VW: What when wrong

In Corporate governance on 01/10/2015 at 2:05 pm

From NYT’s Dealbook

VOLKSWAGEN’S AMBITION-FUELED SCANDAL Four years ago, Martin Winterkorn announced Volkswagen’s intentions to triple sales in the United States in just a decade. Its plan to do that involved a bet on diesel-powered cars, promising high mileage and low emissions without sacrificing performance. That unbridled ambition has become central to what is becoming one of the great corporate scandals of the age, Danny Hakim, Aaron M. Kessler and Jack Ewing report in The New York Times.

The current crisis has its roots in decisions made almost a decade ago. In 2007, Volkswagen ditched the pollution-control technology developed by Mercedes-Benz and Bosch in favor of internal technology. At the time, Mr. Winterkorn’s determination to surpass Toyota put enormous strain on managers to deliver growth in America. The carmaker needed to build the larger cars favored by the American market, while complying with stricter standards on mileage.

Even as Volkswagen cheated behind the scenes, it publicly espoused its virtues. Advertisements focused on how entertaining, quiet, efficient and clean diesel cars were. It spent $77 billion this year promoting its diesel cars – almost 45 percent of its total for television ad spending, Jad Mouawad and Sydney Ember report in The New York Times.

When confronted with evidence that its system was not performing as promised, Volkswagen aggressively pushed back. It said regulators were not testing properly.

The same year Mr. Winterkorn announced the ambitious plans for the United States, officials from California’s environmental regulator heard about a problem from their European Union counterparts. They were finding discrepancies between the emissions of diesels in the lab and on the road, across the industry. In 2013, the International Council on Clean Transportation, a nonprofit group, proposed testing on-road diesel emissions from cars in the United States. Californian regulators teamed up with them.

The transportation council had not expected to catch anyone cheating. It had hoped to promote a success story for diesel, then put pressure on carmakers in Europe to improve their own emissions.

They tested two Volkswagens and a BMW, and the Volkswagens did not perform well. Yet when they were put on a “car treadmill,” they performed flawlessly.

The California regulators alerted the Environmental Protection Agency and opened an investigation. Volkswagen struck back aggressively, and they went back and forth for months. In April, Volkswagen offered to conduct a voluntary recall in certain models. That did not fix the problem so theregulators changed tack, examining the software, and discovering a parallel set of instructions for emissions controls.

Government officials increased pressure on the company, threatening to withhold approval for its 206 Volkswagen and Audi diesel models. This forced Volkswagen to admit it had installed software to cheat on emissions tests. The revelations were serious, but even some executives at Volkswagen Group of America were kept in the dark about the E.P.A. violation until just before it was announced.

  1. Say what you like about the US system, but so far it is the only country with the balls to spend resources to whack MNCs & big businesses, whether it be international banks, premier automakers, software giants, biomedical juggernauts,, etc. If under S’pore system, you need >10 people to die before they start investigations. SAF-style. Been there, done that.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.

%d bloggers like this: