NOT CLEAR ON YOUR STRATEGY HERE

By now even people who don't follow automotive news have heard that Volkswagen has been caught red-handed pulling a scam on US and EU regulatory agencies. By submitting cars with altered software for testing – allowing its diesel models to appear to produce considerably less pollution than they do in reality – the company effectively defrauded consumers, government regulators, their own dealer network, and, you know, the planet. Even before lawsuits and criminal penalties are handed down, the scandal figures to cost the company at least the $7 billion it has set aside for the cost of updating consumers' cars to meet the stated pollution standards. For the unfamiliar, diesels achieve excellent fuel economy and tend to be more durable in the long term with the downside that they are very dirty in terms of emissions. For years the promise of "clean diesel" seemed too good to be true. Turns out it is.

This is no accident, of course. The deception was premeditated, cleverly planned, and flawlessly executed. Whenever corporate America is caught in a scandal like this I am left scratching my head at their logic. In this instance it was, from the very inception, only a matter of time until the truth was uncovered. Some car magazine or consumers' group would conduct a test using their own equipment and find exhaust emissions far dirtier than the company stated (and EPA certified) figures. How does the company simply plow ahead in this situation? Do they start down the path of trying to cheat and then, finding themselves in too deep to back out, go for the gusto? Do they delude themselves into thinking that they are so brilliant that they will fool everybody? Do they believe that they will be caught but that no one will dare prosecute them? Did they cynically decide that they would make more money off of the deception than getting caught would cost them in the long run? Or do a handful of people within the company decide that since they are highly unlikely to be held legally responsible personally, they will benefit from the deception handsomely and then live off the proceeds after they're eventually discovered (and probably fired)?

It's hard to conceive of any situation in which this wouldn't end badly for the company. If anyone could come up with a suitably grand delusion, though, it's the kind of people one finds in corporate boardrooms and office complexes these days.

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46 Responses to “NOT CLEAR ON YOUR STRATEGY HERE”

  1. Dr. Acula Says:

    Well said.

  2. Skipper Says:

    Corporate America? I believe this was Corporate Germany. No worries though. Corporations these days are global and have no national allegiances. They are out to screw all countries equally.

  3. Xynzee Says:

    It's a darn good thing we can trust the pharmaceutical companies.

    When I first heard this I was wondering about the probe they'd put in the car's exhaust pipe—get your mind out of the gutter—for dmv inspections. Certainly some inquisitive bright spark—not everyone at the test centres are mindless drones—would see the numbers and think something's amiss.

    Prolly it's a case of not being held personally liable. Ford Pinto? I often think that if the "Captains of Industry" want that title, then perhaps the corporate codes need a good dose of maritime law added to them. As Cmd Farrington said after the HMS Nottingham ran aground, "If your ship runs aground you get court martialed."

  4. Tigue Dongle Says:

    I also have low opinions of Titans of Industry, but I would like to add one more possibility to Ed's list, maybe it belongs under the 'go for the gusto' heading: an executive who has announced that there will be an affordable small diesel engine which passes all environmental specs does not want to be bothered with details, like maybe the fact that it is impossible to produce such a thing. That's why he has directors & assistant department heads & sub-deputy assistant chamberlains: to take care of the annoying details. If anyone is actually prosecuted, you know it's going to be low-level people who were just trying to meet their monthly quotas or check off their action items.

  5. Nan Says:

    I, too, found myself remembering the Pinto. Lee Iacocca was determined that Ford would produce a car they could sell for under $3,000. The engineers realized that the fuel system had serious design flaws that could turn the vehicle into a giant Molotov cocktail. Fixing those flaws would kick the price over the magic number, so they did a cost-benefit analysis in which they figured out how many people were likely to die in Pintos and what it would cost to pay off lawsuits. The conclusion was it was cheaper to let a few people die so Ford could keep the price low than it was to resign themselves to going a few dollars over their target number. I find it totally believable that VW would decide it would be cheaper to pay the fines when they eventually got caught than it would be to be honest and admit fuel efficiency and clean diesel were mutually exclusive. When decisions are being made in corporate boardrooms (or even low-level management meetings) profit almost always wins out over common human decency.

