Monday, October 5, 2015

Volkswagen troubles from a German perspective

The story of how Volkswagen's "clean" diesels actually failed the NOx emissions tests continue to unfold.  There hasn't been such a juicy Producer Class story in a very long while.  For while the TDI line of diesels are some of the cleanest ever built, the fines and lawsuits for this environmental crime could top $100 billion.
  1. The number of affected Volkswagen and Audis is around 480,000 sold from 2009-2015 (roughly 80,000 per year).  USA isn't a huge market for VW's diesels (by comparison Toyota sold 428,606 Camrys in 2014 alone).  Worldwide, VW has sold 11 million TDIs.
  2. VW, it seems, is not the only manufacturer to build production diesels that regularly emit more NOx than the vehicles tested for certification.  The other offenders include: Volvo, Renault, Jeep, Hyundai, PSA (Citroen, Peugeot) and Fiat.
  3. In every meaningful way, VW did not cheat its customers.  The TDIs it sold were objectively better (better mileage AND performance) than ones that met the legal NOx limit.  Already Wired magazine explains that VW's USA customers are NOT going to like any of the proposed fixes.
  4. The rest of the German manufacturers are PISSED at VW for endangering the "Made in Germany" brand.  With good reason—it takes decades to build such a brand.
Complicating all this is the very real fact that Germany is the greenest industrialized country on earth with a very effective environmental movement.  Mostly because of their superior mileage, VW was marketing their TDI diesels as a green solution.  And yet these are the people being accused of cheating on emissions tests.  So what went wrong to trigger this possible $100 billion calamity?

All arrows point to one culprit—the NOx standards.  The very thing that makes diesel engines more fuel efficient (higher combustion temperatures) is what causes the formation of NOx.  This means that almost anything that decreases NOx will almost certainly decrease the efficiency of the engine.  Now whether the standards are legitimate is a whole other question but since almost everyone is forced the cheat to make an acceptable car, (2 above) and the customers will hate the legal cars (3), maybe the regulators came up with standards that effectively barred the sale of diesel cars.  VW will almost certainly stop selling diesels in the USA market.  They sell over 10 millions cars a year—they hardly need these problems to sell a mere 80,000.

What really makes this such a fine Producer Class tale is that at Volkswagen, the Instinct of Workmanship triumphed over all other considerations.  VW was simply not about to sell an inferior product just to meet rules that were set by people who don't actually have to make real hardware that conformed to them.  Faced with the prospect of selling less that they could build, they as a huge corporate giant decided to ignore the regulations.

This should be a warning to all those who think that if we can just agree to lower CO2 emissions, the solutions will arrive just like the pizza you ordered.  Well this doesn't work.  If you want to do something very difficult—and trust me, lowering CO2 will be very, VERY difficult—you need to make your plans around what is physically possible.

In the meantime, Germany is beginning to recover from this blow to one of their trophy industries.  The first two articles below come from Deutsche Welle (an official voice of the German government.)  The last is from RI and addresses the question of whether VW's woes will lead to the end of EU sanctions on Russia.

Opinion: Don't panic, Volkswagen!

DW columnist Zhang Danhong was born in Beijing and has lived in Germany for more than 20 years. 01.10.2015

Despite the harsh criticism threatening Volkswagen in Europe and America, DW columnist Zhang Danhong, in an open letter to VW, expresses confidence that Chinese car buyers will stay loyal to the brand.

Dear Volkswagen Group,

I know you're having a tough time right now. At the moment, you're the bad guys, the target of concentrated media attention of the least desirable kind: You're the scandal of the day. Journalists are working overtime on articles, op-eds and analyses, covering the full gamut of speculation about what the implications of your diesel emissions scam might prove to be.

And there's plenty to speculate about. Even the company's possible bankruptcy has been mooted! Two things could lead to your demise: Car buyers could boycott your brand, or class-action lawsuits in the USA could wipe out your balance sheet. As a side effect, the cherished reputational capital of "Made in Germany," built up over generations, could be dragged into the abyss along with VW's brand. I can well understand the doom-and-despair mood in Wolfsburg at the moment.

But: Chin up, VW! You won't go over a cliff. Your salvation has a name: China. First, because the Chinese market - your most important market - is hardly affected by the diesel emissions scam. Second, because as a German company, you've been profiting for years from the grand mythos of Germany that prevails in China, and you'll continue to do so.

I've explored in a previous column the reasons why Germany is economically successful - and why many Chinese idealise Germany as a nearly corruption-free political-economic nirvana. Scandals like the interminable delays and screwups associated with the construction of BER, the new Berlin airport, haven't tarnished Chinese faith in German virtues. On the contrary: Some Chinese actually see the controversy around such phenomena as a sign of the strict supervision and sense of responsibility of the country's supervisory boards.

