Friday, September 25, 2015

Industry News: VW's diesel cheating scandal could have widespread repercussions for the automotive industry

By now, unless you literally live under a rock, you must have heard about VW's scandal over its diesel engines cheating on emissions tests. In case you were indeed under said rock, the VW 2.0L disesel four cylinder motor was found to have different tuning in the test mode used to perform emissions testing. That different tuning was used to reduce NOx emissions to within spec to pass emissions tests, but was not reflective of how the car actually performed in the real world. According to VW, forcing the car to run on the tune that passes the emissions tests also drastically reduces the fuel economy and performance, which are the only real reasons anyone buys diesel in the land of heavily subsidized gasoline that is America.

Of course, VW is now feeling the pain of this scandal, having suffered a huge hit against its stock in global markets as well as having to shake up a sizable portion of its senior leadership, including the resignation of CEO Martin Winterkorn (although he may get a big golden parachute so don't waste your tears on him). With numbers already struggling in the US and diesels accounting for a rather surprisingly large portion of VW sales here, this scandal could not come at a worse time for the company.

But the real damage has only just begun.

In uncovering VW's duplicity, it has come to light that other automakers are also doing the exact same thing. BMW's diesel X3 and several of GM's small diesel engines have come under scrutiny as a result of VW's indiscretion. From the looks of it, we may have only uncovered the tip of the iceberg as more models from other manufacturers are starting to be named for having taken advantage of the same cheating technique that VW used. While the current furor is over diesel engines, it is likely that emissions testing requirements for all vehicles will now come under much greater scrutiny with the EPA already announcing that they will be reexamining their testing procedures.

Longer term, VW just did a tremendous disservice to the reputation of clean diesel. Because of the deceitful actions, some buyers who were proponents for clean diesel may see themselves giving up on the fuel because they felt cheated by VW. Others may decide that they will not sacrifice the fuel economy and performance in order to meet the emissions standards, but will likely begin to question if diesel is really as clean as has been claimed. And worst of all, by doing what it did, VW has inadvertently changed the entire discussion about clean diesels from "so how do like your diesel" to "do you have one of those diesels that cheated the EPA testing?" That kind of damage to the image of clean diesels, especially since VW has spent an inordinate amount of money, energy, and marketing to build the image of the diesel as the next logical step from gasoline here in the US. That is going to set diesel back even further from becoming a viable alternative as people's impressions of diesel will be tainted by this scandal for some time to come.

Most importantly, by its actions, VW has violated the trust of the consumer and at a time when consumer trust of automakers could ill afford more negative press, already hit with numerous scandals (GM's ignition recall, the Takata airbag recall, to name a few). While the effect on sales is likely not going to be immediate, the distrust that such deception can sow may have longer lasting effects than are immediately noticeable. For a year when car sales were showing signs of real recovery after being the doldrums from the financial crisis of 2008 and subsequent slow recovery, shaking the trust of consumers does not bode well and sowing confusion only benefits upstarts like Tesla, whose business model is dissimilar enough from other automakers that it might the only one to come out of this mess not smelling to high heaven.

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