TARNISHED REPUTATION:
Volkswagen is one of the largest and most trusted automotive brands in the entire world. Not only
do they own the brand Volkswagen, but they’ve also owned Audi, Porsche, Lamborghini, Bentley,
and even Bugatti at on point. But, despite their size, Volkswagen doesn’t exactly have the best of
reputations especially in recent years. It seems that their evergrowing size has simply allowed
for bureaucracy and politics to seep in, and when these attributes are present, it’s usually just a
matter of time until the company starts putting money over morals and ethics. This is exactly
what happened in the mid 2010s when regulators discovered that Volkswagen was cheating emissions
tests. And this wasn’t some sort of isolated incidence either. Volkswagen had been cheating
on emissions tests for 6 years between 2009 and 2015, and their antics had affected half a
million cars in the US and another 10.5 million cars outside the US. After this came to light,
Volkswagen was immediately fined $14.7 billion and this was just the first of several settlements,
lawsuits, and criminal investigations. By the end of the saga, the emissions scandal cost Volkswagen
a total of 31.3 billion euros or a little under $35 billion. Usually, companies have a history
of getting away with relatively cheap fines, but this was clearly not one of those scenarios. Not
to mention, the financial loss wasn’t even their biggest concern. Nowadays people are acutely aware
of the importance of clean energy, minimizing pollution, and protecting the earth. In fact,
millions of people around the world think that it’s so important that they’re willing to shell
out substantially more money to buy an EV over an gasoline vehicle. So, with this type of history,
there’s no question that Volkswagen alienated a significant portion of the market. With these
types of consequences, you would think that companies would think twice before
engaging in such activities. But, given the consistency of scandals amongst corporate giants,
this is clearly not to case. So, here’s how Volkswagen got caught up in arguably
the largest automotive scandal ever and stained their reputation permanently.
A HISTORY OF SCANDALS:
While Volkswagen didn’t make international headlines until the emissions scandal, the
company has very much had a history of scandals, but they weren’t always the culprit. In fact,
at one point in time, Volkswagen was actually on the other side of the fraud as a victim.
Back in March of 1987, Volkswagen would announce that they had lost as much as $258 million due
to fraudulent foreign exchange deals. As an international conglomerate, Volkswagen often
deals with dozens of currencies, and it’s their responsibility to proactively convert between
these currencies and hedge their reserves to ensure that they don’t lose money due to
fluctuations in currency value. In 1985, they had made one such routine hedge against the US dollar,
but it turns out that the person selling them the hedge had forged the documents. Fortunately
for Volkswagen, the FBI would eventually arrest the suspect several months later. But,
unfortuantley for everyone else, this was the last time that Volkswagen was on the victim side of a
scandal. Volkswagen didn’t just instantly jump to international schemes though. As with most things,
Volkswagen’s descent into the darkness was much more gradual and almost indiscernible. It started
off with some misbehaving executives who were more interested in personal gain. Take Klaus
Volkert for example. Klaus was the representative of Volkswagen’s 300,000 workers since the early
1990s. From the very beginning, workers weren’t exactly a fan of Klaus. They felt that Klaus was
very much on the side of the leadership than the side of the laborers. But, in reality,
it turns out that the only team Klaus was really on was his own. During his time at the top,
Klaus would abuse his power to pay out $3 million worth of illegal bonuses which included
$590,000 to a Brazilian lover. This earned Klaus convictions on 48 counts of inciting
fraud along with 2 years and 9 months in jail. But, Klaus was just one of many corrupt leaders
at Volkswagen. Another corrupt leader was Peter Hartz. Unlike Klaus though, Peter actually had
ambitions beyond just helping himself. He of course did plenty of that too though. He was
notorious for using company funds to pay for escorts and certain types of parties. But,
more than that, Peter had a history of trying to bribe people. He bribed Volkswagen suppliers to
make it seem like he had won Volkwagen insanely lucrative deals. He also bribed the Union to make
it seem like he had more worker support than he really did. The only place all this led him though
was facing 44 counts of breach of trust along with a 2 year prison sentence. And these were
just the most notable cases. Some other Volkswagen representatives would trick an Indian state into
paying them a bunch of money for a factory that was never built. As you can see, Volkswagen was
filled with these crony leaders by the late 2000s, but none of these guys were truly the dangerous
ones. The truly dangerous ones don’t care about winning money, they care about winning reputation.
EMISSIONS SCANDAL:
Regulators were by no means looking for an emissions scandal when they started
testing Volkswagen cars. They were actually just conducting a boring old study that was
trying to identify the emissions differences between European cars and American cars. And
to accomplish this, they hired five scientists from West Virginia university. As scientists,
these five set out to eliminate as many variables as possible except for the ones that were being
studied. One of the variables that they eliminated was the emissions testing system. Instead of using
systems provided by the manufactuer, they used a Japanese emission testing system for all the
vehicles and this is when they noticed something alarming. Volkswagen cars weren’t just emitting
more pollutants than they claimed, but they were emitting so much that they were breaking laws.
