The breath-taking cynicism of Volkswagen’s fraud against regulatory authorities and consumers over the level of emissions from its diesel cars has been stunning. But it is debatable whether this is the worst act ever to be perpetrated on consumers by big motor companies.
Let’s flip back to the 1970s, when the big Detroit auto giants were trying to cope with a new competitor in their midst – a big push by makers of small cars led by VW.
The Ford Motor Company responded with a new model known as the Ford Pinto, designed under a “2,000” rule – a care to weigh no more than 2,000 lbs and cost no more than $2,000.
Ford Pinto was a commercial success, but it was also a disaster. It was rushed to the market and its design faults – principally protruding bolts from the axle casing that would pierce the fuel tank in a rear-end collision – led to hundreds of deaths.
The truly breathtaking aspect of it was the fact that Ford knew, virtually from the start, the risks involved. But it chose not to do anything – and to fight regulatory attempts to improve standards – because of a “cost benefit analysis” that showed it was cheaper to pay compensation to victims than to fix the problem.
Mother Jones won a Pulitzer prize for its coverage of the story and the revelations it found. According to Mother Jones, Pinto crashes caused 500 burn deaths to people who would not have been seriously injured if the car had not burst into flames. The figure could be as high as 900.
It noted: “Burning Pintos have become such an embarrassment to Ford that its advertising agency, J. Walter Thompson, dropped a line from the end of a radio spot that read ‘Pinto leaves you with that warm feeling’.” You can find all the horrific details here.
This website also chronicles the events, including Ford’s reference case for valuing a human life – $200,000. Based on Ford’s calculations, it would cost them $187 million to fix the problem, and just $49 million to compensate for deaths and injuries.
Last year, it was General Motors that got caught in the so-called “ignition switch” scandal. The faulty switches could shut off the engine during driving and thereby prevent the airbags from inflating.
The company eventually recalled 30 million cars worldwide and paid compensation for 124 deaths, as well as an agreed “forfeit” to the US government of $(00 million as part of a “Deferred Prosecution Agreement”
The true number of deaths may have been much greater, because GM’s compensation fund rejected more than 90 per cent of claims and it did not include claims that are part of the ongoing Multidistrict Litigation.
The truly shocking part of this story is that, like Ford, GM knew about the problem well before they acted, but apparently didn’t act because of the potential costs. One lawsuit filed in US District Court in Manhattan on behalf of 658 people alleges that GM knew about the faulty switches since 2001 but did not recall any of its cars until 2014. That recall cost GM $3 billion.
In the VW case, it seems that the German manufacturer also decided that a “defeat device” – pretending that the diesel motors conformed to emissions standards when clearly they did not – was cheaper than actually building a diesel engine that did conform.
But VW is not the only one, as Bloomberg New Energy Finance points out in an analysis. VW is just the first to actually admit it. Here is a list of EPA fines and settlements for alleged violations of the Clean Air Act.
New reports from Europe suggest that the current use of defeat devices could be widespread. More and more cars are proving to have worse fuel efficiency and emissions than they pretend. Even the Samsung TV has been caught up in investigations.
And what has been the human cost of these decisions? Well. it’s hard to tell, but one study showed that for the UK alone, pollutants from diesel vehicles that are known to cause respiratory problems account for more than 52,000 premature deaths each year in the UK, according to a recent British government report.
It is not just the regulators being conned, but the consumers as well. Major corporates, particularly those who base their future business models on the “strength and trust” of their brands, assume that consumers will remain loyal.
This is particularly true in the energy industry, where there is growing fear of mass defections from the grid. That may happen, not just because it is economic to do so in many cases, but consumers no longer have faith in big corporates.
BNEF says the VW scandal will have major consequences. It will almost certainly signal the death of the diesel engine in the small passenger car market in the US, as VW had accounted for the majority of sales.
It will likely pass on to Europe too, where countries may struggle to meet their broader Co2 targets if they cannot rely as heavily on diesel engines with improved fuel economy.
Germany could be one of those. But as Craig Morris writes on Energy Transition, the German government had a goal of one million electric vehicles on the road by 2020. But at the end of 2014, there were 8,522, because it has taken little action to encourage them.
As it is, diesel cars are facing heavy restrictions in Europe, with additional taxes being imposed that will put them at a disadvantage to petrol cars. In Paris, diesel cars will be kicked off the streets by 2020.
“The VW scandal is a window of opportunity to embarrass the German government into real support for progress in the transport sector – and German car makers into true cleantech innovation,” Morris writes.
“Until recently, (German Chancellor Angela) Merkel took strict EU car regulations to be a threat. The lesson now is clear: save German car makers by making them leaders in clean technology!”
All in all, it’s going to be a lot of diesel R&D that goes up in smoke. But BNEF expects this to accelerate the shift to electric vehicles and hybrids. Just days before the scandal broke, VW had unveiled 20 new EV and hybrid models at the Frankfurt Motor Show, in a move designed to catch up to rival car makers.
“It is highly likely that VW knew about the coming controversy when it made the EV nd plug-in hybrid announcement last week,” BNEF analyst Colin McKerracher wrote. “The move could push VW much more strongly towards electrification as it looks to improve its public image and meet increasingly stringent fuel economy standards.”
