It is true what they say: it takes a lifetime to build your reputation, but only seconds to destroy it. While it is not uncommon for large automakers to recall a few thousands units, it is a whole other thing when it is half a million, with a chance to reach millions. Volkswagen is now facing maybe one of its worst PR crises in history, all because of a piece of software. What is worst is that this recall is not due to a malfunction in the vehicle, rather than an intended bypass on environmental regulations. However, to fully understand the gravity of this issue, we must analyze it from its very roots.
One of the main goals of the German OEM was to conquer the US market, but there were certain obstacles that had blocked its complete success. The brand still had difficulties to compete with large names including Ford and Toyota, added to a fierce and diverse market that offered a large portfolio of clean solutions for urban transportation. The debate between electricity and fossil fuels has divided the automotive industry in the last few years, and while some companies have moved on to hybrid or full-electric technologies, others have chosen to stick with gasoline and diesel. Volkswagen was one of the players that had a large bet on diesel, hoping it could become its greatest strength in the US. According to Bloomberg Business, the company spent US$1 billion on its plant in Chattanooga to build diesel engines, Tennessee, with plans to increase its investment in North America in US$7 billion by 2018. Furthermore, since the US is one of the strictest markets in terms of emissions standards, this offered a perfect opportunity for Volkswagen to show its capabilities to every potential customer.
The problem started a year ago, when European regulators began to wonder how to adopt more stringent emissions standards for diesel, turning their attention to the US. The International Council on Clean Transportation (ICCT) was appointed to run tests on American vehicles and compare their results with European cars, in order to find the reason why these were not delivering the same results. The Council subcontracted this activity to the University of West Virginia and its Center for Alternative Fuels, Engines, and Emissions (CAFEE), and they were the ones that discovered the fraud committed by the OEM. While tests were still being conducted in the California Air Resources Board lab, CAFEE installed mobile monitoring equipment in the vehicles and took them for a ride from San Diego to Seattle, revealing the car’s real emissions. The team found out that in real conditions, the vehicles were producing ten to 40 times the NOx emissions’ standard. CAFEE and the ICCT reported the results to the US Environment Protection Agency (EPA), opening an investigation into Volkswagen. That is when the company supposedly identified the reason for these discrepancies, causing a recall of 482,000 cars in the US. However, after the application of the software patch that should have corrected the vehicles’ performance, the California agency determined that NOx emissions still violated US standards. When regulators started to consider whether or not to certify Volkswagen’s 2016 cars for sale, the OEM finally admitted it had installed a defeat device in its vehicles to detect when they were undergoing an inspection.
Volkswagen’s current investigation covers five models including the Jetta, Golf, Beetle, Passat, and the Audi A3 over a seven year timeframe. Sadly, when this situation started in 2009, Volkswagen won the Green Car of the Year award for the Jetta 2.0 and later for the Audi A3 in 2010, which further detriments the company’s image. Moreover, EPA could fine the company for up to US$37,500 for every vehicle affected by the software, and considering the more than 480,000 vehicles sold in the US, this could add up to almost US$18 billion.
Volkswagen’s CEO Martin Winterkorn issued a public apology for breaking the US consumers’ trust, stating that he would do whatever it takes to reverse the damaged caused by the company. Nevertheless, this was not nearly enough to counter the public image of the OEM, which lost 52 share points between October 17 and October 22, and is now at 118.45 points. Furthermore, the scandal has led regulators to believe that other markets in Europe and China could also be affected by Volkswagen’s mistake, which only makes things worse considering the fact that 11 million vehicles worldwide have the same type of defeat system. At the moment, sales of the 2015 version of these models have been halted while the whole matter is sorted out. As part of the strategy to clean its name, Volkswagen hired Kirkland & Ellis to defend its case in the US. This was the same firm that worked with BP during the Deepwater Horizon oil disaster. Kirkland & Ellis will also contribute with the OEM’s case in Britain and France, since both countries have required the same inquiry as the US. The situation has also complicated further as the German government admitted it new about defeat devices used to cheat in emissions tests, raising the question of whether it was involved in the problem in the first place.
Rumors of Winterkorn leaving Volkswagen appeared as soon as the scandal began, especially since the situation exploded right before his contract renewal for 2018. However, by October 22, Der Tagesspiegel published that Winterkorn would be replaced by Matthias Müller, CEO of Porsche, and the replacement was made official on the 25th. While this might help build some confidence within the public, the company is still receiving a lot of heat and it is hard to say when the situation will be controlled. Sustainability and environmental protection have always been part of Volkswagen’s presentation card, so it certainly will be difficult to regain the clients’ trust.
The data for this article was obtained from IEEE Spectrum, The Guardian, and Bloomberg Business.