This time around, you'll be able to count on the Chinese once again. The auto industry expert Zhong Shi, who is very well known in China - he's Ferdinand Dudenhöffer's Chinese equivalent - indirectly expressed his empathy for your emissions scam. As he sees it, VW overtook Toyota as the world's biggest-selling automotive group in the first half of this year, a corporate goal it achieved three years ahead of VW's target date for that marvellous milestone. To keep its nose ahead, VW, according to Zhong, had to drastically increase sales of diesel automobiles in North America. This explained, in his view, why the Germans sought to achieve a sales breakthrough with a bit of trickery. The means justified the ends: The fact that VW absolutely wanted to become Number One in the world - and stay Number One - impresses the Chinese hugely. After all, anything else would be second-class - and Germans don't do second-class.

It's the Americans' fault

Zhong also came close to suggesting the strict emissions standards in the USA were co-responsible for your disaster. He said: "Even though VW has advanced emissions control technology, it's nevertheless difficult to meet California's clean-air standards. That's why VW came up with the idea of using software to manipulate emissions test results."

Others were more direct. "If the Germans can't meet the standards, then the standards are simply unrealistic," wrote a Chinese commenter.

For many Chinese, Americans are the incarnation of evil. In the same way they've been trying to trip up China on its way to world leadership, they've also been using underhanded methods to undermine their competition. "Last year they weakened Toyota; this year it's VW's turn," wrote a commenter on Weibo, China's version of Twitter, referring to a 2014 controversy in the US alleging sticky throttles on Toyotas.

Once VW has been cast in the victim's role, all restraints on the sympathy of the Chinese for Volkswagen are unbound. An editorialist from the respected Caixin Group, a financial and business media service, rejected the use of the term "swindlers" in reference to VW, used the word "cheating" in reference to your scam only in quotation marks, and went on to say that if you did indeed "cheat", then surely it will turn out that everyone did so.

I expect you'll be so moved you'll break out in grateful tears when I reveal his concluding remarks: The US Environmental Protection Agency, he pointed out, had actually only asked for an explanation from your company asking why the diesel emissions test results measured in the laboratory were different from the emissions measured under road-driving conditions. But Volkswagen immediately admitted the existence of the deceitful software: "That's how honest the Germans are!"

This distortion of the facts went too far even for some Germany-loving Chinese. "Quite honestly, they (VW) committed a fraud on the world," a commenter posted in response to the Caixin piece.

The Japanese shouldn't get their hopes up

Yes, the image of honest and trustworthy Germans may have taken something of a hit even in China. But Asians' deeply rooted preference for German products won't change much, in the view of auto industry observer Zhong Shi. Your cars are unavoidable in the Middle Kingdom: in the first eight months of this year, six VW models were among the top 10 highest-selling cars in China. You needn't worry that large numbers of Chinese will turn away from your brand because of the emissions scandal. They'll stay true to you - not least because of a lack of plausible alternatives, because for many Chinese, buying a car from the despised Japanese simply isn't an option.

With China in the bag, you've already won half the upcoming battle. With the money earned there, you'll be able to pay the American lawyers attacking you with class-action lawsuits, and deal with the outlandish settlements they'll demand. Beyond that, you know from the experience of the tobacco companies that the German state won't allow a major tax revenue source to dry up.

The moral outrage will ebb away as well - after all, the media will soon discover some other scandal or controversy to hype and obsess over. And so I repeat: Chin up, Volkswagen! Things will work out after all.

Zhang Danhong

After initial shock, Germans rally behind VW

Peter Dahl, 01.10.2015

As Volkswagen scrambles to salvage its image in the wake of the emissions scandal, car buyers in Germany are rallying behind the country's biggest automaker, as DW reporter Peter Dahl has found out in Berlin.

A garland of blue and white balloons floats cheerfully behind the towering glass front of one of Berlin's biggest VW dealerships. But the company colored festoon can do little to distract from the fact that Volkswagen has little reason to celebrate these days.

It's been two weeks since US regulators uncovered one of the biggest scams in recent auto industry history. At the scandal's center, the German auto giant's brazen attempt to cheat on emissions tests by rigging the software of up to 11 million diesel vehicles.

The aftershock has prompted a scramble to prepare the company's death bed. The admission of guilt, some analysts claim, sounded the death knell for one of Europe's most iconic carmakers.

'VW can't be beat'

But while some disgruntled buyers outside Germany are already practicing their dancing steps for Volkswagen's wake, many people here in the nation's capital are rooting for the company to bounce back.

One of them is 48-year-old Michael, a spitfire Berliner, who runs his own cleaning business. Like many Germans, he's convinced the outrage is little more than political theater.

