Volkswagen emissions scandal

by WCE

I was interested in this article’s vague referrals to how differences in the legal system meant different consequences to Volkswagen for violating emissions standards in the U.S. and Europe. I continue to be interested in this scandal because I had wondered for years how Volkswagen met emissions standards that the Korean researchers I edit for struggled to approach in their diesel engine emissions optimizations.

Do you think Volkswagen’s corporate culture is atypical? Can someone explain more about the differences between European and U.S. legal systems, in that the consequences to Volkswagen for violating environmental law are so much more severe in the U.S.? Does anyone see parallels to the $20 billion payout from British Petroleum for the 2010 Gulf Oil spill?

Volkswagen’s Diesel Scandal Was 80 Years in the Making

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59 thoughts on “Volkswagen emissions scandal

  1. Off-Topic – Quick thank you to Scarlett – I’ll be sharing with my DD. We did talk a bit more last night. Her engineering teacher has written her three letters of recommendation already – two for camps and one for her intership – so she feels this is pointless for this teacher. OK – maybe. Her history teacher (another request) nominated her for a school award this year (unknown to DD until she received it). I told her while that is true, she is making their lives easier, which often turns into a better letter!

    On-Topic – I think that like many other scandals, you find that the corporate culture determines what sorts of behavior is accepted and rewarded. When it is hiding non-complaince or fraud, the economic penalty regulators impose plus the economic penalty imposed by consumers (angry and don’t buy or don’t care and continue to buy) will determine if the company survives. How the company handles the reveal of their bad behavior affects both of those significantly.

  2. Do you think Volkswagen’s corporate culture is atypical?

    Not at all. It’s the same culture at Wells Fargo. You have senior management making outrageous demands on their underlings with little to no concern for how those goals are being met.

  3. How the company handles the reveal of their bad behavior affects both of those significantly.

    I was reading that if VW just admitted it when confronted the fine would have been in the hundreds of millions. The multi-billion number is to punish them for dragging their feet.

  4. VW Group was one of the biggest players in the global auto industry, and it owned a bouquet of prestigious marques, including Rolls Royce,

    VW owns Bentley, BMW owns Rolls Royce.

  5. I suspect a lot of it boils down to the almost throwaway line about how in Europe consumers have basically no remedies if the government doesn’t act. Not in any particular order:

    1. In the US, you have products liability lawsuits. And the existence of those causes of actions has also developed an extremely robust plaintiffs’ Bar to seek out and find the “next” version of whatever it is.

    2. US regulators have pretty massive penalty authority, in some cases up to $100K/day for every single day of violation, not to mention the ability to shut you down if you continue to violate. Big consequences = power to compel big payments.

    3. I believe all of the major environmental laws have citizens’ suits provisions that allow citizens to sue violators to enforce violations — and the company that loses that suit has to pay the citizens’ legal fees as well as penalties and injunctive relief. So, again, incentive for lawyers to develop expertise in these areas and seek out these suits. But from the company’s perspective: if you have violated something, the only way to protect against a citizens’ suit is to reach an agreement with the feds (because a citizen cannot enforce something that the US is already prosecuting). Ergo, the companies now have even more incentive to settle with the government at any price, to stave off angry citizens.

    4. I know the article mentions that Europe has the same environmental laws. But do they have the same penalties for violations? Do they have the same citizens’ suits provisions? We have established they don’t have the same products liability rights — and IIRC, most of Europe follows the “English” rule, where the loser pays the winner’s legal fees. You can’t look at the specific rules in a vacuum — you have to look at all of the other systemic differences that have supported the growth of a strong plaintiffs’/environmentalists’ Bar in the US, and all of the disincentives for doing so in Europe.

  6. The difference between the US and European legal systems in a case like this is not simple. The US brought many actions at the federal level. States can take action, but most of the fines and penalties were at the federal level. For example, California recovered money in this case. California has different emissions standards, and I thought it was a California air board that helped to uncover the scandal. In the EU, the European Commission doesn’t have the same laws or powers as a federal government to enforce rules in each member country. The commission has to persuade each member to act against car emissions, but each member has their own laws for crimes, penalties, fines etc. I think I remember reading last year that the European commission actually had to take legal action against the UK and several members because they didn’t act when the emissions problem was uncovered. Each EU member has to have their own laws to punish corporations that would cheat and then have to face fines and/or possible criminal action.

