Howes: VW’s ‘Clean Diesel’ duplicity exacts steep cost

Daniel Howes
The Detroit News

Few things in the annals of rude American awakenings can rival Volkswagen AG’s $14.7 billion comeuppance.

The feds’ settlement with Germany’s No. 1 automaker is said to be one of the largest consumer protection and Federal Trade Commission settlements in U.S. history. The message is unambiguous from the Environmental Protection Agency, its sibling in California and an aggressive plaintiffs bar rightly feared in German business circles:

Lying to regulators and deceiving customers with a scheme to deliberately skirt American anti-pollution regulations will cost violators, huge. It will consume the bottom line, shake management and major shareholders to their core, and irrevocably tarnish the “Clean Diesel” brand VW falsely touted.

Judging by the massive price tag of the settlement announced this week, however, VW’s sin of gaming the emissions-control systems on its 2-liter diesel engines — enabling them to spew 40 times the allowable nitrogen oxides into the atmosphere — apparently is more egregious to U.S. officials than actually being implicated in the deaths of customers.

What that says about the primacy of environmental regulations and the government’s readiness to enforce them speaks volumes in the era of climate change. Government leverages its power to achieve policy ends by forcing private companies to pay for it now in terms of investment or pay for it later in fines and penalties.

EPA Administrator Gina McCarthy says the settlement “restores clean air protections that Volkswagen so blatantly violated” and “secures billions of dollars in investments to make our air and our auto industry even cleaner for generations of Americans to come.”

The numbers do the talking. VW’s settlement of nearly $15 billion is more than 10 times what Toyota Motor Corp. paid to settle criminal charges in its sudden-acceleration case. It’s roughly 16 times General Motors Co.’s settlement for malfunctioning switches that interfered with air-bag deployments, claiming more than 120 lives.

VW’s deal with U.S. regulators and lawyers closes a chapter in the epic saga. Civil and criminal investigations in multiple countries continue, all but ensuring the Wolfsburg-based automaker’s de facto admission of cheating cannot be shed just because bureaucrats and lawyers say in settlement papers there’s no such admission.

Doesn’t work that way in the real world of 24/7 news cycles, social media and a generalized antipathy toward sanctimonious German auto executives caught lying – repeatedly – to American consumers. “Clean Diesel,” eh? Wrong.

VW’s scandal is likely to intensify reappraisals of diesel engines in the United States and much of western Europe, empowering anti-diesel environmentalists and buttressing their case for both hybrid and pure electric powertrains. That could imperil huge investments by European (especially German) automakers in a technology once again proven to be dirtier than its proponents allow.

The record settlement with American officials is likely to leave an indelible stain on VW’s eponymous brand. It’s an embarrassment for German industry, for the vaunted “Deutschland AG” model, even for a nation that prides itself on the competence, excellence and probity of its corporate players.

Or not, as VW demonstrates. Remember, this is not a publicly traded company akin to its industry peers. The Porsche-Piëch clan and the state of Lower Saxony control roughly 70 percent of Volkswagen shares, each deeply invested in maintaining the status quo and bloated payrolls.

Half its governing supervisory board — and its deputy chairman — represent employees and labor unions. The prime minister of Lower Saxony, the state surrounding VW headquarters, sits on the board. Like the Porsche and Piëch block, they have scant interest in change, so long as they can weather one of the toughest existential challenges this side of bankruptcy.

The scale of VW’s duplicity, and the penalty exacted for getting caught, should necessitate a broader restructuring of how the company operates and who leads it. But if the past nine months or so are any indication, VW is more likely to choose writing bigger checks over attacking the culture of arrogance and mendacity that enabled one of the biggest scandals in modern German corporate history.

It already has. The automaker agreed to establish a $10 billion fund that would enable owners of 475,000 VW and Audi 2-liter diesel-powered vehicles to terminate their leases or have the company buy back their cars. And it will spend another $4.7 billion to invest in green engine technology and offset pollution from its dirty diesels.

VW is learning the hard way that atonement, American-style, can be very expensive. It is just beginning.

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Daniel Howes’ column runs Tuesdays, Thursdays and Fridays. Follow him on Twitter @DanielHowes_TDN, or catch him 3 and 10 p.m. Thursdays on Michigan Radio’s “Stateside,” 91.7 FM.