A scandal in the motor industry
Volkswagen's falsification of pollution tests opens the door to a very different car industry
EMISSIONS of nitrogen oxides (NOx) and other nasties from cars' and lorries' exhausts cause large numbers of early deaths—perhaps 58,000 a year in America alone, one study suggests. So the scandal that has engulfed Volkswagen (VW) this week is no minor misdemeanour or victimless crime. The German carmaker has admitted that it installed software on 11m of its diesel cars worldwide, which allowed them to pass America's stringent NOx-emissions tests. But once the cars were out of the laboratory the software deactivated their emission controls, and they began to spew out fumes at up to 40 times the permitted level. The damage to VW itself is immense. But the events of this week will affect other carmakers, other countries and the future of diesel itself.
Winterkorn is going
VW first. Its chief executive, Martin Winterkorn, has resigned, and the company is setting aside €6.5 billion ($7.3 billion) to cover the coming financial hit. But investors fear worse: in the first four trading days since the scandal broke on September 18th, VW's shares fell by one-third, cutting its value by €26 billion. Once all the fines, compensation claims, lawsuits and recall costs have been added up, this debacle could be to the German carmaking giant what Deepwater Horizon was to BP. At least BP's oil-drilling disaster was an accident; this was deliberate. America's Department of Justice is quite right to open a criminal investigation into the company. Other countries should follow South Korea and probe what VW has been up to on their patch. Though few Chinese motorists buy diesel cars, the scandal may prompt its government to tackle the firm for overstating fuel-economy figures for petrol engines.
Whether or not Mr Winterkorn bore any personal responsibility for the scandal, it was appropriate that he should lose his job over it. He is an engineer who is famous for his attention to detail; if he didn't know about the deceptive software, he should have. Selling large numbers of “Clean Diesels” was central to VW's scheme for cracking the American market, a weak spot, which in turn was a vital part of the plan to overtake Toyota of Japan as the world's largest carmaker. The grand strategy that Mr Winterkorn had overseen now lies in ruins.
A change at the top, and a hefty fine, must not be the end of the matter. America's prosecutors ought to honour their promise to go after the individuals responsible for corporate crimes, instead of just punishing companies' shareholders by levying big fines. Most of the recent banking scandals have ended not in the courtroom, but in opaque settlements and large fines. Earlier this month the Department of Justice announced a $900m settlement with GM, America's largest carmaker, for failing to recall cars with an ignition-switch defect blamed for crashes which killed at least 124 people and injured 275. Prosecutors said (unnamed) managers at GM had knowingly ignored the potentially deadly effects of the fault, and put profit before safety. Yet they announced no charges.
That has to change—and the authorities know it. In a speech this month, America's deputy attorney-general, Sally Yates, said that from now on, fining businesses would take second place to pursuing criminal and civil charges against individuals. An accused firm will no longer get credit for co-operating with investigations (as VW says it will) unless it gives the feds the names of every manager or employee involved in wrongdoing, and seeks to gather and submit evidence of their personal responsibility. VW is a test of this new approach. But to avoid suspicions of being tougher on foreign firms—as were raised in the BP Deepwater case and in recent banking settlements—the American authorities should also prosecute culpable GM managers.
Yet the biggest effects of the scandal will be felt across the Atlantic. VW's skulduggery raises the question of whether other carmakers have been up to similar tricks, either to meet Europe's laxer standards on NOx emissions or its comparable ones on fuel economy—and hence on emissions of carbon dioxide. BMW and Mercedes, VW's two main German peers, rushed to insist that they had not. However, in Europe, emissions-testing is a farce. The carmakers commission their own tests, and regulators let them indulge in all sorts of shenanigans, such as removing wing mirrors during testing, and taping up the cracks around doors and windows, to reduce drag and thus make the cars burn less fuel. Regulators also tolerate software a bit like VW's, that spots when a car is being tested and switches the engine into “economy” mode. This is why the fuel efficiency European motorists achieve on the road is around 40% short of carmakers’ promises.
At least America's regulators, unlike Europe's, sometimes stage their own tests to verify the manufacturers’ findings. But it is time this whole system was swept away and replaced, everywhere, with fully independent testing of cars in realistic driving conditions. Now, with outrage at VW's behaviour at its height, is the moment to act. That would mean overcoming the objections of carmakers. But it also requires European regulators to change their attitudes to diesel, which accounts for half of cars sold on the continent. Diesel vehicles can be very economical on fuel (and thus emit relatively little carbon dioxide) but often at the cost of increased NOx emissions. That trade-off has been decided in diesel's favour by Europe's lousy testing regime and more lenient NOx-emissions standards.
See no diesel
Even if other makers of diesel vehicles have not resorted to the same level of deception as VW, the scandal could mean that these cars struggle to meet standards applied rigorously to both types of emission. Some fear that this may be the “death of diesel”. So be it. There is still scope to improve the venerable petrol engine; and to switch to cleaner cars that run on methane, hydrogen and electricity, or are hybrids. A multi-billion-dollar race is already under way between these various technologies, with makers often betting on several of them as the way to meet emissions targets. If VW's behaviour hastens diesel's death, it may lead at last, after so many false starts, to the beginning of the electric-car age.