  7. Other automakers, including GM and Fiat Chrysler, are being accused of employing defeat devices in their software. GM is not accused by the govt, but being sued by “consumers”. Apparently Bosch supplied the software to both Fiat and VW, and although VW explicitly requested a very robust defeat device that according to reports not only included a lag but detected the fact that the car was not on the road but on rollers, the software supplied to F/C only included the 26 min lag before pollution kicked up. That has been explained away as a permissible variant while idling or on short trips, but if so it had to be disclosed in the US. The European authorities appear to be upset over that one. Perhaps VW’s in Europe met their looser diesel standards, and the Fiats did not.

  8. I would say, at companies I have been in, it has not been the entire company but certain divisions. For lack of a better word, those divisions had a cowboy or a cowgirl culture. Usually the work hard/play hard mantra was trotted out. That culture sometimes spread to other divisions as executives moved around. The executives believed that their success was the result of being smarter and/or working harder than everyone else. They didn’t acknowledge the wrongdoing to themselves.

  9. The coverup (and consequences pertaining to it) is always worse than the crime.

    I think the corporate culture is typical. People just do not understand that coming clean once evidentially caught will work out better for the firm. I suppose it’s because of fear that admitting wrongdoing will just open the floodgates to all the plaintiffs’ attorneys out there, despite what LfB notes in re settlements with the US Govt, because not all torts involve a federal settlement.

  10. Totally off-topic, DS ended up with a C in robotics. It’s nice that he doesn’t have another D on his record, but the experience was overall disappointing. I think he could have really enjoyed it with a good teacher.

    On the other hand, he ended up with a B+ in geometry, when he should have had an A because the class was so easy for him. I’m annoyed because he didn’t give his best effort.

  11. One of our firm’s clients was convinced (luckily) to come clean when violations were discovered, and the settlement was only $600K rather than tens to $100M. Good for them for listening to their outside counsel! :)

  12. VW is run a bit different than US automakers, too. German companies have strong Workers’ Councils that can impact Board decisions. As I recall, VW is also partially owned by one of the states (Schleswig Holstein??) which can override certain decisions. At least 1 plant did not close because of that ownership — the state didn’t want to absorb all of the unemployed. While these things did not create the problem, it creates a corporate culture that might accept some malfeasance. 15-20 years ago, diesel trucks had similar issues. Part of the problem is that the government mandates a change when the technology is not there yet. There is also a battle between the fuels and engine makers – who should be forced to make the change (cleaner fuel v. cleaner engine).

  13. So what happens to the $20 billion in fines that VW has to pay to the U.S.? Where does it go?

  14. Totally off-topic, DS ended up with a C in robotics. It’s nice that he doesn’t have another D on his record, but the experience was overall disappointing. I think he could have really enjoyed it with a good teacher.

    I think it is on topic. IIRC DS wasn’t given the resources required to get an A. Managers often get ahead by proving themselves able to accomplish tasks with less than ideal resources. I could certainly see an ambitious student justifying cheating to get around the lack of resources and instruction. Same with VW or Wells Fargo managers getting around unrealistic targets.

  15. . Part of the problem is that the government mandates a change when the technology is not there yet.

    The technology is there as Ford, GM, BMW, Mercedes and Jaguar all sell compliant diesels in the US. The issue was cost. Management said we want a complaint engine for (let’s say) $5k and the engineers said we can do it for $5225. VW management said no, $5000 or we will find someone who can.

  16. In hindsight that $225 savings per car resulted in fines, settlements and brand damage costing thousands per engine but that’s only clear now.

  17. “Managers often get ahead by proving themselves able to accomplish tasks with less than ideal resources. I could certainly see an ambitious student justifying cheating to get around the lack of resources and instruction. Same with VW or Wells Fargo managers getting around unrealistic targets.”

    Yes, managers, and students for that matter, are often rewarded for succeeding in less than ideal conditions (resources, environment, etc.). I think these people succeed because they use what is available, look outside the box for additional resources, and use all the wiggle room they have without crossing the line to cheating/violating rules/laws.

    I realize there is a risk/reward trade off to succeeding, but the “do it at any cost” mentality is concerning.

  18. without crossing the line to cheating/violating rules/laws.

    Are there many senior managers who got that way without some strategic rule breaking? In my experience, if you want something done ahead of schedule and under budget, you can’t do it by the book.

  19. Rhett – At least in my work world there are guidelines and then there are RULES. A guideline by definition can be broken with minimal consequences while a RULE if broken has major negative consequences. Both types often have a good bit of grey area before they are broken and I, when needed, take advantage of that. So, in my work world people strategically break guidelines, but almost never break rules.

  20. Lauren, but I can’t sign in

    $2.7 billion to EPA, $4.3 billion fine for criminal and civil, 10 billion to buy back cars at pre scandal value and compensation to each owner. Each owner gets additional compensation of $5100 to $10,000 depending on value of car. Another 2 billion on cleaner vehicle projects. Also, I thought there was a chunk going to CA

  21. while a RULE if broken has major negative consequences.