  6. Hobbes Says:

    I mean, I was already glad to have gone car-free for various reasons, but damn, now I'm REALLY glad I offloaded that 2009 Jetta diesel back in 2010…

  7. Bill Says:

    Caterpillar and 6 other engine makers were accused of doing pretty much the exact same thing 17 years ago. They paid a total of $1 billion.

    http://www.marketwatch.com/story/volkswagen-not-first-to-be-accused-of-using-software-to-fool-regulators-2015-09-22?link=MW_home_latest_news

  8. Rugosa Says:

    It always amuses me to see people put as much or more effort into cheating than they would in simply following the rules. This is as true of students cheating on exams as of corporations flouting regulation or millionaires avoiding taxes. It seems for some people, flouting the rules is the point.

  9. Nyd3030 Says:

    Ever heard the phrase 'IBG, YBG?' It means 'I'll be gone, you'll be gone' and I believe explains many situations like this, particularly in high turnover industries like financing and consulting. It's an answer to questions like 'should we lie to the client about the stability of this exotic financial product they do not understand' or 'should we slam this piece of shit software in using 23 year old Indian 'experts' we acquired using fraudulent h1b visas and pay fifteen dollars an hour' Either you will have moved on when the fraud is discovered or else the fraud will lead to your firing but you will have no personal liability.

  10. Misterben Says:

    Don't forget the effects of groupthink and "being a team player" on decisions like going ahead with "clean *cough cough* diesel".

    I'll never forget when my employer brought in a sales consultant to help goose up our sales program. He spun a huge happy story about how much better our company could be doing (think: "Monorail!") and everybody in the suite bought it. Next thing you know, we're making all these plans, hiring people, expanding our office, etc., all based on revenue projections from sales successes that HADN'T HAPPENED YET. And those of us who tried to object, tried to suggest that maybe we should fix our problems before trying to grow faster, were shouted down as a naysayers. "Come on, Misterben, you gotta get on board with this!"

    It's made very clear in situations like this that the CEO's dream is a fragile thing, and cannot tolerate questions or challenges, and so heaven help you if you raise questions or challenges. So you shrug, figure it's probably not going to be blamed on you if it fails, and go along, because you want to keep your job.

  11. Marco Says:

    The same tests were run on a BMW diesel car and the car passed. The car's real world emissions and lab emissions matched.

  12. Kevin Says:

    From what I've read, the 2016 models are not affected by this. One other (still unacceptable) possibility is that they spent a ton of effort on marketing and pipeline buildup that the engineering couldn't keep up with; so, they made a choice to see if they could get away with it until the engineering was complete. At that point, it's only older (already depreciated) models on the road w/ the problem and the costs and blowback would be smaller.

  13. J. Dryden Says:

    I think the truth lies in a combination of the scenarios of Nan and Nyd3030.

    That is: The need to pass a certain governmental requirement is the sort of demand that executives typically treat with a combination of contempt and personal offense. How dare those goddamned paper-pushing tax-gobbling never-worked-a-real-job-a-day-in-their-lives bureaucrats tell them–THEM, the Tom Wolfean Masters of the Universe–what to do.

    So offended are they that they will, to the best of their ability, ignore the requirement. Which is to say, they will bellow down the command chain: Just fix it. Fix it and don't raise costs a goddamned nickel. AND DON'T EVER MENTION THIS TO ME AGAIN.

    Well, the people down on the floor know good and goddamned well that that can't be done. And they also know what they've been told to do: Make the problem go away. So, being weaselly little cowards (or, you know, people with advanced degrees that they're still paying for who really, really need their fucking jobs), they quietly come up with a solution that will get the fucking management know-nothings off their backs: Cheat. Cheap, easy to do, and in the meantime, they'll start looking for work elsewhere. With an eye towards the nearest exit, they send out their resumes in between design sessions.

