A Little Smog

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I will admit that, when I read a few days ago that suddenly Volkswagen had admitted to rigging the engines of 11 million diesel cars to pass emissions tests, I gaped.

I gaped for many reasons, frankly. For starters, the environmental crusader in me felt cheated by a brand that I had always thought of as a bastion of honesty and integrity. Also, the environmentalist in me knew how many diesel cars are running around in Europe, where they are very popular because their fuel is cheaper and the engines more fuel-efficient. About half the car engines over here are diesel.

I tried doing a mental “guesstimate” of how many of those cars could be VW. Then I just got angry.

The problem in question

The reality is that, even if you are not big on the environment, when you think of the business cheat that Volkswagen has committed, you should be angry. Because it’s another example of large corporations getting away with almost anything (they got caught by what can only be described as sheer dumb luck) to make more money.

As a social media user, I have to say I am very surprised at the lack of impact that this news has had on most social media. You’d think that this kind of thing would matter more to people. But the banker in me ponders the long-term implications of everything to come for the Volkswagen Group.

The EU versus American Stance on Corporate Crime

This case may just be the one to break the bank on many aspects, both European and American. After the BP oil spill and the banking crisis scandals, the United States Department of Justice is a bit sick and tired of spending time and resources to simply fine large corporations that have broken laws, clearly and knowingly, and just because the current rule is that if they “cooperate” they will only be fined.

Not long ago the DoJ settled a $900 million fine with GM because of their deliberate failure to recall cars that had an ignition problem that led to the death of over 100 people and the injuries of hundreds more. And yet nobody has been made criminally responsible for that inside GM because they cooperated with investigators. Many inside the department, and the vast majority of people polled, believe that it’s time to start making the individuals behind these crimes responsible for them personally, and the companies that profit from their wrongdoings should either cooperate fully in giving up the names of these people and evidence to prove their wrongdoings, or face much harsher penalties.

Europe: better, but not much

There are many ugly accusations flying in Germany right now, chief one among them comes from the Green Party, who say that the German government knew about the cheat. This, of course, is being denied, and an open investigation by the Ministry of Justice has started into the wrongdoings of Volkswagen. As of a couple of days ago the German government is also investigating personally the possible criminally punishable behavior of Martin Winterkorn the (ex) CEO of Volkswagen. If he was aware and authorize d the cheat, he –and any others- will go to prison for it.

For years now environmentalists in Europe have been complaining about the lax and often ridiculous practices of EU governments when it comes to testing car emissions, where some governments allow the car makers, even, to design their own emissions tests. There’s no consistency, and that may be partly to blame for how Volkswagen got away with this for so many years.

The ripple effect, again

News travel fast, and bad news travel like wildfire. Volkswagen has seen a drop of 20% in its value since this scandal broke out. The CEO has, of course, been fired, though with a €28 million pension. I wish that could be taken away, frankly.

Smog over Los Angeles

For starters, this is the largest car maker in the world, and these engines may be running worldwide. Several countries have opened investigations into the use of rigged cars sold in their countries (I have noticed countries that have other car manufacturing companies have a greater propensity towards investigating Volkswagen now, while others are debating). Car makers are clamoring against Volkswagen, especially because two years ago Volkswagen was accusing them of unfair competitive business practices. Yikes.

The whole line of Volkswagen cars is now compromised, though thus far only actual Volkswagen and Audi models have been pulled off production for having the rigged engine and software systems.

It will take years to get through the lawsuits that Volkswagen is facing in the United States alone, and while the American ones may be the greatest fines that the company faces, they are still going to have to answer in many other nations.

What it comes down to is that many, many heads are going to roll, and that may include those of some politicians. But even worse is the reputation damage.

A reputation of decades, out the window

In this global economy reputation is a fragile thing. This is clearly a huge smudge on the German industry’s previously unpolluted image of honest craftsmanship, because Volkswagen was its poster child. The German minister of industry this week expressed his consternation to what Volkswagen’s misdeed will represent for German industry in general. I believe that it’s going to take a long time to remove the nicks of the Made in Germany seal after this is all done.

The splatter

For starters, it will not surprise many when the European Union launches (soon, I expect) an investigation into the emissions testing programs of all its nations and set standard of testing to be applied community-wide. Because of this scandal, their reputation is also compromised and many governments are going to find that they were looking the other way.

But also, the diesel industry itself is about to come under fire. Many of you may not know this, but the reason diesel engines are so popular in Europe (where there are a lot of Volkswagens and Audis, let me tell you) is that they emit very little carbon dioxide, and that one is the worst of greenhouse effect gases. Instead, diesel engines emit a variety of nitrogen oxides, not so bad for the global climate but very, very bad locally. Nitrogen oxides, known as NOXs are the main creators of city smog, localized pollution, plant pollution and breathing illnesses. When you find out that the largest car maker has been pumping between 23 and 40 times the legal amounts of these into the air… people will be angry.

But it isn’t a bad thing. We have known for a long time that honesty succumbs to money often, but we also know that smog is disgusting and deadly. So, maybe it’s a good time to re-examine our commitments to other clean engines, dump diesel engines from personal use vehicles once and for all, and invest in hybrid and electric R&D a whole lot more.

Change is coming. One would hope.