Volkswagen and "Dieselgate"

Updated on June 6, 2018

Volkswagen is Germany’s biggest private employer. They employ approximately 300,000 people across Germany, 60,000 of which are at the main manufacturing plant. Another 600,000 or more are employed worldwide. These jobs along with the company as a whole were in jeopardy when Volkswagen was found to have installed software onto their vehicles that cheated emissions testing on their diesel cars. Volkswagen spent years promoting their “Clean Diesel” cars as an alternative to electric and hybrid cars, which included the models of Passat, Golf, Beetle, and Jetta. They campaigned heavily to boast about how “green” and fuel efficient their cars were, and Volkswagen customers were impressed with the ads and claimed they felt enticed into buying diesel cars because of the environmental benefits and new diesel technology. But in September of 2015, the Environmental Protection Agency discovered these claims were not true. The EPA found the company had installed computer software onto the diesel cars which cheated the emissions testing of the cars.

This computer software, nicknamed “defeat devices”, allowed the cars to sense when it was in a test mode and when it was under regular driving conditions. The emissions software devices were installed on more than a half million cars in the United States, and approximately 11 million cars worldwide. The EPA sets particular parameters for emissions testing, and the software could recognize the conditions under which testing took place and would “activate” to control the emissions. When under normal driving conditions, the software would switch off, allowing more pollutants to pass through the exhaust system which improved the fuel consumption and power of the car. But the emissions output of nitrogen oxide was approximately 40 times above the limit set by the EPA. The software also changed the fuel pressure, injection timing, and exhaust-gas recirculation.

When nitrogen oxide is released into the air it quickly converts to nitrogen dioxide. It is the most harmful form of nitrogen oxide. It is linked to many respiratory problems such as asthma, bronchitis and emphysema. This smog can also end up being washed into the ground in the form of acid rain that can harm wildlife and plants. A study released in October 2015 by public health researchers from Harvard and MIT found that 59 Americans will die prematurely from the excess pollution.

The EPA and the United States Department of Justice announced in September 2015 that they filed a civil suit against Volkswagen for the software that caused exaggerated test result readings. The ramifications of this lawsuit are globally substantial, resulting in billions of dollars in fines, litigations and sanctions. The cost of recalling the vehicles is also enormous. Volkswagen has to also contend with over 500 class action suits from consumers, used car dealers, and dealers of competing models who claim unfair competition, and shareholder suits.

Volkswagen is expected to pay nearly $19 billion in fines, and $10 billion of that will be to buy back or fix the affected vehicles. The buyback, which Volkswagen must pay the pre-scandal value for the cars, must take place by the end of 2018. Owners of these vehicles have the option to sell their cars back, or they can have them fixed but will take longer to remedy the situation. The company also must pay the EPA a fine of almost $3 billion to compensate for the negative impact the cars had on the environment. And if that isn’t enough, Volkswagen will have to pay $500 million in fines for defrauding customers, and the company faces a criminal inquiry with the Department of Justice.

Diesel cars represented about 20% of Volkswagen’s U.S. sales before the scandal came to light, and Volkswagen owned about 70% of the whole diesel passenger car market. The company is no longer allowed to sell diesel cars for the time being, and all preowned diesel cars also must not be sold.

References

Tabuchi, Hiroko and Jack Ewing. New York Times, 27 June 2016, “Volkswagen to Pay $14.7 Billion to Settle Diesel Claims in U.S.” http://www.nytimes.com/2016/06/28/business/volkswagen-settlement-diesel-scandal.html. Accessed 4 Nov 2016.

Hall, Shannon. Scientific American, 29 Sept 2015, “VW Scandal Causes Small but Irreversible Environmental Damage.”

https://www.scientificamerican.com/article/vw-scandal-causes-small-but-irreversible-environmental-damage.html. Accessed 4 Nov 2016.

Hotten, Russell. BBC News, 10 Dec 2015, “Volkswagen: The Scandal Explained.” http://www.bbc.com/news/business-34324772.html. Accessed 4 Nov 2016.

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