Had Martin Winterkorn conceded defeat in his boardroom battle with Volkswagen (VW) corporate patriarch Ferdinand Piëch five months ago, he would have avoided the disgrace of the US pollution control scandal, which wiped almost a quarter off the value of VW’s stock.
Instead, Winterkorn, having recently been given a five-year extension on his contract, has some tough questions to answer.
Before becoming chief executive in 2007, Winterkorn was VW’s top executive responsible for “technical development”. The cars, which according to the US Environmental Protection Agency (EPA) came with software that cheated emission tests, were mainly produced from 2009 on. On Winterkorn’s watch, the German vehicle maker apparently put its considerable engineering expertise to underhand use in support of the questionable business decision to meet ever stricter emission rules by betting heavily on diesel technology.
It was in 2007 that the US announced tougher curbs on the emission of nitrogen oxide (NOx) and VW suspended sales of its diesel cars there. It told the public, however, that it had something up its sleeve.
Not-so-clean diesels
VW’s June 2007 strategy, published six months after Winterkorn took over, said independence from fossil fuels lay at the end of the industry’s evolutionary path. But existing technology would still dominate for a long time, so VW would concentrate on fitting it to the new standards.
“New powertrains, including an engine concept developed for use in the US, under the title BlueTDI, are already in the prototype stage,” the document said. “These engines will fulfil the toughest emissions laws in the world – even the so-called Tier2 Bin5 in California, one of the most stringent emissions standards in the world.”
In 2008, VW announced BlueTDI was complete and cars with these engines – the ones the EPA has now found in violation of the US Clean Air Act – went on sale in 2009.
The problem with “clean diesels” that aren’t that clean has been known for years in Europe, where diesel cars routinely account for more than 50 percent of new vehicle registrations. In 2013 Janez Potocnik, then the EU’s environment commissioner, called for a compliance crackdown on diesel fuel cars. Last year, the International Council on Clean Transportation put out a white paper on diesel cars’ “real-world” NOx emissions and concluded the technology for their reduction already existed; only car makers were slow to adopt it.
The tests run for the white paper showed, for example, that cars equipped with so-called “selective catalytic reduction” were best at reducing NOx, while “a lean NOx trap”, used in the first version of the BlueTDI engines, was insufficient.
With hindsight, it appears that VW realised its early “clean diesels” didn’t really conform to environmental standards, so it added software that turned up the emission control systems when tests were run and turned them down again afterwards.
Climate protection is costly
Winterkorn has promised to make VW a leader in environmental protection but the cost of compliance has been a source of angst for him. “Climate protection is not available free of charge,” he railed at the Paris Motor Show last year. “Every gram of reduction in carbon dioxide costs us e100 million (R1.5 billion). Every gram!”
In the US, the cost was higher than that: VW was losing share in the world’s biggest car market because it couldn’t sell diesel cars there. Its North American sales took a e1.4bn dip in 2007 and kept sliding during 2009 before rebounding strongly.
The rebound took place in large part thanks to the new diesel engines, which were the mainstay of VW’s US strategy. In a March 2015 presentation, the German company boasted that it had sold 70 percent of all “clean diesel” cars in the US – 98 500. That was 16 percent of its unit sales last year.
It doesn’t really matter whether Winterkorn knew how VW engineers enabled the business decision to introduce the new diesels before they were “clean” enough. As Ferdinand Dudenhöffer, a professor at the University of Duisburg-Essen who has consulted top German car manufacturers, told the local newspaper: “Either Winterkorn knew what was going on, and that’s bad for him, or he didn’t know what was going on, which is even worse. That would mean he didn’t have a grip on his business.”
The chief executive now says resolving the US problem is a “first priority” for him, because it’s a matter of trust in the company. It should have become a priority sooner – at least when European officials started talking about discrepancies between lab and road tests for diesel emissions. It shouldn’t have taken EPA intervention, as well as what will probably be a multibillion-dollar fine.
VW should never have been so exposed to the US charges. Its dominance in diesel cars – the result of a Winterkorn decision – became a problem that will set back the company’s effort to remain competitive in the US. This year, VW overtook Toyota to become the world’s biggest car maker. This will undermine its leadership in the industry. To maintain it, VW needs to restore faith in its leadership first.
BUSINESS REPORT