Jack Ewing’s book on the Volkswagen diesel scandal, Faster, Higher, Farther, is of more than
passing interest to me, since, until recently, I was the owner of a 2010 VW
Jetta SportWagen TDI, one of the cars with the “defeat device,” which enabled
cheating on emissions tests. In fact, I ordered the book the day after I
finalized selling back my car to VW under the settlement agreement approved by
U.S. District Judge Charles Breyer (the brother of Supreme Court Justice
Stephen Breyer).
Mr. Ewing, a Frankfurt-based business reporter for
the New York Times whose beat
included reporting on the VW scandal, details the lengths VW went in
perpetrating a fraud on regulators and consumers, which also affected public
health and contributed to greenhouse gases present in the atmosphere. VW had
aggressively marketed its passenger diesel cars starting in 2009 as “clean
diesel,” but these cars had polluted the air with various forms of nitrogen
oxides. Researchers at the University of West Virginia discovered that VW
diesel cars polluted way in excess of legal limits on nitrogen oxides when
tested on the road rather than in the lab. The VW researchers were not initially
hired to prove fraudulent behavior by VW. The hope was that their work would demonstrate
the efficacy of diesel emission technology. They were surprised by what they
found and reported it to both the California Air Resources Board (“CARB”) and
the EPA.
Nitrous oxide (N2O) is a powerful and
long-lasting greenhouse gas and nitrogen dioxide (NO2) contributes
to smog and can cause respiratory and other serious health problems. VW’s
attempt at a cover-up after its diesel cars were found to vastly exceed the
permitted level of nitrogen oxides emissions in road tests wasted regulators’
time and resources. VW piled lie upon lie. Even an implemented software fix was
a lie. The software download of recalled cars (mine was one of them) actually
served to improve the defeat device. When VW ran out of lies and came clean
about what they had done, government officials threw the book at the company.
For those interested in the VW scandal or the car
industry, there is much to learn from this book, including the origins and
history of this peculiar car company and its culture. When it comes to diesel,
and its pollutants, I learned that the nitrogen oxides emissions are not due to
the chemical makeup of diesel (as carbon dioxide pollution is), but to the heat
of the engine acting on the nitrogen and oxygen in the air. Since diesel
engines run hotter than gasoline engines, nitrogen oxides are a bigger problem
with diesel. No amount of refining will eliminate this; emission control
systems have to either trap the nitrogen oxides or break up the molecules.
Also, I learned the reason I got better mileage on
the highway with my car than the advertised EPA number. The car was rated at 42
miles per gallon on the highway, but in actuality, I got closer to 50. I was
not alone in experiencing the excellent highway mileage. Of course, the highway
mileage was nice, but one of the reasons for it isn’t. My car had a “lean NOx
trap” which periodically needed to be flushed with diesel fuel. Because of the
defeat device, less fuel was used for this purpose than was optimal for the
trap to work properly, and consequently mileage improved.
The other technology used to reduce emissions of
nitrogen oxides is a selective catalytic reduction system (SCR) which uses a
urea fluid to break down nitrogen oxides into nitrogen, water, and a minor
amount of carbon dioxide. Recent VW Jetta TDI’s were
equipped with an SCR, but, according to Ewing, VW decided to use less fluid
than necessary because they did not want owners to have to fill the urea tank
between oil changes and they did not want to put in a larger urea tank. These
cars are easier to fix than the ones with the trap and some have an approved
fix. It is worth noting in this connection that the non-VW car the researchers
from the University of West Virginia tested, a BMW diesel, had both a trap and an
SCR, and there were no significant discrepancies in emissions between testing
on rollers and on the road. Presumably VW could not afford to do that, given
that it customers are not willing to pay BMW prices for a VW car.
While this is all very informative, it is fair to
warn what this book will not tell you is who the responsible parties were for
the decisions leading to this massive fraud. Ewing obviously does not give any
credence to VW’s initial story that this was just the work of a few engineers.
Management had to have known. However, we still do not have the definitive
story about who initially suggested using a defeat device, who made the
decision to install these devices worldwide, and how a flat-out fraudulent
market campaign about clean diesel came about.
The author does, though, paint a devastating picture
of the company’s culture, which ultimately led to its mishandling of this fraud
once government official learned that there was an emissions problem with these
cars. They provided excuse upon excuse, and initially officials at the EPA and CARB
gave the company the benefit of the doubt. Describing the scene at an industry
conference at Asilomar, a California resort near Monterrey, when Stuart
Johnson, a VW official, finally admitted to a CARB official, Alberto Ayala,
about the use of a defeat device, Ewing writes: “Ayala was furious, and he let
Johnson know it. He allowed he might have used a few obscenities. For well over
a year, CARB had been giving Volkswagen the benefit of the doubt, expending
countless hours to solve what the company insisted was a technical problem. Now
Ayala realized that Volkswagen had knowingly squandered California taxpayer
dollars. The company had drained resources that CARB should have been using to
help other automakers get their new cars certified. Volkswagen had prolonged
the amount of time that polluting vehicles were on California highways.” The
author notes that Johnson made this confession to Ayala and to an EPA official
present at the conference “apparently…despite orders from above not to.”
