Tito F. Hermoso / Volkswagen | September 30, 2015 12:25
Sippenhaft – literally collective guilt in German. It's something we've seen in many World War 2 movies. Practiced usually by the Nazis and their Axis partners, Sippenhaft's other half is collective punishment, whereby the occupying military select innocent townsfolk to be executed in reprisal for a fatal resistance ambush in the town's vicinity. This is what is painfully in store for the intertwined future of diesel passenger cars and German engineering's reputation.
Dieselgate, the scandal
The Dieselgate scandal, which began with VW's ambitions for promoting clean diesel power in the US market, came to a pause, after the “cheat” software/defeat device was discovered. This has snowballed into several shock waves that threaten the reputation of anything “Made in Germany”, the future of German designed diesel power for passenger cars, the honesty of EU emissions and economy tests and the corporate governance of partially owned government owned national industrial champions like Volkswagen AG.
The financial damage
Invisible to many, is the trouble that will hit VW's sizable finance arm. This part of VW has EUR164.0B in assets as it finances car buyers and dealers, while accepting short term deposits. Similar to GMAC [General Motors Acceptance Corp.] in function, any wobble at the VW parent will impact VW Finance's liquidity as it will be under risk of a credit cut off, which, like GMAC in 2008, necessitated a government bail out.
This is above and beyond the immediate survival of what was recently the world's biggest car maker by sales, as it relentless and ruthlessly pursued Toyota's lead. With an exhaustive investigation under severe time pressure from US and EU government agencies, VW faces a withering decline in its stock price, huge EPA [Environmental Protection Agency] fines, a halt in sales and penalties from environmental agencies in some EU, Asian and American markets where its EA 189 2.0 liter TDI engine family and smaller displacement diesel versions are sold. A humungous recall, class action law suits and criminal cases claiming fraud follow.
So far an estimated EUR 18.0B just for the EPA fines on the 482,000 units affected in the US market is the tip of the iceberg. Since the “cheat software”/defeat device became standard equipment from 2009 on some VW, Audi, SEAT and Skoda models worldwide, estimates for affected cars span from 11 million, broken down into 5 million VW branded cars, 2.1 million Audi's from A1 to Q5 models, 1.2 million Skoda, less than a million SEATs and 1.8 million commercial vehicles. VW owns truck makers MAN and Scania but the defeat device is only fitted to the EA 189 series engines that are used in VW branded light commercial vehicles. Toyota's USD 1.2B fine for unintended acceleration during the 2009 Financial crisis years, GM's USD 1.0B fine for ignition lock problems plus Hyundai's USD300M fine, and USD400M settlement for the class action suit for misleading fuel economy figures pale in comparison as VW's problems are not a manufacturing defect but a successful but fraudulent attempt at evading EPA compliance.
Designed to deactivate
Essentially, the defeat device firmware only activates the emissions controls when it detects the standard EPA protocol for testing on a laboratory rolling road. Once on the road, the defeat device deactivates all emissions controls, resulting in pollutants anywhere from 10 to 40 times above permitted. Bosch has clarified that the emissions control disabling mechanism of the so-called “cheat software”/defeat device has been in production since 2007 but is only used for testing purposes and not for road use as it would be illegal.
How and why did it come to this?
At the cusp of the new millennium and with fears of irreversible global warming, the car making world was faced with ever stringent fuel economy and environmental emissions standards. This time, and unlike in the clueless and Jurassic seventies, the car companies had learned to trust in technology to keep their factories going. Technology was to answer the contradictory regulatory requirements of clean emissions with frugal fossil fuel consumption. Technology was to address the consumer's ever increasing appetite for more power and more convenience in private transport. Computers can fix and do anything.
