Does VW's Diesel Fiasco Have Trucking Parallels?

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Today's Trucking / October 9, 2015

There can't be anyone on the planet who hasn't read or heard at least a few hundred words on the Volkswagen diesel emissions fiasco. But get ready for a few more because this is a story that goes way beyond a very tall company stooping very low to cheat. And it's certainly not just about cars.

For anyone who's been living under a rock, here's a brief recap: Volkswagen's 2.0-liter 'TDI' diesel engine used in several Volkswagen models sold here since 2009, along with the Audi A3, plus VW brands Skoda and Seat sold mainly in Europe, benefitted from clever engine-management software. Clever in the sense that it produced a certain emissions performance under test conditions but opened the floodgates in ordinary driving conditions and let loose anywhere from 10 to 40 times the NOx allowed by the rules, along with other pollutants at non-compliant levels. That's how VW TDI owners have been able to brag about their 50-mpg cars. Thing is, you can't limit NOx and particulates and get great fuel economy at the same time.

Those of us in trucking know that only too well.

The worst part of the story is that this deception -- of the EPA and other such institutions elsewhere, car buyers, and its own dealers -- was deliberate. Volkswagen has admitted this. Truly, it's an extraordinary tale of corporate malfeasance the likes of which we've never seen. The arrogance is astonishing.

It remains to be seen what the company will do about it, but the German government has demanded an answer to that one this week. Among the possible fixes is a recall and subsequent re-programming of every diesel VW out there. And the question then becomes, will the driveability of these 'fixed' cars be tolerable?

Some 100,000 cars are affected in Canada, almost 500,000 in the U.S., and about 11 million worldwide. And that's not to mention 2.1 million VW light and light-medium commercial trucks sold all over the place with the same diesel engine.

Although other European manufacturers of diesel cars are now under scrutiny, none of them is implicated in a similar deception.

In the U.S., and presumably in Canada, Volkswagen will face unprecedented fines, and more than a few class-action lawsuits have already been launched. A criminal investigation has been initiated by the German government but that's not on the American horizon because the country's Clean Air Act does not allow for criminal charges.

Some observers have questioned whether Volkswagen can survive this mess, its stock price having lost about a third of its value since the news broke and with more trouble to come. It's a very rich company but it may not be rich enough. Estimates of the costs it may face reach as high as US$100 billion.

The various other story lines in here include one about the legitimacy of the U.S. EPA.

The Environmental Protection Agency may well have proven itself to be pretty incompetent here. Always a political body, never a scientific or technical one, it knew about Volkswagen's cheating in May of 2014, yet it did nothing. It chose instead to accept the German giant's version of things and its unkept promise to fix things. VW stonewalled the EPA perfectly for 16 months.

This didn't come to the attention of the larger public until a couple of weeks back when the EPA issued a Notice of Violation and banned the sale of 2016-model VW diesels. Then all hell broke loose.

But it wasn't even the EPA that uncovered the deceit. Rather it was a little non-profit environmental group in California that got curious last year, having heard that European authorities were sniffing around VW's emissions claims. To see for themselves they took a VW Jetta and Passat, plus a BMW X3, all with diesel power, on a few long highway cruises. Finding outrageous emissions from the VWs, but not the BMW, they then went to the lab at West Virginia University's Center for Alternative Fuels, Engines and Emissions which confirmed the worst.

There are parallels of a sort with trucking's emissions difficulties that led to the so-called 'Consent Decree' in 1998. The U.S. Department of Justice charged heavy-duty engine makers with using a 'defeat device' as defined by the Clean Air Act, not unlike the one in the news today. But actually quite different in practice.

The engine folks never admitted guilt, signing the consent decree agreement in order to take their lumps, pay US$83 million in fines, and move on, but in any case I believe it was really EPA's crude testing procedures and imprecise rule-making that were at fault. That plus what I've heard called the enviro-zealotry of its chief at the time, Carol Browner. For all intents and purposes, she and her organization threw our favorite engine-makers under the bus -- in an election year.