    So that when the shit hits the fan, the people who actually committed the sin are gone. And the people who ordered the sin, having been circumspect in their order, don't get fired or otherwise called to account.

    In an organization large enough, it's always pretty easy for everyone to plausibly claim innocence, or to not care about getting caught, since that was back at your OLD company, and fuck those guys, right?

  14. Delbort Says:

    Step 1: Release car.
    Step 2: Buy regulators and change emissions standards.
    Step 3: ??????
    Step 4: Profit!

    It looks like they failed at step 2, which was a pretty critical step.

  15. Chicagojon Says:

    @Bill

    As I understand it VW also did this same thing before back in the 70's, but I can't seem to find a good source on the details and penalties that time.

  16. Skipper Says:

    Back in the good old days, before even the Intertubes, I was a tech writer. It was writing a user manual for a very complicated engineering program that was used in large part by nuclear power plants.

    In working with the program, I discovered a glitch and inserted a warning in the text that said, "If you perform routine XYZ before completing routine ABC, you will lose all the data in your database." Or words to that effect.

    Holy crap! The product managers and a host of VPs went ballistic. I thought I was going to be torn limb from limb. "You can't put that in there. That makes us look bad." They were willing to ship the product without the warning to avoid looking bad. I wrote a raft of CYA memos, made copies, and put the copies in my safety deposit box.

    Finally, they left the warning in and removed the glitch in the next iteration of the software.

  17. JohnR Says:

    "Has the corporate culture .. shrunk so low that we can’t be upfront when our products are defective or when we are trying to gain competitive advantage?"

    I must assume that Senator Nelson has been asleep for quite some time. That ship sailed long ago. Sometime during the reign of Hammurabi, I believe.

  18. swkellogg Says:

    I await the full page NYT ad with a picture of der Führer and the caption "This is our founder — what did you expect?"

  19. Freecookies Says:

    Bingo! We have a winner.

    "Or do a handful of people within the company decide that since they are highly unlikely to be held legally responsible personally"

    1.) I'll reference Galbraith's Culture of Contentment. Companies are run primarily for the benefit of MANAGEMENT. Not customers, not shareholders (although they've elbowed their way to 2nd place), certainly not staff (don't be silly, even office furniture has more value) – management.

    2.) A lot of managers base their careers on frontloading the first 2 years with great performance at the expense of the back N years. The strategy, is to have another management job lined up by the time those 2 years are up. Then they can point to how well they did at company X while they proceed to do the same thing at company Y. Rinse. Repeat.

    I suspect something similar was at work here. The guy who made the decision to, well, lie – he's probably gone, to another company. If he's at all competent, he'll have left very little of a paper trail behind linking him to anything.

    I suppose making management personally liable for criminal offenses might be a good first step. However, most managers didn't get where they are without being completely coated in teflon. And you'll find that pinning down professional backstabbers is harder than it looks…

  20. drouse Says:

    Talk about some shitty timing though. Caught just as a real demand for corporate blood develops. People WANT to see perp walks and it's going to suck to be them. Fuck 'em, it's not as if they were bankers or something.

  21. Freecookies Says:

    I suppose another fix might be to make sure that compensation for your typical manager happens over a period of 10 years, where it's mostly backloaded instead of frontloaded. That way they're compelled to take care of the long term, instead of padding their own resume at the expense of everything else.

    However, again, if you have no morals to begin with, nothing is really going to compel morality from you, no matter what clever schemes you come up with.

  22. postcaroline Says:

    In addition to Volkswagen, this week I was also scratching my head at Stewart Parnell, former peanut processing CEO who was sentenced yesterday to 28 years in prison. He was found guilty of knowingly shipping salmonella-contaminated peanut butter paste to manufacturers. Which then led to a giant salmonella outbreak. Did he not see that coming?

