The Volkswagen revolution
When Michael Horn, the president and CEO of Volkswagen Group of America, recently testified before a committee of the US Congress about the software that Volkswagen installed on its diesel-powered cars to defeat emissions tests, he expressed his own incredulity that the blame lay with a couple of engineers. “I did not think that something like this was possible at the Volkswagen Group,” Horn said.
Horn and the members of Congress are not the only ones who feel betrayed by Volkswagen’s purposeful malfeasance. So do the consumers who bought into the company’s “clean diesel” marketing and purchased one of the 11 million affected Volkswagen, Audi, Skoda, and Seat cars. And the dealers, suppliers, workers, regulators, and legislators in every country who now have to deal with the aftermath feel betrayed as well.
When a high-profile consumer company, one built on confidence and specialised skill, breaches the public’s trust, the damage is enormous. The US hearings have been followed by parliamentary hearings in the United Kingdom, and more official inquiries are being launched elsewhere. In Italy and Germany, the police have searched offices and private homes to secure relevant documents. There is talk of consumer class-action suits around the world, from the US to Australia. And the European Investment Bank plans to investigate whether any of the loans extended to the company – which were linked to fulfilling climate targets – were used to rig emissions tests. If so, it could demand the money back.
With Volkswagen announcing the recall of 8.5 million cars in Europe, the company may not survive – at least not in its current form. The financial damage is set to be enormous: Volkswagen now says that it will set aside EUR 6.5 bln to cover the costs of the scandal. That may not be enough, and the company’s stock is reflecting the market’s concerns, as is its Standard & Poor’s credit rating.
The entire auto industry is now under scrutiny, as are regulators, whose testing procedures proved so easy to game and whose complex relationships with governments and auto manufacturers may not serve the public interest. And Volkswagen is so closely aligned with the German engineering “brand” that, unfair as it may be, the scandal is bound to affect the perception of other German carmakers and industries.
Here, after all, was a much-celebrated company that put its environmental credentials front and center, and then, where the rubber hits the road (so to speak), proactively cheated. Covering up a mistake, à la GM and its faulty ignition switches, is bad enough; creating and installing a piece of software designed for the sole purpose of defrauding the public is a symptom of something much worse.
A fish rots from the head. Volkswagen is well known for having a particularly poorly run and structured board: insular, inward-looking, and plagued with infighting and family rivalries. Matters came to a head last April, when thenChairman Ferdinand Piech resigned following a power struggle with the company’s (now former) CEO, Martin Winterkorn. Piech’s wife, Ursula, a former kindergarten teacher who was also a supervisory board member, resigned as well.
If these people can say with a straight face that they didn’t know what was going on, they are either not being completely forthcoming, or they failed to carry out one of a board’s fundamental duties – asking hard questions and holding the executive team to account, especially when things seem too good to be true.
Unfortunately, in the wake of the revelations, Volkswagen has squandered what could have been a watershed moment for the company – a perfect opportunity to overhaul its broken corporate governance and bring in truly independent board members and fresh new thinking at the top. Instead, Hans Dieter Potsch, Volkswagen’s chief financial officer since 2003, a true insider, has been appointed chairman of the supervisory board, and the new CEO is another insider, Matthias Muller, the former head of Volkswagen’s Porsche brand. Who will trust such a leadership’s internal inquiries and promises of transparency?
All of this comes at a time when traditional carmakers face strong challenges from outside the industry. The behaviour of companies like Volkswagen may end up encouraging consumers to shift from the industry’s incumbent manufacturers to newcomers such as Google’s forthcoming self-driving cars and Tesla’s electric models, which challenge the very premise of emissions tests.
But there is more to the story. The fact that lines of code, not a piece of plastic or metal, was used to dupe the emissions tests highlights the power and promise of sophisticated, high-tech cars that can do more than ever before. But it also exposes the pernicious possibilities of cars that have become so complex that almost no drivers know what is under the hood, what data are being collected about them, and what that means for the future.
What Volkswagen claims was the work of a couple of rogue engineers could turn out to be a catalyst for new thinking and approaches in the car industry, particularly given the possibility of new legislation to combat climate change. People would be pushed that much more quickly toward adopting cars that do not depend on fossil fuels. And the rise of new challengers would accelerate as consumers let companies know that business as usual – poor corporate governance and empty promises – will no longer be tolerated.
We are only at the beginning of what could be a long process of investigation and accountability for Volkswagen. If that process fuels wider disruption of the industry, it could hasten the dawn of a genuinely new era for human mobility.