Dieselgate Revisited: Volkswagen and Now Daimler
Volkswagen’s brazen manipulation of pollution control devices on its diesel engines in the 2005-2015 period has led to heavy penalties, including over $20 billion in fines and restitution to owners of VW diesel cars in the United States. It was clear from the beginning that the misconduct was due to a bad corporate culture, not a few bad apples. Recent developments involving Daimler, the other major German car-maker, suggest the problem may not have been just a bad corporate culture at VW—but a broader culture of cheating and misconduct in the German and European auto industry.
VW, in the well-known scandal, could not meet pollution control requirements and its own engine performance and mileage goals and therefore made a corporate decision to cheat. A top management presentation on how to cheat was uncovered in ensuing investigations. Eleven million VW vehicles were manufactured with “defeat devices” which turned on the pollution controls only when the engine detected that it was being tested for environmental performance.
Now Daimler, which produces Mercedes Benz vehicles, has confessed to the same type of cheating on pollution controls. For Daimler, which has branded itself with a reputation for German engineering skill, the blow is perhaps greater.
There are differences in the two cases. VW had sold 600,000 vehicles in the U.S. with the defeat devices, whereas Mercedes had sold just 250,000. Secondly, Daimler took an entirely different tack in dealing with the U.S. investigative and punishment process. Volkswagen famously stonewalled attempts to investigate whether there its engines were compliant; a fact only proven when university-based researchers compared the pollution spewed in actual use versus that demonstrated in testing. Daimler, on the other hand, quickly confessed when confronted with the possibility that they had cheated. And only later did the investigation prove VW had falsified environmental performance on Audi and Porsche vehicles as well. The cooperation and smaller number of vehicles led last week to Daimler’s fine and restitution of $2.2 billion compared with VW’s $20 billion.
Left unresolved is whether the culture of cheating on pollution control is even broader in Germany and Europe than the two leading German manufacturers. There are allegations that many if not most European automakers skirt environmental regulations. Because the US permits auto companies to self-certify that they are in compliance, an industry-wide culture of cheating could go unnoticed.
German authorities have toughened up, extracting substantial penalties from VW for consumers in Germany and the UK, and continue to pursue criminal cases against the VW executives. Former VW CEO Martin Winterkorn is awaiting trial, and former Audi (a VW unit) CEO Rupert Stadler has also been charged. Last week German prosecutors filed criminal charges against three former Audi board members and a retired senior employee accused of having known of the deception and then failed to act.
Dieselgate is one of those notable scandals that business ethics professors love. They offer so many critical lessons about corporate misconduct. Here are four based on recent developments:
Misconduct by a competitor will throw immediate scrutiny on the related behavior by other firms in the same industry.
Corporate misconduct may indeed be caused by a broader disregard for ethical and legal responsibilities within a whole industry. (The problem may not be a bad apple or just a bad barrel, but a bad orchard or whole industry.)
Corporate misconduct is increasingly producing criminal charges against executives as well as fines against companies.
Corporate board members have an obligation to know about and to stop misconduct, and may face criminal charges.
Media stories of interest:
New York Times: Daimler to Settle U.S. Emissions Charges for $2.2 Billion
BBC News: Audi: More former car executives face ‘dieselgate’ charges