Helena Joyce
In 2015, Volkswagen admitted that 11 million vehicles sold worldwide were affected by the emissions scandal, later dubbed Dieselgate. The company had installed defeat devices in the form of computer software designed to cheat on federal emissions tests. This software allowed Volkswagen's cars to detect when they were being tested, changing the performance accordingly to improve results. As a result, the cars emitted up to 40 times more nitrogen oxide pollutants than allowed, the equivalent of having 437 million more cars on the road each year. The scandal cost VW $33.3 billion in fines, penalties, settlements, and buyback costs.
| Characteristics | Values |
|---|---|
| Number of affected VW cars in the US | 482,000 |
| Number of affected VW cars worldwide | 11,000,000 |
| Number of affected VW cars in Europe | 8,000,000 |
| Number of affected VW cars in the UK | 1,200,000 |
| Number of affected VW cars in Germany | 2,400,000 |
| Pollution emitted by affected VW cars | 918,720 tons of extra nitrogen oxide pollution |
| Equivalent pollution emitted by affected VW cars | 437,000,000 cars |
| Pollution emitted by affected VW cars per year | 924,000 tons |
| Pollution emitted by affected VW cars per year (in terms of nitrogen oxide) | 437,000,000 kg |
| Pollution emitted by affected VW cars per year (in terms of average car pollution) | 437,000,000 cars |
| Maximum pollution emitted by affected VW cars (as a multiple of the allowed limit) | 40 times |
| Fine imposed on VW by the EPA | Up to $37,500 per vehicle |
| Total fine imposed on VW by the EPA | $18,000,000,000 |
| Criminal fine imposed on VW by a US federal judge | $2,800,000,0000 |
| Total cost of the scandal to VW | $33,300,000,000 |
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What You'll Learn
Volkswagen's use of defeat devices
In 2015, Volkswagen was embroiled in a scandal that revealed the company had installed "defeat devices" in its diesel engines to cheat emissions tests. The Environmental Protection Agency (EPA) found that many VW cars sold in America had software in their diesel engines that could detect when they were being tested, altering their performance to improve results. This allowed VW to market its diesel cars as having low emissions, despite the engines emitting nitrogen oxide pollutants up to 40 times above the legal limit in the US.
The "defeat device" is not a physical object but rather a software program. It works by detecting when the car is being tested on a rolling road, at which point it switches on a "dyno calibration" that alters the engine's performance to reduce emissions and achieve compliant results. However, when the car is being driven normally, the software switches to a "road calibration" mode that is far less effective, resulting in higher emissions.
The use of this defeat device was not isolated to the US market. VW admitted that about 11 million cars worldwide, including eight million in Europe, were fitted with the device. The scandal also led to investigations in other countries, including the UK, Italy, France, South Korea, Canada, Germany, India, and Spain. As a result of the scandal, VW has faced significant financial consequences, including fines, penalties, settlements, and buyback costs totaling billions of dollars. The company has also suffered a loss of trust from customers and the public, impacting its sales and share price.
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The impact on Volkswagen's business
In 2015, the Environmental Protection Agency (EPA) in the US discovered that many VW cars sold in the country had a "defeat device" in their diesel engines. This device could detect when the cars were being tested and would change the performance to improve results. As a result, the engines emitted nitrogen oxide pollutants up to 40 times the legal limit. This scandal, dubbed "Dieselgate", led to the resignation of VW's CEO Martin Winterkorn and a push for reorganization within the company. Volkswagen was forced to pay billions in fines and settlements, and the scandal also had a significant impact on the company's sales and brand image, particularly in Europe, where the diesel car market was already slowing.
The financial implications for Volkswagen were significant. By June 2020, the company had spent $33.3 billion on settlements, buybacks, and other costs. This included a $2.8 billion criminal fine imposed by a US federal judge in 2017. Volkswagen also had to set aside €6.7 billion to cover the costs of recalling millions of cars worldwide, leading to the company posting its first quarterly loss in 15 years. The company's shares fell by about a third following the scandal, and it faced additional costs from legal action by car owners and shareholders, the total of which could not be estimated at the time.
The scandal also had a notable impact on Volkswagen's sales and brand reputation. According to automotive expert Richard Gane, the revelations could lead to a "sharp fall in demand for diesel engine cars," particularly in Europe, where a large portion of the market might switch to petrol-engine cars. This prediction seemed to be supported by VW America boss Michael Horn, who acknowledged that the company had "totally screwed up," and former CEO Winterkorn, who admitted that Volkswagen had "broken the trust of our customers and the public." The new CEO, Matthias Mueller, vowed to win back trust for the company, but the scandal undoubtedly damaged Volkswagen's brand and public image.
The impact of the emissions scandal on Volkswagen's business was wide-ranging and significant. It resulted in leadership changes, financial losses, and a decline in sales and brand reputation. The company faced scrutiny and investigations from multiple countries and was forced to reorganize its operations and recall millions of cars. The full extent of the impact on Volkswagen's business may have continued to unfold in the years following the scandal, as the company worked to regain trust and rebuild its reputation.
