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Diesel Dupe
The Volkswagen Scandal Deepens

Just when you thought it couldn’t get any worse, that the cheating couldn’t get any more brazen or pervasive, well…it does. Last Friday, the EPA accused Volkswagen of using specially designed software to fool emissions tests in nearly 500,000 “clean diesel” vehicles. Today, the company admitted that the software used to dupe regulators may be present in as many as 11 million vehicles. The WSJ reports:

The company [said] that internal investigations have found the engine-management software is also installed in other diesel-powered vehicles in the Volkswagen group but may not have any effect. Volkswagen also owns Porsche, Audi, and Skoda, among other brands.

In other words, an already unprecedented disaster for the German car manufacturer just got a lot bigger. It’s not surprising, then, to see the company’s share prices down more than 20 percent today, after plunging 19 percent yesterday. And the fallout doesn’t stop there. As the NYT reports, the EPA had been pressuring VW for nearly a year to explain the differences between its diesel vehicles’ emissions during testing and their emissions on the road:

Volkswagen executives told environmental regulators for more than a year that discrepancies between pollution tests on its diesel cars and the starkly higher levels out on the road were a technical error, not a deliberate attempt to deceive Washington officials. […]

VW made the admission only when the Environmental Protection Agencytook the extraordinary action of threatening to withhold approval for the company’s 2016 Volkswagen and Audi diesel models, according to letters sent to company officials by the E.P.A. and California regulators.

This issue affects more than American consumers, too. One out of every seven Germans is employed in the auto industry, and Volkswagen is the biggest carmaker of them all. German chancellor Angela Merkel asked for “full transparency” and clarification on the issue, and a hope that “all the facts will be put on the table quickly.” But while we wait for all of those facts—which, given the way things are going, seem to point towards this issue growing larger, not smaller—Europeans are asking for a review of their own industry. From the WSJ again:

The state of Lower Saxony, a major Volkswagen shareholder with 20% of the car maker’s voting stock, said Tuesday that the emissions allegations raised doubts about tailpipe data published by all car makers.

The French government also called for a broader probe, suggesting a European-wide examination of the auto industry. “We need to do it at the European level,” French Finance Minister Michel Sapin said.

It’s still early days yet for this scandal. Stay tuned for more.

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  • Andrew Allison

    While the cheating is inexcusable, the key phrase here is: “. . . but may not have any effect.” US emission standards are almost three times higher than in Europe, where most diesel vehicles are sold, but the testing standards in Europe are more rigorous than in the US. It may very well turn out that only the almost 500,000 vehicles are actually taking advantage of the by-pass.

    • f1b0nacc1

      ONLY 500,000?

      • Andrew Allison

        Yes. Given the hysterical 11 million being bandied about by the media (even, disappointingly, our favorite blog) only is exactly the right word.

  • Boritz

    Another star vehicle for Michael Fassbender when they make the movie.

  • stan

    Those VW execs are in big trouble. Unlike the VA workers who killed tens of thousands or the EPA officials who disregarded warnings before polluting the river in Colorado. I guess the difference is that we expect corporate executives to be a lot more responsible and accountable than government officials.

    • CapitalHawk

      Well, luckily for the VW execs they have probably made millions more than those government officials. So, they will likely find a way to get by.

      • stan

        lifetime employment and gold-plated retirement to kill people. hmmmm.

        Very, very few execs make millions. Only an ignorant fool would think that all do.

        • CapitalHawk

          Unlike you, I am very familiar with how much executives make and how much government employees are paid and what their retirement benefits are like. Over the course of 30-40 years working, corporate executives DO make millions more than government employees. Virtually no federal government employee makes more than $200,000 per year. The few that do make barely more than $200,000 and are very senior level executives. If they were in comparable positions in corporate america they would be making at least double (probably much more than double). Do that for a few years and you start getting to a difference of a million in just a few years. Do that for 10 years and it is multiple millions. And if you think that federal government employees get gold plated retirement, you are living in the past.

