Jack Ewing on Volkswagen Clean Diesel and Corporate Crime

New York Times reporter Jack Ewing is first out of the gate with a book on the Volkswagen clean diesel corporate crime. And even before he began writing the book, when the book was in proposal form, the rights were snatched up by Leonardo DiCaprio for the movie.

Threatened by Toyota’s worldwide sales of the hybrid Prius, VW decided it was going to counter with a “clean diesel” series of cars. One problem? VW’s engineers couldn’t figure out how to meet U.S. emissions standards.

So they cheated. How?

Federal regulators tested automobile emissions in labs, on rollers. VW engineered a defeat device in the software of the cars. When the VW car recognized that it was being tested in the lab – little or no movement of the steering wheel, for example –  then the emissions control device kicked in. But when the VW car recognized it was on the road, it began spewing deadly nitrogen oxide.

This went on for ten years.

When researchers and regulators got onto VW, VW covered up the crime.

The result? A corporate criminal guilty plea in the United States. U.S. and German prosecutors on the tail of VW executives in Germany and the United States. More than $20 billion in penalties. And the reputation of VW, and German engineering, in tatters.

How did Ewing’s book – Faster, Higher, Farther: The Volkswagen Scandal (Norton, May 2017) – come about?

“I was covering it from the beginning,” Ewing told Corporate Crime Reporter in an interview last week. “I was two weeks into the story when I got an email from John Glusman, who is the editor in chief at Norton. He was asking whether I would be interested in writing a book. I said – sure. I had informal contacts with an agent – Marly Rusoff. She very quickly worked out a deal with Norton.”

“Then she gave my proposal to Shari Smiley at the Gotham Group. She took my proposal around. I woke up one morning and there was an email saying that Leonardo DiCaprio was interested in the project. That blew my socks off. And he bought an option on the book. And he’s working through his production company, Appian Way with Paramount. I have limited insight into what is going on – but they are progressing toward the film.”

And they bought the rights before the book was written?

“Yes. Which was a bit scary. That meant the expectations were pretty high. Just to write a book for a major publisher – the expectations are pretty high to begin with. But then when you have this Hollywood film studio waiting for the result, that was pretty scary.”

What’s the nutshell version of the scandal?

“Around 2007, VW had a new diesel car they wanted to sell in the United States. They had this idea that with clean diesel they could compete with Toyota for environmentally conscious buyers.”

“But they developed a motor that they realized wasn’t going to meet U.S. emission standards. So they came up with software that turned up the emissions equipment whenever the car was on rollers. The rest of the time, they dialed back the emission controls to protect some of the sensitive parts – the catalytic converters and others – which couldn’t continuously meet the emissions standards.”

“That’s illegal. It’s called a defeat device. That was around 2007. They went on to install that engine in around 500,000 cars in the United States and around 11 million cars worldwide. That was their main two liter diesel engine.”

“Around 2014, researchers at West Virginia University had a grant to study diesels in the United States. They noticed that the Volkswagens were behaving strangely. That promoted the regulators to start looking. And it also prompted VW to mount a pretty substantial cover-up. Eventually, VW was cornered and confessed in September 2015.”

This defeat device was in every VW diesel car. And many people within the company knew about it. And yet there wasn’t one whistleblower who came forward and raised the red flag and went public. Why no whistleblower?

“It was fear. It’s a big step for an engineer at VW to go to some outsider and report this. In a healthy company, somebody would have felt — this is wrong — and felt they could take it to top management. And if you had a robust compliance operation, you could go to them and say –  something is going on here. It’s bad. Volkswagen didn’t have that. It’s obvious that you don’t have a smoking gun saying that management knew specifically about this or ordered it. But certainly the engineers and managers worked on it – and that goes right up to the people who reported to the management board – they obviously didn’t reveal this was something they could take to the management board and a get a sympathetic hearing. That says a lot about Volkswagen’s culture.”

West Virginia gets a bad rap on a wide range of issues – from public health to environmental destruction – but people in West Virginia are taking pride in WVU researchers finding out about this international corporate crime. But in your book, you say it was an EPA type in Europe who went to West Virginia.

“You are referring to Axel Friedrich of the International Council on Clean Transportation, who was suspicious of clean diesel for a long time. He was active in the ICCT for a long time. He was one of the co-founders. And he said — let’s find out how the German carmakers are delivering clean diesels in the United States that they claim they cannot deliver in Europe. There was a debate in Europe at the time about tightening the standards.”

It wasn’t that Friedrich suspected that something was wrong with VW diesel engines.

“Their working assumption was that car makers were just cheap or lazy. They can meet standards in the United States, and they don’t want to do it in Europe because it would cost them more money. Carmakers hate to spend money on emissions control because it’s not a selling point for the car. A very small percentage of people walk into a dealership and say – what kind of emissions does this car produce?”

“Their expectation was that they would find that carmakers were using better technology for cars in the states than for cars in Europe. Then of course, when West Virginia got out onto the road with this portable emissions equipment, they found that the Volkswagen behaved strangely. But as I say in the book, the people in West Virginia didn’t realize that they had found wrongdoing or a scandal. They realized that something was wrong. But like a lot of people, they had a lot of trust in Volkswagen and respect for Volkswagen engineering. They thought it must be some kind of technical problem. Emissions equipment is very sensitive. It’s easy to throw it off. They thought it was something like that. They were pretty floored when the EPA, many months later, came out with a notice of violation.”

Would you say that Axel Friedrich was the one who triggered the series of events that led to the enforcement actions?

“I avoided trying to identify one hero. Friedrich was an essential link in the chain. But so were the graduate students at West Virginia University –  they were ingenious in making this portable system work. It wouldn’t have happened without Dan Carder, the man who runs the center at WVU. He was also very inventive in the way he deals with limited resources. And then there was the California Air Resources Board and their persistence in tracking the whole thing down, not giving up, and not letting themselves be diverted by Volkswagen –  until finally Volkswagen ran out of excuses and confessed. It makes a great story if you can identify one hero and make them the center of the book.”

VW has hired Jones Day to do an internal investigation. Has anybody seen the Jones Day reports?

“Some of the documents have leaked out. And the story I’m writing is based on some of those documents. But VW actually said there is no report, that Jones day collected documents and turned them over to the prosecutors. VW says the report is the statement of facts in the plea agreement. That’s the report and we are not putting out anything besides that. It’s 30 or 40 pages. Certainly a thorough report would be much longer.”

The Valukas report on the GM ignition switch case was more than 300 pages.

“VW said there is not going to be anything like that. They have been taking criticism. The shareholders can get up at the shareholder meeting and say whatever they want, but the Porsche family and the workers control almost 90 percent of the voting shares. There is not much anyone can do.”

After the interview with Ewing, the Times went to print with a story by Ewing reporting that “internal company emails and memos indicate that engineers wanted approval from top managers to deploy the illegal software almost from the beginning, with regular status reports noting that high-level signoff was necessary.”

“The emissions issue was the main agenda for a 2007 meeting attended by Matthias Muller, the current chief executive, who was then Volkswagen’s head of product planning, as well as Martin Winterkorn, the chief executive at the time,” Ewing reported. “A presentation for the meeting detailed plans to conceal excess emissions of diesel cars in the United States, including the so-called defeat device at the center of the crime.” “Volkswagen said there was no evidence that either executive saw the presentation. An internal summary of the meeting prepared shortly after it took place made no mention of the illegal software. Mr. Muller and Mr. Winterkorn have denied wrongdoing.”

[For the complete q/a format Interview with Jack Ewing, see 31 Corporate Crime Reporter 21(11), Monday May 22, 2017, print edition only.]

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