Rush to alternative fuel energy
Almost to a man, all the world's car makers, whether by their lonesome or through cross company alliances, pursued alternatives to the fossil fueled IC [internal combustion] engine. There was a rush to invest in the future of fuel cells, hydrogen, plug-in electric and hybrid electric which combined an internal combustion engine with a electric energy generator and battery storage. But the industry was heavily invested in the IC [internal combustion] engine and there was still no hydrogen, nor battery charging, nor fuel cell network that was as extensive as the network of petrol stations. Besides. the oil industry was also doing its part, using technology to extract crude cheaply and deliver cleaner and cheaper fuels. Alternative fuel blends and natural gas were becoming more readily available. There was plenty of life in them IC engines, and with hybrids, they were to continue to have a role to play as hybrids need not fear range anxiety when battery charges diminish.
Cheap gasoline vs. subsidized diesel
For the IC engine, the overwhelming fuel preference in the USA, one of the strictest emissions standards for private motoring, was gasoline. Diesel fuel was mainly for marine, commercial and agricultural purposes. Moreover, the Americans treated cheap gasoline as if was a birthright or a constitutional right. Europe, on the other hand, stung by war time fuel rationing and supply shortages since the Suez Crisis of 1956, heavily taxed fuels; hence the preference for small and light cars powered by small engines like the Austin Mini. European car makers exploited the relative thrift of diesel for taxis and passenger car propulsion. The rest of the newly motorizing world in Africa and Asia, was open for business for both US and European fuel preference and practice. Still, one is not a car manufacturer of global worth and its engineers are not good enough if it cannot pass the EPA, much less dominate the US market, which was achieved by the Japanese car makers.
Spark ignition vs. compression ignition
With the challenge of ever stricter emissions controls, diesel and gasoline engines had their respective advantages/disadvantages. Conventionally compared to diesel fueled engines, spark ignited gasoline or petrol fueled engines have a broader rpm range and produce more horsepower per liter of engine displacement. They are also quieter and lighter in construction and thus faster at acceleration, albeit heavier in fuel consumption. Diesel or compression ignition engines ignite the fuel through high compression pressure and without the need for a spark. They produce high torque at low rpms, but total power output is constrained by a narrow rpm band. They are also heavier in construction, slower in acceleration but far thriftier in city operation vis-a-vis gasoline engines. The early era of emissions controls in the 70's brought about a strangulation of power of both kinds of IC engines but with the introduction of multi-valves, variable valve timing and valve lift, technology was about to deliver ecological, economical as well as power benefits.
Paradigm shift at the turn of the century
During the run up to the 21st century, technological advances were to happen that would upset the accepted balance of trade-offs between spark ignited [gasoline] and compression ignited [diesel] IC engines. First FIAT and its subsidiary Magnetti Marelli, developed high pressure diesel injection, dubbed CRDI, or common rail direct injection. FIAT later sold CRDI's manufacturing rights to Bosch. Previously, Denso, a Japanese firm, already applied CRDI to Hino buses. But then, CRDI was though to be only for commercial vehicles. Meantime, as engine ECU's [engine computer unit] were becoming faster, cheaper and more sophisticated, the development and mass production of miniature VGT's [variable geometry turbochargers] with quick response minimal lag impellers and 2-way catalysts, were to produce a paradigm shift in diesel power, economy and emissions. CRDI turbo diesels were now able to accelerate nearly as fast as their equivalent albeit naturally aspirated petrol powered stablemates, while still maintaining the frugality that is a cornerstone of the diesel engine's renown.
Dense engineering tradition
Over at engineering obsessed VW, Chairman Ferdinand Piech and his protege, Martin Winterkorn, both brilliant technical men, were going from strength to strength, emphasizing VW's clean diesel power advantage over its German rivals. At first they invented “Pump Duse”, VW's answer to CRDI. Pump Duse or high pressure unit injection, is similar to CRDI, but instead of a highly pressurized rail, Pump Duse channeled the high pressure delivery injection to the injector itself. This is akin to what was formerly the separate elements of ignition coil, breaker-less distributor and spark plug system which has evolved into an integrated ignition coil and spark plug per cylinder in a gasoline engine.
