It’s the Hard NOx Life – VW in the Dock

A week is a long time in the motor business and this sh*tstorm just got real.

I think they call this an open goal. VW launches the 2016 Tiguan at Frankfurt IAA. Image via VW.AG
I think they call this an open goal. VW launches the 2016 Tiguan at Frankfurt IAA. Image: VW.AG

I sat down today to write something of a Frankfurt IAA overview. A sofa-eye view of the trends, winners, losers and why-botherers. Post-NOxgate however, there’s only one story, no winners and one loser. Well perhaps more than one.

Just seven days ago it was all looking quite jolly for the German auto industry at their home show. New car announcements rubbed shoulders with credibly exciting concepts while the World’s press gathered to listen to the accumulated wisdom of the likes of Zetsche, Winterkorn and Müller, although BMW CEO, Harald Krueger’s collapse prior to his scheduled press conference sounded a decidedly minor note amidst all the chest thumping. Perhaps he was suffering from exhaustion, although it’s equally possible he’d just seen what Mercedes-Benz and Porsche were offering as concepts.

Before news of VW’s emissions cheating broke of course, the over-riding theme of Frankfurt was the belated reaction amidst the big-hitting German marques to the threat posed, not only from Tesla, but Apple, who only this week promised to begin ‘shipping’ Apple branded cars by 2019.

Say what you like about the Californian tech giant, but this announcement will have already reeling car executives reaching for the Rescue Remedy. Overall however, the word last week from IAA was the Teutonic big three were ready to get on the good foot again, infinite loops notwithstanding.

Martin Winterkorn - ex-VW CEO. Image via
Auf wiedersehen. Martin – VW’s now former-CEO. Image via

Post NOxgate however, we’re through the looking glass into a landscape that appears to be deteriorating daily. Winterkorn quite naturally is toast, the very idea that he didn’t know about duplicity on this scale being risible and even were it to be true, merely reduces his culpability to that of base ineptitude.

And if the suggestion that uncle Ferdi had a hand in all this is tantalising, the fact he stands to lose at least as much if things go badly awry, as they seem likely to do, makes it less than credible. In fact, as investigations proliferate, it’s probable he’ll be fortunate to escape merely with a few €bn wiped off his retirement portfolio. The I wasn’t there when the excrement started spraying’ defence won’t really cut it if things get truly messy.

But this is bigger than VW’s growing crisis, and this is a huge crisis for the World’s number two car maker, on the back of an already torrid year. Its reputation has been built upon solid conservative values; upon a veneer of material quality and dependable, state of the art German engineering prowess.

Even if VWs have proven no more dependable than their main rivals, the perception has until now at least been largely unshakable amidst the buying public. VW’s ambitions in the United States are almost certain to be set back a good decade. Should things escalate back here in Europe, VW’s hard-won reputation could well be in tatters, and before anyone starts waving their schadenfraude about, the repercussions for the German economy (read Eurozone) and wider motor industry should this come to pass could be equally dire.

Worse still is the fact this whole emissions business has been well known for decades. European Union bureaucrats, Post-Kyoto and under massive lobbying pressure from the motor industry backed diesel in the mistaken belief that getting CO2 down quickly was more important than protecting air quality. If, as is likely, it is found that right across the mainstream motor industry, manufacturers have been fiddling their emissions as regulations tightened, the fines liable to be levied are likely to be vast.

It now seems even more certain the days of the high-performance diesel are fast becoming numbered as the truth about the deadly nature of Nitrogen Oxide particulates becomes widespread public knowledge. The cost of altering course away from diesel could potentially sink several already poorly performing manufacturers, to say nothing of the costs to drivers who bought diesel in the mistaken belief they were buying a cleaner car.

In an interesting twist, PSA announced this week they are scaling down development of their promising hybrid air technology, claiming that without government backing it was uneconomical to pursue further. PSA’s Maxime Picat hinted that governments in backing plug-in hybrids were forcing manufacturers into narrow developmental pathways. A little disingenuous given PSA’s significant investment and historical endorsement of diesel. In a post NOxgate landscape however, its almost impossible not to be cynical of any auto manufacturer’s motives. Certainly, the timing of this announcement begs closer scrutiny.

