacturers the only culprits. For instance, industry insiders claim that Exxon has knowingly concealed information about climate change for decades. Cheating and fraud are pervasive problems, and companies that do them for short-term gain are putting the long-term survival of our society in question.