Howes: VW’s diesel dodge derails global leadership bid
When Volkswagen AG announced its intention to sell 10 million cars in a single year, effectively making it No. 1 in the world, rival CEO Sergio Marchionne quipped: “We’ve seen that movie before. It’s called World War II.”
That didn’t end well for Germany. Neither is VW’s bid for global automotive domination on the strength of its allegedly “Clean Diesel” engine technology and a retooled strategy to build its presence in the rich U.S. market.
Instead, the German automaker’s U.S. chief, Michael Horn, is set to appear Thursday before a House committee to answer for a scheme to circumvent emissions rules using a doctored software program, affecting 482,000 VW vehicles in the United States and 11 million worldwide.
He’ll apologize. He’ll promise to make repairs to the cars. He’ll go through the necessary damage-control motions, none of which will slow mounting lawsuits, appease customers or soften the indignation of federal regulators feeling duped by German engineering and slick marketing.
The ambition to be No. 1 isn’t all it’s cracked up to be. Too often, it is proving to be a fraught gambit luring the ambitious into making risky bets their organizations cannot execute — just ask Toyota Motor Corp. and General Motors Co., each evidence that the drive toward the top of the heap can exact a terrible price.
“The Germans may be coming to the humble party, reluctantly,” says David Cole, chairman emeritus of the Ann Arbor-based Center for Automotive Research. “They’re going to have to change. The whole issue with VW is the ... nefarious cheating.
“I’ve never seen an issue which has such a large impact on the market cap of VW. Nobody likes a cheater, and there’s less forgiveness for cheating than mistakes. Market share is nice; profits are critical.”
The lesson can be hard-learned among the Masters of the Automotive Universe, especially in an era of comparatively impatient capital and a stringent regulatory environment setting increasingly rigorous targets for safety, emissions and fuel-economy standards.
It’s hard to overstate the seriousness of VW’s apparent premeditation. The scandal, which already claimed a CEO, is rocking a cornerstone of Germany’s mythical Deutschland AG construct and shaking the country’s collective belief that its business leaders play by the rules.
Until they don’t. Until their lies are exposed, customers are alienated, and whole governments — from Washington and London to Paris and Berlin — take equal measure of the arrogance, deception and trickery embedded in Wolfsburg.
Now they have a gift that will keep on giving. It will be expensive and litigious, humbling and embarrassing; it will shake cities whose fortunes are partially tied to VW’s success, including Chattanooga, Tenn., site of the automaker’s only U.S. plant.; and it’s already depressed prices of used VW-brand diesel cars more than 13 percent, according to Kelley Blue Book.
Faced with tough federal emissions rules, and an imperative to rebuild its VW-brand business in the influential U.S. market, individuals in the automaker’s engine development group devised software that engaged pollution controls only during emissions testing.
Whether they did it on their own or at the behest of the senior management remains to be seen. But in a company famous for its central control, and engineering prowess at the highest reaches of senior management, it’s hard to believe top managers failed to know VW could hit emissions targets its rivals repeatedly could not.
Driving it all: increasingly tough regulatory standards and a lust for growth that theoretically could culminate in VW being No. 1, the top of the heap, bigger than GM, better than Toyota and smarter than them all.
Or not. Dramatic increases in federal fuel economy rules, coupled with strict diesel emissions targets, are inducing a sort of controlled chaos in the auto industry because no one really knows how their engineering teams will hit goals set by Obama administration and its regulators.
The irony is that the more automakers improve fuel economy, the less consumers benefit from the improvements as measured in fuel-cost savings and emissions, according to analysis by Cole’s CAR. Not that the rule makers care, much less understand the ramifications of their decisions.
Still, the engineering challenges mount, explaining why a German automaker with massive investment in diesel engine technology might decide to tweak controls of its favorite technology to meet tough fuel-economy rules.
They got caught, and VW is just beginning to pay a price that could be the largest ever tallied by global automaker.
Daniel.Howes@detroitnews.com
(313) 222-2106
Daniel Howes’ column runs Tuesdays, Thursdays and Fridays and can be found at http://detroitnews.com/staff/27151.
Catch him 3 and 10 p.m. Thursdays on Michigan Radio’s “Stateside,” 91.7 FM.