"Regular consumers don't care about a few extra milligrams of emissions. All they care about is getting the most bang for their buck. And when it comes to that, VW can't be beat," he told DW as he nonchalantly finished his cigarette outside the dealership. "In six months, this will all have blown over."

As his hand slowly caressed the hood of a shining new white VW van - a move that, fittingly, had also become ex-CEO Martin Winterkorn hallmark, embodying his attention to detail - Michael echoed a phrase that's become increasingly popular in some corners of the country:
"They all cheat. Volkswagen was just stupid enough to get caught."
To him, it's no surprise that it was the US that went after the German carmaker.

"Germany is the US' biggest economic competitor. Of course they're trying to ruin us. What gets me the most is the irony: That the world's leading polluter - a country where even dog houses have heaters - now wants to lecture us on environmentalism."

With the flick of a finger he sent his cigarette flying and strode towards the entrance. "I've always bought German cars," he said. "This time, it's going to be a VW Caddy. A diesel," he grinned, as he disappeared behind the balloons.

VW scandal leaves car dealers on edge

It's personal

Inside, a young salesman said business has been steady despite the scandal. "We do get a bit more wisecracks than usual, but at least no one's throwing rocks through our windows."

In Wolfsburg, home of Volkswagen, many aren't so lucky. Several have complained about being assaulted on their way to the factory. For a company where many employees hail from generations of proud VW workers and several have their company ID number inked on their bodies, this is personal.

And so it is for many around the country. To hear some Germans talk about their Volkswagen is like hearing them describe an extra member of the family: The warm memories, the fuzzy feelings, the ups and the downs. Ask them to chose between the family pup and the Passat, and the answer might surprise you.

New urgency

Two weeks on, many Germans are still shocked. Many refuse to talk when asked for a comment. Even across the street from the VW dealership in Berlin, a Jeep saleswoman tells me she's been given strict orders not to discuss the scandal. Similar reactions around the corner, where Daimler, Infiniti and Maserati stores rub shoulders.

But the initial paralysis also seems to have given way to a new sense of urgency, of wanting to stand up for one of the country's proudest exports.

Sebastian Lorenz, Vice President of Marketing and Analytics at, one of Europe's biggest online markets for new and used cars, says the emissions scandal has not affected sales in the slightest.

"We haven't seen a drop in demand for VW diesel vehicles - new or old - nor have prices gone down since the emissions scandal," said Lorenz in a statement.

'Just pick something else'

If the Audi branch across the street is any indication, that's unlikely to change. The VW Group brand has also made headlines recently for its tainted diesel cars. But that doesn't seem to bother any of the customers inside, where business is teeming.

"No one cares about emissions," one soon-to-be-owner told me as he checks out a 2-liter TDI Q3 S line in glacier white, starting at over 32,000 euros ($35,800). "Maybe the industry and the regulators care about that stuff, but all I care about is performance."

A gentleman in his mid-50s chimed in: "There are so many different models. If you don't like the diesel, just pick something else." more

German Government Wants Sanctions on Russia Lifted

Germany's auto manufacturers are among the industries taking damage
(German Economic News) 2 OCT 2015

This article originally appeared in German Economic News. Translated by Werner Schrimpf for Russia Insider.

The German government has, as of late, become increasingly nervous. It has been trapped by the U.S. administration; the sanctions against Russia have killed their exports, particularly since Germany’s most important export industry was sent reeling by the recent Volkswagen exhaust scandal. There is, however, not much left for the Germans than to issue an appeal for help – Germany is wedged, and it is the people that suffer.

Reuters recently reported that Germany’s minister for economic affairs, Mr. Sigmar Gabriel “encouraged” the lift of sanctions - essentially, he appealed strongly to the U.S. to cease imposing its sanctions. Those very sanctions by which the nations of Europe must abide were imposed upon them and enforced by the USA, putting huge pressure on the EU to bring EU member-states into line, regardless of local political will or economic consequences.

Mr. Gabriel argued that it would make very little sense to ask Russia for support in Syria, while simultaneously keeping the sanctions in force. In his words; “Everybody should be smart enough to realise that you cannot keep sanctions on the one hand and ask for cooperation on the other.” Gabriel stated last Friday in Berlin that a new and fairer relationship with Russia should start with a second pipeline (that is to say, a “Northern Stream”) and end in the lifting of sanctions.

According to the EU, the end of sanctions is one initiative attached to a comprehensive implementing of the Minsk agreement, which stipulates an armistice in Eastern Ukraine. The freedom fighters of Donetsk more or less complied with these rules, but the junta regime in Kiev did all that it could to fuel the situation. Gabriel argued: “The Ukrainian conflict must not strain the relationship between Europe, the U.S. and Russia in such a manner that Russia fells that it must step away as a partner to solve the crisis in Syria”.