          • circleglider

            Not again…

            The standard methodology used by economists to compare federal and private salaries is regression analysis that controls for worker characteristics. Using the same technique, we estimate that the federal wage premium between 2006 and 2010 was about 14 percent, a number in line with the past literature. The wage premium is confirmed by studies of workers who get larger raises when switching from private to federal employment compared to workers who switch jobs within the private sector. The government’s job-based comparison, which suggests federal workers are significantly underpaid, fails to account for the different skills of federal and private sector employees who hold similar jobs. It is rejected by most labor economists.Federal workers receive around 63 percent higher total benefits per dollar of salaries than workers in private establishments of 100 or more employees. Benefits play a significantly larger role for federal workers than for private sector employees. Adjusting pension compensation to account for the higher implicit rates of return paid by defined benefit pensions increases the role of benefits for both federal and state and local government employees, where defined benefit plans remain the predominant providers of retirement income.There is a federal salary premium of 14 percent and a benefits premium of 63 percent, which together produce a wage and benefit premium of 37 percent. Adding a job security premium of 17 percent of compensation generates an overall federal compensation premium of approximately 61 percent.

          • CapitalHawk

            That sounds lovely. Too bad it doesn’t address our discussion at all. We were talking about senior executives and their rate of pay and benefits in the federal government and in private companies. The study you are citing covers all federal government employees (which included the military – who probably do get a premium over private companies, it’s called hazard pay). I agree that a secretary or janitor will make a better living as a federal government employee as opposed to at a private company. But that’s not what we were talking about. Nice try.

          • circleglider

            Very, very few [private sector] execs make millions.

            No, it wasn’t what “we” were talking about.Of course the CEO of VW (or Ford) makes many times more than the Secretary of Transportation. That’s why it’s called public service. But examine any regulatory filing with the SEC: the number of individuals at any company consistently making more than $1 million per year is always in the single digits.

  • Fat_Man

    I doubt that VW did anything illegal. Most of the pollution laws require the automobile to produce certain emissions when it is tested, not at all times during its useful life. I think VW literally complied with requirements. The problem is in the EPAs assumption that the testing environment is a meaningful analog to the real world. They are the ones who should be embarrassed, not VW.

    • f1b0nacc1

      I suspect that VW will be ‘made an example of’, for two reasons:
      1) They are not UAW affiliated
      2) If they get away with this (and that means no whacking huge fine, etc.) the EPA will be forced into an unending arms race with the auto manufacturers, as they are forced to find and outlaw each new trick designed to outwit their testing. This is not a winning fight for the EPA, and will undercut their real business, which is peddling influence to approved corporations
      All of this notwithstanding, the real menace to VW will be the class-action lawsuits that are certainly coming from hordes of buyers who just saw their resale value disintegrated…

      • Fat_Man

        “class-action lawsuits that are certainly coming from hordes of buyers who just saw their resale value disintegrated…”

        Maybe, maybe not:

        VW Owners Aren’t Going to Like the Fixes for Their Diesels
        http://www.wired.com/2015/09/vw-owners-arent-going-like-fixes-diesels/

        Maybe the resale value of pre-fix bugs just went up.

        • f1b0nacc1

          I saw that article too, looks like we are thinking along the same lines…

  • jaytrain

    Recall that GM killed 173 people hiding the ignition design fault . They pay a fine and all is forgiven . I have mountains of cynicism but this is too much .

    • CapitalHawk

      Yeah, but VW will cause the DESTRUCTION OF THE EARTH BECAUSE GLOBAL WARMING I MEAN CLIMATE CHANGE!!!!!! /sarc

  • circleglider

    No one yet seems to appreciate what VW’s “cheating” really means: it’s impossible to build an automobile (at least one powered by diesel fuel) that both meets worldwide emissions restrictions and delivers minimally acceptable performance to consumers.

    Is it possible that the only way that the world’s automakers have been able to comply with ever more onerous environmental regulations –– and keep making cars that consumer will buy — is to cheat?

  • ljgude

    Hey, Wolfgang..the man wants a green suit, turn on the green light.

  • Boritz

    Here is a solution. Fine VW into bankruptcy then:
    Ignore bond holders and give the company to the union.
    They are not an American company and the UAW has no standing in this case but otherwise this isn’t at all a radical solution.

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