Really, VW? What were you thinking. I still remember I cringed when the story broke last Friday. We all know the gory details of how VW executed this cunning plan. We know the big numbers – 482,000 cars in the US, 11 million worldwide affected. Possible $37,000 fine per car plus recalls plus class-action lawsuits.
So let’s get to the crux. What is VW guilty of? Plainly speaking, it had a ‘defeat logic’ software that loosened emission controls once the car sensed that it was not being tested.
So what’s the effect? Let’s do a little math. VW is charged by with exceeding EPA NOx limits by 15-35 times. Diesel cars confirming to US-EPA Tier2-Bin5 limits are not supposed to exceed 0.07g/mile at full useful life (120,000 miles). For purposes of simplicity, say each VW car exceeded NOx limits by 25 times and each vehicle is four years old on average and does 12,000 miles per year. So the extra NOx that has gone into the atmosphere is basically 482,000 cars * 4 years * 12,000 miles * 0.07g/mile * 25 X. That comes out to 4.0488 e+10 gms or 40,488 tonnes of NOx. This is over and above what they should have spewed out into the atmosphere.
Oh, and by the way, this calculation is for just the cars sold in the United States. There are 11 million cars worldwide with this defeat device in the car. Go figure.
So what is NOx guilty of? The EPA states that even short term exposure to NO2 with airway inflammation in healthy populations and increased respiratory distress in people with asthma. It can in the words of the EPA, “worsen respiratory disease, such as emphysema and bronchitis, and can aggravate existing heart disease, leading to increased hospital admissions and premature death.”.
Now that we have this out of the way, what other collateral damage has this caused?
- Damage to the brand’s reputation – This is a no-brainer. The damage to the brand is immense. Even more confounding is that VW did this even though it has experienced this firsthand before, with the unintended acceleration issue with Audis in the eighties.
- Customer loyalty – VW has a very loyal following. Particularly the people who buy VW diesels identify with the brand and are environmentally conscious as well as a little idiosyncratic. Don’t believe me? Look at the number of VW owners clubs as compared to Toyota or Hyundai.
- Fines, penalties, lawsuits – The word on the street is that the EPA will fine VW $37K per car plus recall costs. And this is just the US. What about Western Europe and Asia. A class action lawsuit has already been filed in Seattle, WA.
- Loss of credibility of diesel technology – After the diesel engine fiasco in GM in the eighties, diesel acquired a bad reputation in the US. Ironically, thanks to millions of greenbacks spent on clean diesel advertising, diesel had started to make a comeback – particularly with the German automakers. In addition to VW, Mercedes and BMW will also face blowback and suspicion regarding their diesels.
- Increased regulations – Until now, automakers were responsible for self-certifying their cars with the EPA testing about 15% of the cars themselves. There will be increased pressure on the EPA to test 100% of the cars themselves. Trouble? You asked for it.
- Everything is suspect – So if VW has cheated on diesel emissions, what is the deal with their gasoline engines. And if VW can do it, every other manufacturer is under suspicion too.
- Company’s market value – According to Bloomberg, VeeDub has lost more than a quarter of its market cap in a matter of days. I also see an investors’ lawsuit in my crystal ball.
Now this is what makes me really sad. Believe it or not, my first car was a 1999 VW Jetta and I absolutely loved the car and the brand. It hurts my head to see Volkswagen being brought to its knees over this scandal. There have been cases where companies have done the right thing by being genuinely remorseful and regaining the trust of the customer. Let’s see if Volkswagen gets this right.