It took a few days, but the inevitable happened Wednesday: Martin Winterkorn, the embattled C.E.O. of Volkswagen, stepped down in the wake of revelations that his company had equipped eleven million diesel-engine cars with software explicitly designed to cheat on emissions tests. The cars were set to recognize when they were being tested and, if they were, to abruptly begin emitting far less nitrogen oxide than they would on the road. Winterkorn had initially tried to ride out the scandal, and there’s no evidence (so far) that he knew about the software cheating. But, given that this was not, as in most auto-industry scandals, a case of a defective part but rather a deliberate corporate effort to deceive consumers and regulators, it was impossible for him to stay on, particularly given his reputation as a hands-on, technically adept micromanager: he either did know or should have known, and, in either case, he has to bear the blame. Winterkorn’s departure, though, will do little to relieve the pressure on Volkswagen, or to save it from the travails to come. This is one of the more remarkable corporate scandals in history, and by the time it’s over the company, which at the moment is the world’s largest automaker, is likely to be a shadow of its past self.
Volkswagen’s lies to consumers and regulators weren’t tangential to its business: instead, they were crucial to how it marketed its diesel cars, at least in the United States. Diesel has always been a tough sell in the U.S., where the technology is associated with the dirty, clunky engines of the nineteen-seventies, and where fuel economy (typically a strong selling point for diesel) tends to matter less to consumers than it does in Europe. Volkswagen’s solution to this problem was to trumpet a “new era of diesel,” featuring engines that were cleaner than ever. The headline on a 2008 BusinessWeek article summed up the pitch: “This Is Not Your Father’s Diesel.” Improvements in diesel technology had made it possible for diesel engines to run cleaner than ever before. But the assumption had been that there was a trade-off: making diesel cleaner would also lower a car’s fuel economy and/or its performance. Volkswagen promised customers that they didn’t have to make these trade-offs. They could, for a relatively modest price, get a high-performing car with great fuel economy (and, therefore, lower CO2 emissions), while also releasing less of other pollutants. It sounded too good to be true—and, for Volkswagen, it was. (BMW and Mercedes made a similar case for their diesel cars; neither has been implicated in the emissions scandal, though.) Volkswagen did deliver the high performance and the fuel economy but did so, it has now become clear, only by disabling the emissions controls, which meant its cars were pouring hundreds of thousands of tons of nitrogen oxide into the atmosphere.
In that sense, Volkswagen’s actions are oddly reminiscent of (while obviously far more serious) the classic “Seinfeld” episode in which the characters become enamored with a new frozen yogurt that’s incredibly tasty but still somehow “a hundred percent nonfat.” The principle is the same: you can make a lot of money by promising people that they can have all the pleasure and none of the guilt. As Newman says to Jerry, “This yogurt is really something, huh? And it’s nonfat! I’ve been waiting for something like this my whole life, and it’s finally here!” Needless to say, the frozen yogurt turns out to be full of fat.
The centrality of Volkswagen’s deceptive promise to its marketing strategy in the United States is precisely why the stock market’s reaction to the scandal has been so dramatic. While the stock rebounded slightly on Thursday, it’s still down almost thirty per cent from when the news broke. It isn’t just the cost of fixing the emissions problem that’s the issue—it’s possible that, because the emissions controls are already in the cars, the only fix that will be needed will be a software patch that, in effect, disables the cheat. Nor is it just the fines, though those could be huge, and will presumably be the biggest ever levied against an automaker. (The Environmental Protection Agency, which helped uncover the scandal, can fine the company up to thirty-seven thousand dollars for each of the four hundred and eighty-two thousand cars Volkswagen sold in the United States with the software.) There will also be class-action lawsuits, and the possibility that Volkswagen might have to compensate owners for the full value of their cars. Whatever patch Volkswagen offers, after all, won’t make the cars run just the way they did—in fact, it’s likely to make them run worse in terms of performance and fuel economy. That means, in effect, that the cars Volkswagen said it was selling were not the cars it actually sold. It would be very surprising if this doesn’t end up costing the company many billions of dollars. (It has already set aside more than seven billion, which may be conservative.) And the hit to its reputation, especially in the United States, will be long-lasting.
While the scandal is a disaster for Volkswagen, there’s a good chance it’ll end up being a boon for the environment, since the fallout from the controversy will hurt not just the company but also diesel technology itself. Automakers and governments, particularly in Europe, saw clean diesel as a relatively easy way to deal with concerns about climate change. Diesel, with its much lower CO2 emissions than gasoline-powered engines, was an easy choice for the person who was worried about greenhouse gases but wanted the pep and handling that hybrids couldn’t provide (and a price tag that was much lower than that of, say, a Tesla). So Europe handed out hefty diesel subsidies to consumers and automakers. This didn’t just spark a transition away from gas to diesel. It also, more importantly in the long run, slowed the transition to hybrids and electric cars.
This was not a good idea, because diesel’s green credentials are actually pretty shaky. A 2013 paper by Michel Cames and Eckard Helmers, for instance, found that the greenhouse-gas savings from diesel cars had been wildly overestimated, and that the benefits from those savings were, in any case, outweighed by CO2 emissions from the diesel supply chain and the negative effects of diesel’s pollutants. As they put it, “We conclude that global warming has been negatively affected, and air pollution has become alarming in many European locations.” But, in the public mind, diesel retained much of its clean image.
The Volkswagen scandal should help change that by making it clear that the high-performance, low-emissions, low-polluting affordable diesel car was always an illusion. Europe was already moving to institute tougher air-pollution regulations, and this should only accelerate the process. It should also, both in Europe and in the United States, lead to tougher enforcement of those regulations, most obviously by requiring cars to be tested in the field rather than in the contained environment of the lab. This doesn’t mean that diesel cars are disappearing any time soon—Europe has too much invested in diesel, and it’s too important to the bottom lines of major European automakers. (BMW, Mercedes, and Peugeot all get more revenue from diesel than Volkswagen does.) But, in the long run, Volkswagen’s efforts to make diesel a mainstream technology in the United States could end up making it an outcast technology everywhere else—and that may be, ironically, Martin Winterkorn’s greatest legacy.