    Only if you get caught. And, if you’re going to get fired it the project falls further behind and there is only a 1:20 chance of being caught, it only makes sense to break the rule.

  22. AM,

    I think the typical scenario would be don’t break the rule and get fired now or break the rule and face a 1:20 chance of getting fired sometime in the future.

  23. Rhett – The difference is in “my work world” breaking many of the RULES comes with a criminal penalty in addition to just being fired. It ups the anti quite a bit more.

  24. Back to the discussion about people asking for stuff they can look up – Amazon said, can you answer this person’s question on something I reviewed. Where can I find a replacement x for y. I googled the part by ordinary english description and found the precise name in 15 sec and vendors. it is not available on Amazon, but elsewhere on line free shipping. I typed the reply, including a helpful suggestion about a cheaper alternative to the genuine part, and someone else had already responded, I have no idea, does your part x leak, mine leaks.

    It’s not about information, folks. It’s “being social.”

  25. Mémé, I definitely believe some of it is about being social. I think there are multiple issues, but being social is one of them.

  26. It’s not about information, folks. It’s “being social.”

    Did anyone mention blame shifting? If you ask someone how to do X and they tell you and it doesn’t work, then it’s the fault of the person who gave you the wrong information. If you figure it out for yourself and it doesn’t work, you’re to blame.

  27. Can’t wait until Friday…this last week of school is the worst…grumpy children, who get out early (so I have more time to hear about them being grumpy) and I have work deadlines.

    I think Rhett is correct about blame shifting…I just heard an earful of it from a DD just now.

  28. I have a grumpy kid, but there are still four more weeks of school. The only good thing about this chilly weather is that the school buildings and buses are not hot. No A/C in school or bus. It was miserable when the temps were in the 90s in mid May.

  29. I never thought of blame shifting. But since I have also had amazon qqs about parts I have purchased, will this fit my incorrect model, I guess that can be part of it.

  30. On the original topic, am I the only one who thinks this is tied to the absurdly high executive pay scales and the arrogance that goes along with it?

    On the sidebar, I think you’re giving people too much credit if you think they are factoring blame-shifting into it. Keep in mind that most of these people are around the average range for cognitive ability, not totebaggers who are analyzing everything like we do. It’s a combination of laziness – it’s easier to ask for a plumber recommendation than search the previous posts, wanting to be social – let me introduce myself to this new group by asking a simple question to get a lot of responses, and a lack of ability – I really don’t know how to apply your general advice to my personal situation.

  31. On the original topic, am I the only one who thinks this is tied to the absurdly high executive pay scales and the arrogance that goes along with it?

    I’m with you. The financial crisis was driven by people trying to make their bonuses. If you sell all the crappy MBSs you can net yourself a nice 7 figure bonus. If you don’t you get fired. That it will blow up in 2 years doesn’t really matter as your choice is between getting 5 million over the next two years and getting fired when the market blows up or not selling the MBSs, getting fired now and getting 0. Only a fool would balk at selling the shitty MBSs with those incentives.

  32. Qqqq is on the right track about differing models of corporette governance meaning that a simple comparison as in the op doesn’t really work. I’m not sure what state has a share in VW, thought it was Niedersachsen.

  33. Having too many unwarranted guidelines/rules encourages breaking the rules, particularly by men IME. Perhaps these rule-breakers genuinely find it hard to distinguish between legitimate rules and frivolous ones. Or maybe they just get frustrated. Too many “frivolous” rules can be a bad idea in many situations, including parenting.

  34. Rhett/DD, that problem is not as extreme in Germany (or anywhere) as in the US.
    https://www.washingtonpost.com/news/wonk/wp/2014/09/25/the-pay-gap-between-ceos-and-workers-is-much-worse-than-you-realize/
    While a handful of countries might perceive larger pay gaps than the United States, none of the ones surveyed have an actual pay gap anywhere nearly as large. In Switzerland, the country with the second largest CEO-to-worker pay gap, chief executives make 148 times the average worker; in Germany, the country with the third largest gap, CEOs make 147 times the average worker; and in Spain, the country with the fourth largest gap, the ratio is 127 to one.
    https://img.washingtonpost.com/wp-apps/imrs.php?src=https://img.washingtonpost.com/blogs/wonkblog/files/2014/09/It-pays-to-be-a-CEO-in-the-U-S-The-ratio-between-CEO-and-average-worker-pay_chartbuilder.png&w=1484

  35. Rhett, I have much to say about that article. I was thinking of submitting it as a topic. It gets to something that is rampant in majors beyond computer science.Yes or no?

