No End in Sight for the VW Scandal

How deep does the Volkswagen cheating scandal go? After the EPA charged the German company with designing software that, in the words of EPA enforcement officer Cynthia Giles, “turns off emissions controls when driving normally and turns them on when the car is undergoing an emissions test”, the company’s share price fell off a cliff. The U.S. government can levy $37,500 for each vehicle that circumvented Clean Air Act regulations, which adds up to a whopping potential fine of $18 billion. VW’s CEO apologized earlier this week, saying he was “sorry that we have broken the trust of our customers and the public”, but that mea culpa wasn’t enough to save his job and he recently resigned from his position. Volkswagen’s board is mulling over candidates for its next CEO, with Porsche CEO Matthias Müller looking to be the .

Then we learned that the software VW used to dupe American regulators was installed in as many as 11 million vehicles worldwide, expanding the scope of this problem and leading European regulators to wonder whether they too had been had by the unscrupulous workaround. In response, French, German, and Italian lawmakers all called for a review of their own emissions testings programs, and the UK transport secretary was compelled to request that “the EU to conduct a Europe-wide investigation into whether there is evidence that cars here have been fitted with defeat devices.” And Berlin is being forced to confront the problem at home because, as the BBC reports, VW used its “defeat device” software in Germany as well:

Volkswagen has admitted using the same fake emissions test in Europe as it used in the US, Germany’s transport minister has suggest […]

Mr Dobrindt said he had been told vehicles with 1.6 and 2.0 litre diesel engines are “affected by the manipulations that are being talked about”.The company’s Jetta, Beetle, Golf and Audi A3 models in the US from 2009 to 2015, and the Passat from 2014-15, were fitted with the devices which produced doctored results. However, diesel cars are far more popular in Europe than in the US.

This mess has huge implications for the German economy. One in seven Germans are employed by the auto industry and VW is the biggest company of them all, employing more than a quarter of a million people. Bad news for VW (like the fact that Moody’s and Standard & Poor’s are considering downgrading the company’s credit rating) is therefore bad news for Germany. As ING chief economist Carsten Brzeski told Reuters, “[i]f Volkswagen’s sales were to plunge in North America in the coming months, this would not only have an impact on the company, but on the German economy as a whole…All of a sudden, Volkswagen has become a bigger downside risk for the German economy than the Greek debt crisis.” And, as the Times of London reports, this problem may extend outside of VW and across the auto industry:

Shares in BMW fell nearly 10 per cent today as the German luxury carmaker was dragged into the diesel emissions scandal that has convulsed VW. Road tests carried out by the same group that exposed VW’s rigging of diesel emissions tests have shown that BMW’s X3 xDrive 20d emits the air pollutant nitrogen oxide at a level 11 times higher than the legal European limit, a German car magazine reported today.

But that’s not all! This software malfeasance is also a PR disaster for diesel fueled vehicles, which can provide greater gas mileage at the cost of increased local pollutants (like nitrous oxide (NOx), the gas the EPA caught VW caught covering up). Over the past twenty years Europe has pushed diesel fueled cars and trucks to lower carbon emissions, but many of its cities have been choked by the resultant smog—Paris actually banned cars from driving for a day this spring in an effort to clear its toxic skies. The Volkswagen scandal is a bad look for a fuel already under increased scrutiny. “People are starting to become more wary of diesel”, said Citi commodities analyst Chris Main.

Last, but certainly not least, are the potential health impacts of these unreported NOx emissions. Analysts estimate that VW cars may have been emitting as many as 900,000 more tons of NOx annually than it was previously reporting. As Reuters notes, that amount of emissions has serious consequences for public health:

In 2012, the WHO’s specialist cancer research agency reclassified diesel engine fumes as carcinogenic, saying they can cause lung cancer and belong in the same potentially deadly category as asbestos, arsenic and mustard gas. The WHO says epidemiological studies show that symptoms of bronchitis in asthmatic children increase with long-term exposure to NOx and nitrogen dioxide (NO2). Reduced lung function is also linked to NO2 at the concentrations currently measured in cities of Europe and North America, it says.

VW isn’t the first green cheat, nor will it be the last, but it seems safe to say that the size of this scandal is unprecedented. It broadens and deepens with each passing day, and with less than a week gone since the story first broke you can be sure the fallout is far from over.