Unfortunately Mr. Gabriel is late with his attempt. Russia has already begun its initiative in Syria and will, after all, conduct this initiative - even without having reached a consensus with the USA. To be realistic, Mr. Gabriel’s “words of peace” have no context to the Ukraine, and in the case of Syria apply solely to the extent that Germany’s chaotic policy towards millions of refugees from this region severely disturbs the delicate economic situation.

Just recently, the German government announced and promised an initiative of full-time effort and dedication to create hundreds of thousands of jobs for the unwashed masses of refugees flooding their country. However, the big car groups (Volkswagen taking the helm) will inevitably compensate for the billions of Euros in costs for penalties, court fees and so forth by shedding jobs, simply following the harsh logic of all global groups listed on the stock exchange. As well, there are other ugly symptoms of crisis – not just because of the millions of refugees entering Germany in great mobs to take advantage of German social housing, security and benefits, but also caused by the car makers’ extremely stupid failure in their attempt to cheat U.S. regulators.

Not surprisingly, the German government is nervous. Everyone is well aware that the exhaust scandal will significantly damage Volkswagen, and therefore consequentially, the whole German economy. According to estimates from the well-renowned financial information group “EuroIntelligence”, the monetary loss for Volkswagen could reach the sum of 100 billion Euros - this would exceed the cost of the Greek rescue adventure by a great deal, and painting German industry in a bleak light. As of late, the Financial Times – recently acquired by a Japanese group – is regularly running fierce attacks against the Germans, representative of the recent wave of anti-German sentiment held by investors. The whole business sector could well be severely affected, denting the German economy substantially.

Forcing the German car producers to execute the United States’ sanction-scheme against Russia caused great monetary consequences for all companies involved. Not only major car producers are affected, but suppliers as well - the German mid-sized companies representing the backbone of their economic powerhouse have been hit brutally, with cracks showing across the board. The German government had no real choice but to agree to the sanctions from the start, and to their prolongation. But now, when the exhaust scandal turns into global hysteria against the German car industry, the government is severely pressed to act.

Daimler’s CEO Dieter Zetsche distances himself and his company from Volkswagen; “We always obey legal rules, and would not manipulate our cars,” Zetsche told German newspaper ‘Frankfurter Allgemeine Zeitung’. According to Zetsche, no devices are, or would ever be installed, which could degrade the efficiency of the exhaust system. When asked whether all car producers are cheating, he stated; “[There is a] clear answer - no!”

Competitors, however, are looking to take advantage of the disaster. And more trouble is, of course, coming up on the horizon. VW cars under suspicion of manipulation are no longer licensed in Switzerland, for example. Swiss authorities are going to bar licensing of all concerned Volkswagen models until all assumed manipulations are cleared.

In Switzerland up to 180,000 vehicles are involved - these are mainly models from the brands Audi, Seat, Skoda and Volkswagen, produced between 2009 and 2014, those equipped with Diesel engines of the type 1.2 Tdi, 1.6 Tdi and 2.0 Tdi. So-called EURO-6 engines from the current lines of production are not affected.

The European Central Bank (ECB) has stopped the acquisition of secure car credits - an ECB insider explained that there will be an investigation before a decision will be taken as to whether Volkswagen will be expelled from ECB’s securities acquisition program. This practice of preliminarily banning these securities is a standard procedure, according to ECB officials.

There might be negative consequences on the stock markets. In the past, German car manufacturers used their lobby power in Brussels to get favourable rules on exhaust values. Fiat is out for revenge, and the Italian lobby group “Confindustria” has opposed the German car manufacturers for years, arguing they would misuse their power to achieve specific advantages from the EU - a powerful argument, given recent events.

A further problem with Volkswagen is that of the shareholders’ role of the German state of Lower Saxony. The minister for economy, Sigmar Gabriel, was a former advisor of Volkswagen in Brussels, taking care of the company’s interests in the framework of the European Union’s rule-making process. The prime minister of Lower Saxony, a member of the Social Democratic Party like Sigmar Gabriel, is still a member of Volkswagen’s supervisory board. Naturally, this causes a fair bit of finger-pointing, and not entirely without good reason.

Now, however, Sigmar Gabriel is asking the USA for mercy, in order to save what little can still be saved. This is, however, unlikely to happen - the American military-industrial complex is a cruel master, and evidently holds little sympathy for the German people - the German government is trapped. Worst of all, the CDU fellows within the government are used to following such a servile attitude towards the United States that they wholly outmanoeuvred the initiative of Mr Gabriel. The tragedy remains. “Corporate Germany” is, and will increasingly be, without power in global terms. It seems that the U.S. and Russia will once again give Germany the cold shoulder. more

1 comment:

  1. Definitely Volkswagen has betrayed the trust of so many of its users. They should do something different to restore their brand value live science