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The environmental impact
Nitrogen oxides are a major contributor to smog and air pollution, posing serious health risks. NOx emissions have been linked to respiratory issues and lung cancer. The VW diesel vehicles affected by the scandal emitted up to 40 times more nitrogen oxide pollution than allowed by emissions standards. This resulted in a significant increase in air pollution, with an estimated 437 million extra cars' worth of pollution produced annually. This massive increase in pollution is equivalent to adding millions of high-polluting vehicles to the roads, far exceeding the total number of cars in the United States.
To address the environmental impact, VW recalled millions of cars worldwide and set aside significant funds to cover the costs. The company also faced numerous lawsuits and settlements, resulting in billions of dollars in fines, penalties, and financial settlements. VW was ordered to pay criminal penalties and compensate affected owners, with the scandal costing the company over $33 billion as of 2020.
The VW diesel emissions scandal had far-reaching consequences for the company, the automotive industry, and the environment. It exposed the risks and deceptions associated with diesel technology and prompted a push towards alternative fuel sources and electric vehicles. The scandal also highlighted the importance of enforcement and tighter air quality standards to protect human health and the environment from the harmful effects of air pollution.
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Regulatory and legal consequences
The Volkswagen emissions scandal, also known as "Dieselgate", led to a series of regulatory and legal consequences for the company.
Regulatory Consequences
The scandal severely damaged Volkswagen's reputation with regulators and policymakers, who no longer viewed the company as a trusted partner. As a result, Volkswagen had to shift its position and work towards becoming an advocate for ambitious standards that reduce pollution and promote e-mobility, rather than resisting regulatory changes.
Legal Consequences
The legal fallout from the scandal was significant and far-reaching, with investigations and lawsuits initiated in multiple countries.
- United States: The Environmental Protection Agency (EPA) issued a Notice of Violation of the Clean Air Act to Volkswagen, Audi, and Volkswagen Group of America, Inc. in September 2015. The company faced investigations by 48 state attorneys and was sued by the Federal Trade Commission for false advertising. In January 2017, Volkswagen agreed to plead guilty to three criminal felony counts and pay a $2.8 billion criminal penalty. The company also faced civil resolutions, resulting in an additional $1.5 billion in penalties. The United States Department of Justice arrested and charged several VW executives in connection with the scandal.
- Germany: German prosecutors raided Volkswagen's headquarters in December 2019 as part of a fresh investigation into diesel engines. German authorities also searched the offices of Jones Day, the law firm hired by Volkswagen to conduct an internal investigation, seizing information related to the case.
- Norway: Norway's prosecutors opened a criminal investigation into possible economic crimes committed by VW. The country's sovereign wealth fund, a significant investor in Volkswagen, also announced plans to join a class-action lawsuit in Germany.
- South Korea: South Korea, a major diesel-car market, planned to initiate a criminal case against Volkswagen executives in 2016.
- Other Countries: The UK, Italy, France, Canada, and Romania also opened investigations into the emissions scandal, and Volkswagen recalled millions of cars in Europe.
The scandal resulted in significant financial consequences for Volkswagen, with fines totalling over $30 billion and a substantial drop in the company's share price. The company also faced the challenge of repairing its reputation and regaining trust with customers and stakeholders.
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The role of Volkswagen's management
In 2015, the Volkswagen emissions scandal, or "Dieselgate", came to light. The US Environmental Protection Agency (EPA) found that VW cars sold in America were installed with a "defeat device" in the form of computer software designed to cheat on emissions tests. The software could detect when the vehicle was undergoing emissions testing and would turn on full emissions controls only during the test. This allowed the vehicles to pass environmental standards when, in reality, they emitted nitrogen oxide pollutants up to 40 times above the US limit.
The company's aggressive goals and tight leadership under Winterkorn and his mentor, Ferdinand Piëch, have been cited as contributing factors to the scandal. Former employees described a workplace culture in which subordinates were afraid to admit failure or contradict superiors, and company leaders bullied employees. Piëch bragged about terrifying his engineers, and there was a history of firing those who displeased him. This work environment may have played a role in the decision to install the defeat device, as employees felt pressure to meet the company's ambitious targets.
Additionally, there was an opportunity to cheat presented by the diesel-engine-management software sold to VW by Bosch. This software could detect when a vehicle was being tested and turn on emission-controlling devices, and VW engineers were aware that similar defeat devices had been used by the company in the 1970s with minimal consequences.
While it is unclear exactly who knew about the defeat devices within VW's management, the company must have had a chain of command that approved their installation. Christian Klingler, a management board member, left the company around the time of the scandal, although VW stated this was unrelated. James Robert Liang, a Volkswagen engineer, admitted as part of a plea deal that he and his team designed and implemented the defeat device software.
In the aftermath of the scandal, VW took steps to improve its sustainability practices and embrace decarbonization. The company formed a Sustainability Council and shifted its focus to clean, e-mobility technology. It also took a stand against legal challenges to President Biden's GHG car policies, demonstrating a commitment to reducing pollution.
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Frequently asked questions
Volkswagen cars were found to emit up to 40 times more nitrogen oxide pollution than the federal limit. This amounts to 437 million cars worth of extra pollution.
Volkswagen cheated emissions tests by installing a "defeat device" in their cars. This device detected when the car was being tested and changed the performance to improve results.
The scandal cost VW $33.3 billion in fines, penalties, financial settlements, and buyback costs. VW also had to recall millions of cars worldwide.