EPA's test procedures back then were markedly out of date, set up for carburetion and mechanical fuel injection, not the increasingly sophisticated electronic controls that were in use on big diesels by then.

In 1998 those controls could change the timing and the amount of fuel to be injected almost infinitely in response to any number of inputs. So it was quite feasible to set the ECU to meet the NOx limit on the EPA’s test cycle, but optimize the engine for fuel consumption and performance under other circumstances.

As I understand things, engine makers felt their only legal obligation was to meet the test-cycle standards in order to secure an EPA compliance certificate.

And a very well informed source tells me that one truck-maker actually had a letter from an EPA official saying exactly that.

There was much anger in the air at the time, with truck and engine people crying foul at pretty high decibel levels, among the most vociferous being Jim Hebe of Freightliner. At least one lawsuit was filed against the EPA, by Mack if I remember correctly, and I believe the chances of winning were actually pretty good. But the EPA countered with its typical bullying, including threats to ban the sale of their engines. Soon the fight was over, truck and engine-makers deciding that discretion was the much better part of valor.

Ya can't fight city hall.

For their troubles and their imagined sins they were hit with those heavy fines, but the more onerous penalty was that the 2004 EPA emissions mandate was pulled ahead by 15 months to 2002. That cost the industry at the time something like US$820 million, and of course we all know what it cost both manufacturers and truck buyers in the long run. Billions.

An interesting parallel in there is that Caterpillar in 2002 and Volkswagen in 2009 chose to go their own ways with emissions-compliance technology.

Cat decided not to use exhaust gas recirculation at the time, as all the others had done, but couldn't meet the minimum standards of 2002/2004. They were allowed to continue selling non-compliant engines but paid hefty fines on each one sold. Eventually, of course, the company left the on-highway business altogether.

Volkswagen chose to avoid the urea-injection after-treatment approach that was adopted by Mercedes, BMW, and all other diesel car manufacturers, claiming they could use in-cylinder tools instead. We know now that, unlike Cat's honest approach to the problem, VW actually took the path of subterfuge.

The way I understand things, back in 2008-09 the company was in cost-cutting mode and was desperate to avoid the extra expense of using urea-based technology -- which would have been something like US$335 per car. Gambling that they could pull off the big lie was obviously not very smart, but it worked for a long time. Enough time to sell millions of cars.

Another irony in here is that West Virginia University did the testing on heavy-duty engines back in the late 1990s and early 2000s, just as they did last year on the little TDI diesel.

VW’s lousy behavior has also called into further question the trust that many people place in big companies, especially those with a good marketing machine in place to package any awkward deceptions. Being a cynical journalist, I'm happy to see that folks believe less and less in the inherent goodness of the giant enterprises that are so much part of our lives. And lord knows we've seen enough evidence to reinforce our doubts in recent years.

There are certainly good and honorable companies out there, even some of the big ones, and the sad thing here is that VW has almost always seemed to be on the side of the angels. Proudly proclaiming its 'green' ambitions and touting its environmentally solid answers, mostly by way of its 'clean diesel' technology, the company's hype was largely successful in recent years.

But in many outfits, big and small, the profit motive and the greed of impatient shareholders often trump any executive urge to establish and live by high moral standards. In Volkswagen's case there's an added dimension in that employees, members of the IG Metall trade union, constitute half -- yes, 10 out of 20 -- of the board of directors. So add job protection to the motivations that might be likely to leave high moral standards on the afterthought pile.

And get this, on the five-member committee charged with steering the company through this emissions scandal, three of the five are union members, according to an article in the Financial Times. The company's interim chairman is a former IG Metall guy.

In fact, VW's corporate governance has by all accounts been a subject of concern for years, its board accused variously of being too narrow, too rigid, too unskilled, too this, and too that. Apparently with good reason.

And it's not as if shareholders are likely to change things because only 12% of voting shares are held by outside investors. The company is mostly owned by the Porsche family -- yes, that Porsche, the guy who designed the original Beetle -- with remaining shares in the hands of the German State of Lower Saxony and the government of Qatar.

To the average Canadian or American, this is all pretty odd.