Another aspect of this unfolding story is the position of the automotive press amidst all this. Oh sure, from time to time we’ve had the odd opinion piece but who amongst our motoring journalists questioned the scientific orthodoxy when the push to diesel was pressed home in Brussels? Where have they been while it’s been screamingly obvious that all manufacturers were lying about their fuel consumption figures for years?

When it’s become blindingly apparent that diesel, far from being environmental salvation was in fact a huge and noxious problem government is only belatedly admitting they’ve rushed and blundered into.

Where were they? On corporate junkets, hooning about in fast cars and generally playing the PR game as though their livelihoods depended upon it. Which they probably did, and even more so will now. It also raises uncomfortable questions relating to a previous VW scandal involving the use of prostitutes in the ‘entertainment’ of, well who exactly?

Bernstein Research’s Max Warburton suggested to the Guardian yesterday that NOxgate is equivalent to the Lance Armstrong doping revelations and certainly there are similarities. Both were broken by US federal investigations, and should this one go the distance, could have a similarly profound effect upon the European (and especially German) motor industry as ‘Big Tex’s fiery descent did for the sport of professional cycling.

Another possible outcome is this. With VW/Audi and who knows who else implicated in what could end being a fraud as big as anything the bankers could have dreamt up, the credibility of big auto is about to take a very hard knock. Which plays right into the hands of Tesla, Google and Apple who as gamechangers can now plausibly lay claim to the high ground – loftily above all this grubby carbon-based shenanigans.

Yes, a week can be a long time in the auto industry. Long enough to go from good foot to back foot. This is the only story in town, and what a story it’s turning out to be. Perhaps I’ll write that Frankfurt review soon, but frankly, who on earth would be interested now?

Author: Eóin Doyle

Co-Founder. Editor. Content Provider.

29 thoughts on “It’s the Hard NOx Life – VW in the Dock”

  1. Great piece – best summary of the situation I’ve read so far.

  2. The first thing that caught my eye was the big banner saying “less emmissions”. They mean fewer emmisions. Or lower emmissions. I prefer fewer. Obviously VW was doomed if they didn´t watch their grammar.

  3. The one things I don´t get out of this is that VW´s are unreliable. And they are not immediately dangerous. I naturally disapprove of their deceit and also the deceit of regulators in setting up rather ludicrous tests. On the other hand, this is not a reason I would avoid buying a VW.

    1. Rationally speaking you are quite right, Richard, and it wouldn’t stop me either. But, generally, purchasers aren’t that cold-bloodedly logical. Things that, rightly or wrongly, might concern them in the short-term are resale value, their own green principles and/or peer (or offspring) criticism, and even the fact that they might be excluded from LEZs or other areas.

  4. There are two ways this crisis can go – either VW take a hammering, or (more likely) diesel gets a hammering, as it becomes clear that even the most sophisticated technology cannot stop these engines belching out fumes that are damaging to health. This will lead to higher taxes on diesels, and possible city centre bans.

    If so, the European makers are the most exposed, as they have invested most heavily in diesel. They can adjust production as demand switches to petrol. But larger cars (anything Passat and above, SUVs etc) are overwhelmingly diesel in Europe – what will happen to their sales? JLR look very exposed to me.

    1. Interesting thoughts here, Jacomo. A decline in diesel sales might really turn people away from large SUVs, which I appreciate.
      I also hope that this can boost further developments in electric cars: higher battery capacities, a broader offer, better infrastructure, lower prices.

  5. That’s a great piece of reflection of the sort which, upon reading it, one wishes that one had written it oneself. Bravo. Give the man a monthly column in Car.

  6. Eoin’s article makes reference to banking scandals (he types, twitching a little, given the industry in which he works) and there are strong parallels. Moreover, I suspect the downstream consequences will have further such resonances. Hence, one reads that “British owners are said to be preparing legal claims under the new Consumer Rights Act coming into force on 1 October 2015, as the shockwaves cross the Atlantic and fall closer to home” (Car’s website – on which the coverage and comment on this trauma is breathtakingly sparse). One suspects, then, that this will become the new “PPI-consumer-compensation” event of the rest of the decade. Around £25bn has been paid out in compensation by UK Banks so far – £13bn by Lloyds Banking Group brands alone (that’s well over half of the amount of the “bail-out” funding that the UK Government – i.e. taxpayers – gave Lloyds as a result of the 2007/8 crisis). I’m not quite clear what the basis of financial loss will be as caused by the false emissions test claims, but that won’t stop people having a go.