Japan focused on spark ignition
On the other side of the world, Japan's mainstay for US market dominance was still the petrol fueled engine. By harnessing weight savings and fancy valve operation [VTEC, MIVEC, etc.] and/or forced induction [turbo or supercharging], Japanese gasoline engines gave the American market, decent car performance without the need to resort to high power, high displacement and high consumption naturally aspirated big block gasoline fed V-8's.
Engines tailor made to market
Like the Americans, the Japanese were faithful to gasoline power. But diesel engines had a large following in Asia and Africa where diesel fuel, heavily subsidized by the government as it is the fuel for commerce, public transport and agriculture, is usually far cheaper than gasoline, and so the Japanese also tried to clean up their diesels. Since the Japanese covered all kinds of markets around the globe, they honed up on their gasoline engine making abilities by being good at everything from small 3 cylinder multi-valves as used in their 600cc Japan Domestic Market [JDM] only Kei cars up to American size big block V-8's. Parallel to this, they too pursued hybrids, fuel cells and hydrogen. But while Mercedes, VW and BMW were enhancing their gasoline engines with direct injection and turbocharging, Honda and Toyota were the first to market mass produced hybrid models.
As emissions, economy and power were the three goals, all engine manufacturers were going for forced induction [supercharging or turbocharging]. Tighter limits on CO2 [carbon dioxide] were forcing engineers to downsize engine displacement and turbocharging/supercharging was the best way to increase output while keeping par with larger displacement naturally aspirated engines. Advances in fuel chemistry have greatly reduced sulfur, which causes acid rain, lead and hydrocarbons while the 3-way catalysts have practically tamed carbon monoxide. Diesels were a lot more complicated to cleanse. Besides EGR [exhaust gas recirculation] by air pump and valves, diesel engines had 2-way catalysts and an exhaust restricting particle trap to capture soot.
CO2 vs. NOx
The emissions battle shifted to controlling CO2, an excess of which was the main agent for global warming and NOx Nitrous oxide, which was largely found in the immediate vicinity where diesel fumes linger. Diesel is also mainly responsible to ground level smog. Gasoline engines produced more CO2 than NOx while Diesel engines produced controllable amounts of CO2, but it spewed out more NOx . Diesels had a problem; the more CO2 was controlled, the more NOx it produced, while a shift in focus produced an inverse effect. Conspiracy theory lovers will smell a rat here as they can claim that countries that support local car makers that are biased in favor of spark ignition will naturally impose tight NOx emissions, while countries that favor locally made compression ignition engines will naturally support stricter CO2 emissions.
Urea to the rescue
This is where SNCR [selective non-catalytic reduction] comes in. SNCR requires the injection of DEF [Diesel Exhaust Fluid] called AdBlue, just before the exhaust travels up the catalyst. AdBlue is a urea solution that completes the burning of excess NOx before final catalysis thus producing Nitrogen and water. Cars fitted with SNCR warn drivers when its time to top up with AdBlue and manufacturers discourage owners from operating the vehicle without it because emissions can be 10 times above normal.
This is where Volkswagen allegedly led all the other high tech small displacement engine makers from Mercedes, Mazda, BMW, Mercedes, Honda, Renault, Peugeot, Opel and FIAT. To crack Euro 6 and the even tighter EPA/CARB standards, necessitated installing AdBlue if only to maintain power and economy figures. VW claimed that its 2.0 liter TDI didn't need AdBlue and yet VW TDi vehicles out performed equivalent Mercedes and BMW models in economy and performance. To think VW depended only on EGR, a system that has been known since the 70s to decrease power and increase consumption. Nevertheless, with the narrowed performance difference between diesel and gasoline, and diesel's superior in-city driving economy, Europe, went all the way diesel as market penetration ranged from 60% to 80% in most European countries.