    I'm thinking of the third season of Orange is the New Black, and how execs at the for-profit prison corporation repeatedly emphasized that it doesn't matter what they do to slash costs, because the CEO and all his cronies will be gone before they have to confront any of the consequences of their decisions. It's a bit hamfisted, sure, but OITNB did a good job of demonstrating how this sort of logic operates: you can be as unscrupulous as you want for the sake of the bottom line, and just count on being gone once the shit hits the fan. Maybe that's what they were thinking IRL.

    I'm also (always) thinking of Bill Hicks:

    “What did you do today, honey?”

    “Oh, we made arsenic a childhood food now, goodnight.”

  23. Xynzee Says:

    @Free: that's why you put in place laws for the CEOs, presidents, etc that if it happens on *your* watch, or when you were in charge—this is a good case in point because it's taken a few years—you automatically go to jail.

    It's up to those at that level to set the tone/direction of the company.

    It will curtail some of the more cavalier behaviour by senior management knowing cutting corners today will come back to bite them tomorrow. So even if they resign/retire they're still on the hook.

  24. Mo Says:

    I just waded through Phishing for Phools, which sorta left me with a sort of, "Yeah? So?" feeling.

    But thinking things over, one of the points the authors seem to be trying to make is that "the bezzle," as J.K. Galbraith put it, is part of standard operating procedure. Deception and fraud will happen. Continuing to naively expect economic activity to be rational and self-policing [cue Alan Greenspan] is being remarkably blind to all evidence since forever. [cue Balzac to deliver remark on great fortunes based upon great crimes]

    Thus, taking a "Who coulda knowed?" attitude and writing market regulations as if fraud is an exception rather than the rule is conveniently stupid and obliging to our fraudsters.

    Again I ask, just how do we ride our oligarchy outta town on a rail, covered with tar and feathers? Why do we admire and suck up to them rather than treat them as ticks and cancers?

  25. NonyNony Says:

    @freecookies "The guy who made the decision to, well, lie – he's probably gone, to another company. If he's at all competent, he'll have left very little of a paper trail behind linking him to anything."

    Here's the problem I have with this – it couldn't have been "one guy".

    The specific cheat used was that the software would detect when it was being hooked up to diagnostics for testing and turn on the system to reduce pollution. When disconnected the system turns back off.

    There is a whole team of people involved in writing the software to control that unit. Not one of them apparently blew the whistle on this. I cannot believe that only one dishonest guy in that group knew what was going on and everyone else was clueless. That isn't how it works – at the very least there's a whole chain of testing that is going to get clued into the fact that the software is supposed to work in a particular way. Every one of them is guilty of severe ethical violations.

    In addition, the engineering crew who designed the engine had to know that their designs could not perform the way that the company was advertising. Either they designed it with the software on/off switch as part of the design and were part of the scam or their design work had an on/off switch added after the fact and they were complicit in not speaking up about the discrepancy. Again – severe ethical issues.

    Every single complicit person on that engineering team should be forced to find a new line of work. Their certifications should be yanked and the colleges that gave them their engineering degrees should revoke them. They had an ethical duty to blow the whistle on this and they failed.

  26. Henry Schump Says:

    They (corporations & the rich) think that they are smarter than everybody else. And when it comes to fraud, they are absolutely correct.

  27. Mo Says:

    Pass some popcorn – I'm watching to see if and how China nails some nuts to the wall, as my understanding is that VW is big there.
    Damn foreigners!

  28. Fred Says:

    A few weeks back the Justice Department said they'd begin to seek criminal indictments in White Collar cases. Let's hope they do.

    One of my facebook acquaintances worked on this discovery at WVU. Small state, you gotta know everybody.

  29. kent Says:

    "Clean diesel" is certainly an oxymoron, but "Orders of magnitude cleaner diesel than, say, the eighties" is a reality. Both BMW and MB (and, I assume, non-us diesel manufacturers like Peugeot, Citroen, etc) use urea injection, which cleans nox emissions up quite nicely. VW just didn't want to add another system (=$) and marginally higher maintenance costs (having to fill the pee tank at every oil change) so they made this absolutely asinine decision. A billion fine for Cat? That's gonna look like pocket change. Maybe they'll ramp up Aventador production and drop the price to pay the fines. Or sell Lamborghini outright.