    1. CAR did however fearure the Ladbrokes odds on who would replace Winterkorn, if you’re inclined to bet on it. You don’t see that in Automotive News.

  7. A fine synopsis of the current situation Eoin. As for motoring journalists not involving themselves in the diesel emissions business, surely you’re being a bit unfair. Why, I remember just a few years ago, Chris Chilton of Car writing a fearless investigative report as to whether it was a good idea to get your particulate filter removed by a ‘specialist’. Excuse me whilst I lob a belated metaphorical chunk of blackened sputum in your direction Chris.

  8. Great piece Eoin. I suspect what will happen is VW will say ‘My bad! But if we pay the $18bn we will have to cut jobs in the US’. Obama will turn white (well, more white) and will say ‘Whoah, we can’t be undoing all my great work on unemployment reduction! Make it go away’ Reduced fine, slap on the wrist.

  9. The German press is already interpreting this crisis as the harbinger of death of the German economy. Even more than the disaster that is Berlin airport, the VW Diesel Affair is being seen as a gigantic loss of Teutonic face, which shall in turn result in decreasing sales (not just in VAG’s case) and, ultimately, something approaching economic doom.
    While I find this view somewhat alarmist, I wouldn’t be surprised to hear about Elon Musk having ordered a palette of Dom Pérignon 1985 for himself and his startup car business chums. If this indeed turns out to be the beginning of the end of the diesel, the unencumbered new kids on the block will be in for a feast.

  10. With Winterkorn’s departure last night I did wonder whether there was more to Ferdi’s sudden displeasure with his former protege’s tenure and his subsequent actions back in May? Is it possible the puppetmaster saw the oncoming train first?

    It’s very likely the German government is lobbying at the very highest levels both in the US and across Europe to minimise the damage to such a vital employer and net contributor to Germany’s balance of payments. Just how much can be achieved will largely hinge upon what further revelations emerge over the coming days. Should other marques get sucked in, it will strengthen VW’s case for leniency. We’ll see…

    1. During a talk to an industry insider (woo-hoo!) about the issue in May, the conclusion was quickly reached that Ferdl knows something us ordinary plebs don’t and hence retreats for the time being, waiting for things to come to daylight.

      Some conspiracy theorists are actually believing that it was Piech who leaked the dark secret to the authorities in the first place… which is, of course, utter nonsense. But he certainly got wind of the issue earlier than others, maybe even Wiko and correctly assumed its consequences.

      As of now, Ferdl has at least achieved one of his goals, which was to instal Michael Müller as Wiko’s replacement. Is the Porsche CEO playing an active part in Ferdl’s schemings or merely a pawn? And is there a further goal Ferdl wants to achieve?

      I don’t have the answers to these questions, but I know one thing for certain: my teeth are gnawing in anticipation for Ferdl’s next move. This is certainly the best soap opera currently playing. And most definitely the one boasting the highest production values.

    2. Piech truly is the Hannibal Lecter of the motor industry isn’t he? You know he’s not a nice man but, somehow, you look on with fascinated glee as the tables are turned completely against his apparent nemesis whilst he makes his full escape.

    3. From the latest retelling of events leading to the crisis by Automotive News Europe, VW signalled to the EPA and CARB that they had committed wrongdoing in private conversation at the Asilomar 2015 Biennial Conference on Transportation & Energy on 21 August 2015. (Asilomar is the conference venue in Pacific Grove, California rather than some kind of acronym.) The formal acknowldgement came on 3 September in a teleconference between EPA, CARB and VW representatives in the US and Germany. CARB had released its latest testing results to VW on 18 July.

      Emperor Piech’s public battle with Wiko began in April 2015, and VW had been arguing with the EPA and CARB since West Virginia University released its research findings on 31 March 2014. So I guess it’s possible that Piech got wind of the existence of the test-defeating tech earlier this year and started engineering a defensive position. Or he received word about the likelihood of the ‘defeat device’ technology being discovered if you think Piech knew about it all along. Thus he began publicly distancing himself from Winterkorn. But we won’t really know until someone digs into VW records and establishes who knew and did what.

