Volkswagen Emissions Cheating Case Report

VOLKSWAGEN EMISSIONS CHEATING

CASE REPORT

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03/09/16

EXECUTIVE SUMMARY

In this paper we present the Volkswagen emissions scandal that was revealed in September 2015. Volkswagen had been cheating in their models’ emissions from 2008 to 2015. We discuss the dilemma of that time from the executives’ perspective: they had to choose whether or not to indulge in cheating in order to increase their sales, after strict legislation was imposed. We present the chosen option and the option they rejected (what could - or should - have been done differently), as well as what can be done now in order to minimize the damage.

BACKGROUND AND THE DILEMMA

In 2007, executives of Volkswagen, then the world’s largest automator, were faced with a potential challenge. Regulators in California were seeking to limit global warming gases released by automobiles and the California Air Resources Board (CARB) made its nitrogen oxide emissions standards even more stringent, while other states like New York opted to follow California’s air quality rules.  In the company, this brought a bitter internal clash about what kind of emissions technology Volkswagen should use to ensure that the company’s diesels would comply with tougher American emissions standards, without scaling back the company’s ambitions in the United States. Diesel engines have better fuel economy and, by extension, lower emissions of global warming gases; however, they have higher emissions of nitrogen oxides and other smog-forming pollutants that require special treatment systems.

Volkswagen executives had already declared their determination to overtake Toyota as the largest carmaker in the world and were eager for any competitive edge. They wanted to their cars to be seen as clean as or cleaner than the requirements, while providing exceptional performance; but emission control systems could make cars perform less efficiently and impair fuel economy.

The executives should decide: Would they try to meet United States clean air standards legally at all costs, or find another way?

EVALUATION MATRIX/DECISION CRITERIA

The following matrix presents the most important factors that had to be weighed in on the decision of whether or not to proceed with the cheating:

DISCUSSION ON ALTERNATIVES

i. MANIPULATE EMISSION TESTS

        Volkswagen installed sophisticated software known as “defeat devices” in diesel engines issued between 2008 and 2015.  This software could detect when the engine was being tested based on the position of the steering wheel, vehicle speed, the duration of the engine’s operation and barometric pressure. The engine could then change the performance accordingly to improve results. Once the software detected the testing the engine would go into a type of “test mode” where the engine could cut emissions through techniques such as adjusting air-fuel ratios and exhaust flows, and in some (though not most VWs) injecting a urea-based solution to render NOx harmless. When not in test mode, requiring greater performance, VWs controls would not operate in the same way and would emit up to 40 times more nitrogen oxide into the air. Volkswagen put this programming in about eleven million cars worldwide and about 500,000 in the United States.

ii. DO NOT MANIPULATE EMISSION TESTS

Volkswagen should have conducted a deep investigation of the implications of manipulating the emission test, realizing that it would have been far more affordable and beneficial to the population in general and to the company’s image and success to comply with the emission standards.

The excess in toxic nitrogen oxides (NOx) produces particulate matter and ground-level ozone, which aggravate heart and lung disease. A new study calculates the societal impact of this extra NOx: 59 excess expected deaths in the US and $450 million in excess damages over the sales period (Environ. Res. Lett. 2015).

Through the lawsuit, the German company could be slapped with fines in excess of $90 billion, if a maximum fine of $37,500 is applied to each cheating car produced and numerous other fines are received. Anderson, B. (2016, January 5)

Plus the cost of bringing the cars to compliance, originally estimated in $7.27 billion, however, the CEO has further said the company was working on the assumption that additional provisions would be needed.

VW initially had considered adopting a technology marketed by Mercedes as BlueTec which neutralized nitrogen oxides, however the solution was rejected as too expensive. If the company had decided to comply with the regulations without manipulating the tests, they would have adopted this solution (or a similar technology).