  30. Leading Edge Boomer Says:

    :… with the downside that they are very dirty in terms of emissions." I don't think this blanket statement is accurate. Other manufacturers (Mercedes Benz, BMW, mostly European where diesels are popular), along with efforts by the US Department of Energy, have made giant strides in lowering diesel emissions. In terms of particulates, I have not seen a smoking diesel in years.

    As Marco notes, BMW emissions are the same when their diesel vehicles are under test or operating normally. This software scam is exclusively a VW problem, at least so far.

  31. bb in GA Says:

    Shocking position for a right winger…(sorry Cund isn't here to read it :-))

    Since we have decided (in the US) that corporations are people too…why not 'execute' corporations when they have committed capital offenses such that people are severely injured or killed by willful deception on the part of management ?

    This execution would take the form of complete dissolution of the beast and the sell off of all corporate assets first and foremost to compensate the injured parties or their heirs.

    The dissolution needs to be the business equivalent of burn it all down, plow up the ground, and sow salt in the furrows. No shell games allowed where the New Boss just buys up everything for cents on the $, staffs up, and re-opens under a new name.

    I guess I'll have to get a Bernie sticker for my pick up :-)

    //bb

  32. Brian M Says:

    bb in Ga: Yes! Yes! Yes!

    PLUS:

    Isn't the whole point of corporate charters to allow for the specialized benefits of reduced personal liability (and a raft of tax and financing benefits) IN EXCHANGE FOR community/social benefit? We seem to have utterly lost this tit for tat exchange.

  33. Skepticalist Says:

    This is a pretty good example of how Richard Nixon his horror show worked.

    I'm waiting for: "We were just following orders."

  34. Skepticalist Says:

    I need to proof read better.

  35. Robert Says:

    When I was working in the civil service, I witnessed what I called the "burden of nescience" (note, I do not claim to have invented the term). At every level, information being passed up the chain of command was pruned of details that would annoy, inconvenience or confuse the recipient. By the time it reached a level at which decisions on policy or procedure would be made, the individual responsible for the decision had no real knowledge of facts on the ground.

    To be brief, at one point my department was going to be made a subsection of a larger department. As one of the few people who could actually explain what we did in a coherent and meaningful way, I was detailed to brief the chief and assistant chief. I attempted to explain the ways in which what we did was very VERY different from what they did. I might as well have been reciting Jabberwocky in Esperanto. A couple of years later, when the clusterfuck had become impossible to disregard, we were reconstituted back into our original status. The chief commented to me that if he'd known what he was getting into, he never would have agreed to the plan.

    I'm not sure if knowing that it happens in the private sector as well is reassuring.

  36. Anonymous Prof Says:

    Re: Stuart Parnell and his measly 28 years for a salmonella outbreak, I'm reminded of that great line from Lethal Weapon IV:

    "If this were China, you would already be dead."

  37. J R in WV Says:

    Given Parnell's age, if he actually serves a 28 year sentence, it will be a life sentence, as it should be.

    We have bought at least 7 diesel powered vehicles since we started buying vehicles. 1 was an elderly M-B 200D, which was quite slow but otherwise a nice car. Then we bought our first new vehicle, a 1978 Rabbit diesel. Then we bought a Rabbit diesel truck, which was the same vehicle with the back portion of the passenger compartment cut off for a truck bed. It was a little small for a 6' guy, so we sold it not too long after we bought it.

    Then we bought Jetta diesels, 3 or 4, with one Wolfsburg gas model in there, followed by more diesels. The last WV diesel was a 2006 Jetta, a very nice car. I also bought a 2008 F-350 diesel truck, which was probably the best vehicle I ever bought – used, inexpensive, leather, pulled a backhoe like there was nothing back there.

