Friday, June 30, 2017

Book Review: Faster, Higher, Farther: The Volkswagen Scandal by Jack Ewing

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.