      As an aside, I wish that motoring magazines had proper investigative business reporters with the resources to hunt down stories like the VW emissions scandal (and editors that would commission and publish stories like this), instead of the driving lifestyle stuff we get these days.

    4. I can only recommend to anyone with a grasp of the German language to carefully study Manager Magazin’s coverage of the automotive business world. Their portraits and inside stories are among the sharpest and most revealing out there.

      By the way, MM’s editor has just released a commentary welcoming both the ousting of Wiko and the appointment of Müller as overdue and welcome steps towards a healthier corporate culture at VAG. You don’t get to read such clear positioning within the mainstream motoring press.

  11. Thank you Eóin for writing this compelling summary of the VW emissions scandal, and once again the comments have provided extra perspective and insight (except from some simpleton writing about betting odds on the new VW leader and lowering the tone.)

    Although I think it will be much more than a wrist slap, I suspect Paul Doyle is on to something in suggesting there will be a settlement in the US. Especially if VW has admitted guilt and works constructively with the EPA and ther relevant authorities. But they will still be open to lawsuits from other sources, and in other jurisdictions.

    I’m wondering how wide the subsequent investigations will go, in other markets for VW engines or with emissions test results in general. If we see a sudden leap in engine-related technical recalls from other manufacturers we may get a hint of how commonplace the VW-style testing trickery is.

    Listening to the morning news here in NZ, there have been 3 major stories on the VW crisis, one in the business news report, one in fhe main hourly news bulletin, and just now in the sports news about fears in Germany that VW will be forced to reduce or eliminate its massive sponsorship of the Bundesliga. When a car company ends up in the NZ sports news during the Rugby World Cup and it’s not because they’re sponsoring the tournament then this is a serious matter indeed.

  12. Good piece and very interesting discussion indeed.

    The one thing I can’t see yet: The end of diesel.
    I might be mistaken, but VW was pretty late to the filter game and I guess they use different technologies than, say, PSA (they invented it with a German supplier, forgot the name). So my question would be: Do all current diesels share identical or at least similar filter technology? Or might there be a better way than VW’s?

    1. The bottom line is that a) emissions testing are fundamentally flawed and b) there’s no such thing as ‘clean diesel’. So even if it can be improved, the backlash against diesel is likely to be such that it could very quickly become a thing of the past as far as individual transportation is concerned.

  13. Billions have been spent by our (Dutch) government to subsidise the so-called clean cars, the hybrids, the clean diesels etc. There are reports (already years old) that the tests were not representing real driving circumstances. And every ‘normal’ thinking person knew it. Who is fooling who?

    1. The manufacturers lobbied for easier tests. Governments tried to look as if they were being responsible and to appease an important sector. The public want clean air and to use cars and get the benefits of the revenue from sales and employment. That’s a lot of contradictions. You could say that the resultant compromise was much better than doing nothing and much worse than the optimum. All in all it reflects the messy reality of an imperfect democracy. Most stakeholders were willing to fool and be fooled.

    2. … and welcome to DTW. Have you seen our engine theme from last year? We covered a lot of ground and missed the testing regime question entirely!

  14. Thank you for your welcome 🙂

    At the same time pollution by cars is becoming less and less, so obviously something is going in the right direction.
    On the other hand, isn’t it dubious to say the least that is is the Americans ‘disclosing’ these practices? And Elon Musk visiting Europe at the same time?

    1. In what sense dubious? Is it that the Americans want to hobble VW? I must admit the politics of the issue are not something I’m following closely. I ought to know more about the technical aspects but don’t. The bit about particulates has concerned me though only vaguely. My main beef with diesel was the superficial one of noise and harshness. If I really concentrate hard my mind turns to the futility of fuel efficiency beyond a certain point. It seems people don’t see an X% saving as a chance to use X% less fuel but to drive X% more miles as the Dutch government found. Haven’t people’s mileages increased. If cars did 20 mpg people would drive a lot less other things being equal. I am a contrarian sometimes!

  15. The latest figures show VW preparing to lose 86 billion euros on this which is what was paid to the Irish banking system to save it from collapse in 2007. It´s also nearly the amount of money being asked for by developing nations to mitigate climate change.

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