    BTW, I actually was on a panel session on this topic at a big conference this year.

  36. It gets to something that is rampant in majors beyond computer science.Yes or no?

    Yes or no to the topic or yes or no to the issue rampant in other majors?

  37. Mooshi, I would love it if you submitted that article as a topic. Cheating was a huge problem in my circuit design class where the class structure (spend a hundred hours to learn software to solve a problem where the program can be easily copied) was similar. I spent the hundred hours to create my own mediocre solution to the project which received a mediocre grade while many of my fellow students copied/tweaked a previous file.

    Not that I’m still bitter 16 years later. :)

  38. It is certainly rampant in writing based majors. There was an article a couple of years ago in the Chronicle about people who get paid to write research papers and even theses. I sometimes teach courses in another major where we have papers, and am appalled at the amount of plagiarism. For the most part, it consists of largescale copying of website content, including Wikipedia, so it is easy to spot. One semester, 5 out of 15 papers were largely copied from a few websites.

  39. Back in my day, cheating on programs required at least rudimentary Unix skills- ftp grep and awk

  40. copied/tweaked a previous file.

    Which is how it’s almost always done in real life.

  41. Rhett, I agree that the idea that students should start from ground zero with no guidance about where to tweak is inefficient. My circuit design professor was not anyone’s favorite. Such a teaching style also gives people with existing connections (friends of same culture who have taken the class, fraternity brothers, etc.) a huge advantage over someone without any connections.

  42. . For the most part, it consists of largescale copying of website content, including Wikipedia, so it is easy to spot.

    Per CofC’s point that, “Having too many unwarranted guidelines/rules encourages breaking the rules,” I read that part of the reason Chinese students cheat so much is that in their culture the idea is that if someone already came up with the definitive answer to a question then you should just use that and not try and reinvent the wheel. IIRC it has to do with how the imperial exam system worked where you were graded on wrote memory of texts and not original thought. I can see why some have an issue with having to reinvent answers to questions that have long been solved.

  43. “It’s a combination of laziness – it’s easier to ask for a plumber recommendation than search the previous posts, wanting to be social – let me introduce myself to this new group by asking a simple question to get a lot of responses, and a lack of ability – I really don’t know how to apply your general advice to my personal situation.”

    I agree. I also think that one thing that hasn’t been mentioned is that there are people who really crave and need affirmation. This has been billed as a “millennial” trait in the workplace, but IME, it is a personality thing. People who need/want a pat on the head every step of the way. It was like this when I was in school, and it is like this now. That’s a little different from the “social”. I find that these people tend to be very indecisive as well. And overanalyze. e.g., “Boss” says in a meeting – our prioritiy is X and Y. And this will be the person who will say, “Well, do you think that she really meant that we should focus on X and Y?”

    I think this applies more to the students than the plumber reccos though.

    @Rhett – I’m with you. The VW issue has to do with incentives more than anything else.

  44. Ivy, I agree. I think these people are afraid of doing the wrong thing and they want confirmation that they are doing what they are supposed to.

  45. Such a teaching style also gives people with existing connections (friends of same culture who have taken the class, fraternity brothers, etc.) a huge advantage over someone without any connections.

    Shall I be Rhett and say, “So it teaches them about the real world”?

  46. Ivy/DD, ironic to ask if one is doing the right thing when the right thing is figuring it out independently.

    Rhett, I’ve heard of the Confusian model. If that system had been used all the way up, then students would presumably learn texts at increasing levels of intricacy and difficulty, so they would understand the latest text being memorized. But memorizing solutions to things that were intended for you to solve on your own probably means you will miss out on understanding how/why things were done the way they were. How could you know what parts to “tweak” in a system then?

  47. In my Intro to CS class, lo these many moons ago (COBOL! So useful. Not.) the instructor gave us a fully-developed program, and then every assignment involved modifying more and more and more, until it was an entirely different program. I personally found that worked very well as a teaching technique. And we typed the code on Hollerith cards and walked uphill both ways through the snow to get to the basement of the computer science building to push the cards through the card reader, and we liked it, and we asked for more.

  48. “Ivy/DD, ironic to ask if one is doing the right thing when the right thing is figuring it out independently.”

    Yes – and this definitely happens at work. The balance between asking too few and too many questions is a hard one for a lot of people.

  49. “In my experience, if you want something done ahead of schedule and under budget, you can’t do it by the book.”

    It depends on how you schedule and budget. Realistic schedules and budgets can be met consistently, and sometimes bettered.

  50. I enjoyed that, RMS. When I got to the #cdnpoli, I realized it was a little bit old – before the last election. I wonder if that map has changed a bit.

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