    None of these vehicles were on the list of cheaters. They all performed well for many years, good mileage, decent road performance, not too much maintenance.

    I am baffled by the management decisions necessary to allow this to happen in a modern corporation. I really wonder how many people had iron-clad knowledge of the fraud. I can't believe it was more than a bare handful… else someone would have folded and broken the story.

    I'm pretty proud that this fraud was discovered by researchers affiliated with West Virginia University, although I am actually a graduate of Marshall University, the other university in W. Va. Everyone else in my family was a WVU grad until just a couple of years ago when a cousin took high honours in Math and Physics!

  38. democommie Says:

    Baffling decisions by management are pretty much the only ones I was ever familiar with.

  39. Freecookies Says:

    @nonynony

    Again, in a typical corporation, management is king. Sure you can complain, and I bet that some engineer has something well-documented and saved offsite, just in case someone come knocking on his door to try to pin him to the wall. I know I would.

    But if a manager wants it, he's going to get it. Because he can fire your ass.

    If it's a tunable parameter, I'd argue that not that many people actually have to be in the loop. It could be as little as one middle manager and one technical type. Maybe if you get someone who was an engineer before turning management, maybe just one person.

    If the EPA tested a car that VW was shipping to them specifically for testing, I could definitely see one or two people tweaking the ECU just so and none of the rest of the engineering department would know.

    If the EPA lets carmakers ship cars to them, that needs to stop, and they need to start anonymous buying cars off the lot.

    I'm surprised that the CEO is resigning over this. Usually they fire an engineer or three and call it a day.

  40. Laie Says:

    The software was on all cars. EPA could have picked anyone, it would have performed the same.

    Just to put some perspective on Winterkorn stepping back: VW isn't your typical corporation. There's a lot of ties between state and company. You heard about that revolving door? In this case, it's institutionalized. Most of the Volkswagen Laws have been overturned by international courts, but the customs still hold (and Lower Saxony still holds enough shares to have a say). News outlets around here are wondering if state & federal government were in know. There may be a few more resignations in unexpected places.

    The first reactions I picked up were along the lines of "c'mon, everybody is doing it". Incidentally, I notice that I haven't heard anything from other car manufacturers until now.

    Seriously, I can't imagine that they expected to get away with a scam. So my best guess is that they really didn't think of it as cheating.

  41. Tim H. Says:

    Concerning the Pinto, the body structure was different than contemporary small Fords, which used the fuel tank as the trunk floor. Having eliminated that screamingly stupid design flaw, they likely didn't even think of the sharp-edged differential cover inches away. Disclosure, my 1971 Pinto failed to leak or catch fire when it was rear-ended.

  42. John Danley Says:

    This is everything Herbert Marcuse warned us about.

  43. Syrbal/Labrys Says:

    Sadly, the usual governmental wrist slaps delivered to other car manufacturers has apparently emboldened them to do more: more wrong that is. After all, GMC was fined mere millions for a deception that actually cost people's lives.

  44. Barry Says:

    Freecookies Says:

    "If it's a tunable parameter, I'd argue that not that many people actually have to be in the loop. It could be as little as one middle manager and one technical type. Maybe if you get someone who was an engineer before turning management, maybe just one person."

    It wasn't a tunable parameter; the software looked at inputs from several things to decide if a test was being run.

    In addition, the end result was the VW was claiming to have solved a significant problem with Diesel engines (clean, economical, cheap – pick two). The people in VW with other engine lines would have wanted this, and competitors would have bought and torn down VW's to see what they were doing.

  45. schmitt trigger Says:

    Nan;
    If my memory serves me well, Iaccoca wanted a subcompact car for "Under $2000 and under 2000 lbs".

    So it was BOTH an economic and and engineering constraint.

  46. Noskilz Says:

    That whoever was responsible was banking on being able to take the money and run before it all hit the fan sounds like the least insane option – we'll just have to see if being wildly unscrupulous or actively delusional winds up being the best explanation.