Take the Volkswagen Jetta for example. According to previous tests, the Jetta was only outputting
0.022 g of nitrogen oxides for every kilometer of driving. This was well below the EPA limit of
0.043 g/km. It was basically half the limit. But, West Virginia found that the Jetta was
actually emitting anywhere between 0.61 to 1.5 g of nitrogen oxides for evey kilometer of driving.
Even their lowest reading was 14 times the allowable limit while the highest reading was 34
time the allowable limit, and a very similar story could be seen with a bunch of other Volkswagen
cars as well. When the researchers published their findings, the entire world was shocked, but they
were also puzzled. How was Volkswagen able to pass millions emissions tests for years if they had
disgustingly high emissions? They couldn’t just pay off a couple of testers or give them special
vehicles because they’re not the only ones who are conducting exams. A substantial number states in
the US requires that car owners get their vehicle emissions certified on a regular basis. So, this
wasn’t just a matter of faking tests a handful of times. This was a matter of consistently faking
hundreds of thousands if not millions of exams. So, how did Volkswagen manage to pull this off for
years? Well, it turns out that clever engineering can easily bypass exams conducted by poorly funded
regulatory bodies. What Volkswagen had done was install special emissions software onto
11 million cars around the world. This software was capable of detecting when routine emissions
exams were being conducted and it would change a whole bunch of variables to reduce
emissions. It changed things like fuel pressure, injection timing, exhaust gas recirculation,
and the amount of urea sprayed into the exhaust. While this was extremely clever, all you really
had to do to find the real emissions was use an external testing device that wouldn’t set off
Volkswagen’s systems. But somehow, regulatory bodies had failed to do this for 6 years.
THE FALLOUT:
One of the biggest questions that you might have is why didn’t Volkswagen just set their cars to
always be in this mode. They were clearly able to pass emissions exams with flying colors using
this software, so why not use it all the time? Well, the problem was that this would severely
limit the power and speed of their vehicles. Their cars wouldn’t be able to hit the promised
0 to 60 numbers or horsepower and torque numbers. If you’re not into cars, this probably seems like
a non issue, but Volkswagen felt that reducing these numbers would go against their brand image
and appeal. Here’s the thing, the people who are buying German cars aren’t looking for something
economical or environmental. If they were, they would just buy a Japanese car. Rather, people
buying German cars buy them for three reasons: luxury, social status, and power. This is why Audi
owners are willing to deal with the more expensive maintenance bills and lower reliability. If you
substantially reduce the power of these vehicles, however, much fewer people would be willing to
deal with the associated headaches, and many of them would likely buy a Mercedes or BMW instead.
With that being said though, it probably would’ve been a better idea for Volkswagen to just spend
more time figuring out how to minimize emissions while maximizing power instead of faking exams,
but that woud be too logical. Anyway, Volkswagen would eventually admit to installing this secret
software and they would agree to buyback cars from owners at a pretty generous price. Owners not only
received the pre scandal trade in value of their cars, but they also received $5 to $10,000 in
additional compensation. Volkwagen also agreed to spend $4.7 billion on programs looking to offset
emissions and boost clean vehicle projects. So, financially speaking, the public actually came
out pretty well, but the same cannot be said about pollution and health concerns. Volkswagen
literally had over 10 million cars on the road for years emitting up to 40 times the legal amount.
And these limits aren’t in place just for fun. Extremely intelligent scientists have determined
that vehicles emitting more than a certain amount are more of a detriment to society than a benefit.
And we’re not just talking about climate change or melting polar caps, we’re talking about lung
cancer and lots of it. In the European Union for example, 20% of urban populations are subject
to hazardous nitrogen dioxide concentrations. And 40% of all nitrogen oxide emissions in London come
from diesel road traffic. Every year, 3000 people die due to air pollution in London alone. So, who
knows how many people Volkswagen’s high emissions truly affected and potentially even killed.
A NEW LEAF:
The worst part about all of this is that Volkswagen wasn’t the only one that was guilty
of faking exams. After the news broke about Volkswagen, regulators started looking into
all cars more closely, and they quickly realized that a lot of cars had much better readings in
exams than on the road. On the brightside, this has prompted regulators to tighten their testing
procedures, but the real solution is of course EVs. And it looks like Volkswagen is working very
hard to redeem themselves and earn back public trust. While Volkswagen had some doubts about
pivoting to EVs in the early days, more recently, they’ve basically completely committed to the
switch. More than half of all of Volkswagen’s budget over the next 5 years is going towards
EVs which works out to $100 billion. They’re pouring insane amounts into battery research,
building new factories, and most importantly scaling up production. They’re hoping that by
2026, a quarter of all the vehicles they sell will be electric. And given that Volkswagen regularly
sells 10 million cars per year, that works out to well above 2 million EVs. At this rate,
some experts say that Volkswagen may even overtake Tesla in terms of EV deliveries, but we’ll just
have to wait and see. Do you think Volkswagen can redeem themselves by pushing forward the
EV revolution? Comment that down below. Also, drop a like if you’re glad more companies are
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