VW’s cheating and subsequent handling of the diesel
crisis makes it difficult to trust the company. For example in the epilogue,
Ewing points out that VW may have been cheating in 2016 on the carbon dioxide emissions
of certain Audi models. Apparently the automatic transmission of these vehicles
worked differently in test conditions than on the road in such a way as to
reduce the emission of carbon dioxide. Whether
this was deliberate is unclear, but regulators in the U.S. and Europe are
unlikely to give VW the benefit of the doubt.
While this book is an important contribution to our
understanding of a major fraud, the story of which is still ongoing, I will
mention a few quibbles.
Ewing explains that diesel engines get better
mileage than gasoline ones because they are more efficient. That is not the
whole story. Diesel weighs about 7.5 pounds per gallon, while gasoline weighs about
6.3 pounds per gallon. In other words it takes more crude oil to make a gallon
of diesel than a gallon of gasoline. If one calculated miles per pound, diesel
would likely in most, if not all, cases still have an advantage, but it would
be less. (I wrote about what I call volume illusion here.)
Also, the author provides quite a bit of detail
concerning the relationship of VW and Porsche, including takeover attempts. This
is a complicated story, and the author does not clearly explain why he thinks
this story’s details are relevant to the diesel scandal.
It would have been more useful to focus in greater
detail on European government officials’ mistake of encouraging diesel cars,
including taxing diesel less than gasoline. Their focus was on carbon dioxide
and not on nitrous oxides. The prevalence of diesel cars in Europe has caused
serious pollution problems in London and Paris. This was an enormous public
policy mistake.
Also, I would have been interested to know more
about Michael Horn, the CEO of the Volkswagen Group of America when the diesel scandal broke.
Many observers though he was candid about the problems, which included
testifying at Congressional hearing, and U.S. dealers acted to save his job
when VW’s German headquarters apparently wanted to remove him. The dealers
thought he was the man to lead them through this crisis. One of his actions in
the aftermath was designed to help dealers while at the same time making a
small amend to owners of VW diesel cars. VW offered U.S. owners of diesel cars
a $500 gift card that could be used anywhere and another $500 gift card that
could only be used at a VW dealer. The second gift card likely drove more parts
and service business to dealers that may have otherwise gone to independent
shops. However, on March 9, 2016, Horn abruptly resigned and left the United
States and has disappeared from public view. He may have feared legal action
against him in the U.S., and also he may have lost favor with his bosses in
Germany, who reportedly were not thrilled with the gift card offer and may have
had other reasons to see Horn gone. The story of what happened has not been
told, and Ewing may not have been able to find out much about this.
As a final note, followers of current developments
in Washington, DC will be interested to know that both Robert Mueller and Sally
Yates have significant roles in this story. Judge Breyer appointed Robert
Mueller, the former director of the FBI and the current special counsel
investigating the Trump Administration, as a special settlement master. In
effect, he was a mediator between VW and the lawyers representing diesel car
owners while they were in talks that eventually resulted in the settlement.
Mueller was at the time a partner at WilmerHale, a major law firm.
Sally Yates, who was fired by President Trump after
she announced that the Justice Department would not defend the Administration’s
travel ban as long as she was acting Attorney General, was Deputy Attorney
General in 2015 when she wrote a memo, according to Ewing, “instructing the [Justice]
department’s lawyers not to agree to settlements with corporations accused of
wrongdoing unless they also included punishment for the people responsible. The
memo, which attracted wide attention, made it clear that the government should
not be content with nabbing a few middle managers. Investigators should target ‘high-level
executives, who may be insulated from the day-to-day activity in which the
misconduct occurs.” This memo was presumably a response to the 2008 financial
crisis, in the aftermath of which, Ewing points out that “shareholders often
wound up bearing the financial burden of fines, while managers walked away
richer.” Currently, there are individuals who held responsible positions at VW
while the diesel cheating was taking place who cannot leave Germany, even to
another European country, because of fear of being extradited to the U.S. One
VW executive, Oliver Schmidt made the mistake of traveling to the U.S. He was arrested
by FBI agents on January 7, 2017, and according to the author, a federal judge
in Detroit refused his request for bail, and his case is scheduled to go to
trial in January 2018.