In its campaign to promote VW's clean diesel, world wide roadshow tests exhibiting real world long drives that broke economy records attracted a lot of attention. With the intention of promoting diesel's green credentials, ICCT [International Council on Clean Transport] conducted tests on a VW Jetta, Passat and BMW X5 diesel in the spring 2014. While the BMW showed negligible discrepancies between claimed and actual mileage and emissions figures, the VW's discrepancies from European testing sources were huge, prompting a puzzled ICCT to report the findings to the CARB [California Air Resources Board] which promptly alerted the EPA.
Notice of Violation
When asked to explain, VW initially referred to technical glitches. When the EPA declared a notice of violation by September 2015 preventing the entire stock of 2016 TDI models from being sold in the USA, VW confessed to the defeat device. Barely a few days as VW's new Chairman, Martin Winterkorn tendered his resignation.
What happens now?
For Wolfsburg, it all depends if their recall insurance covers instances where there was deliberate corporate action to commit a violation of the law. If not, then the finance charges will really hit the bottom line. But it won't be the hypothetical mega billions of fines as there are ways to defer payment and reduce them. The lawyers will see to it. The bigger long term bill is the queue of class action and criminal suits.
What's next for VW
VW, being owned 20% by the government of the Länder of Lower Saxony, will surely get support. No one wants to see a giant that employs 600,000 worldwide vanish into [diesel?] fumes. As a national champion, VW will surely get national financial support as well. It all depends if the new Chairman Muller's reforms are palatable to media and global business circles and the guilty are punished. With this in place, money is the least of VW's problems, even if profitability and a renaissance in the US market will have been pushed back further into the future.
Although it is the EU that dictates testing procedure, actual emissions testing is done by outsourced independent contractors who could be easily beholden to EU business conglomerates. This is unlike the EPA which is fully equipped to do emissions testing by itself and is thus more independent. For the long term, VW and the European car industry in general, should be a lot less lax in their testing procedures. Perhaps European testing agencies are a lot cozier with the car industry than the independent ICCT [International Council on Clean Transport], EPA and CARB [California Air Resources Board]. For starters, the standard to aim for is the EPA's NOx limit of 0.043g/km rather than Euro V at 0.18g/km and Euro VI at 0.08g/km.
Also, VW is rather insular in culture as it hardly has any non-German members on the Board, unlike most major global car makers. The lack of independent Board members may have been the reason for its limited success in cracking, much less understanding, the American and Asian markets, the way the successful German and Japanese car companies do. The singular obsession of overtaking Toyota, by hook or by crook, may have led to this conspiracy of ruthlessness to approve the widespread installation of the defeat device. Former Chairman Wintekorn, who was once former Chairman Piech's protege, will, like Piech, have a lot of questions to answer.
To the Prius, victory?
Unless technology discovers something new, VW's dieselgate will surely topple diesel engine passenger cars from its current lofty dominance of EU markets. This paves the way for the ascendancy of gasoline engine electric hybrid, essentially the Toyota Prius concept, to achieve diesel like thrift with power and low emissions to match.
For sure VW in the Philippines will be following Wolfsburg's lead on what to say and what to do next. That means a temporary hold order on sales of new TDI units that still have the defeat device, pending an upgrade. This may include the soon to be launched Passat because even if the Passat has the AdBlue SNCR system, it will still have the defeat device. Then a recall for all TDI units sold for upgrade of the software to undo the defeat device's deactivation for everyday road use.
A new beginning
What this does to VW's reputation for honesty, only time will tell, but it's a start. VW should then inform current and prospective VW TDI owners what the new reduced performance and fuel consumption figures are. Most Filipino VW owners bought VW precisely because of those pre-dieselgate performance and fuel consumption figures, though most prospective buyers would rather prefer a hefty discount than some “quibble” about Euro IV, Euro VI or EPA standards.
Clean diesel lives
But if VW wants to keep its reputation for powerful and thrifty clean diesels they may have to retrofit a SNCR [selective non-catalytic reduction] system to existing units sold in the US market. This means new EGR [Exhaust Gas Recirculation] system, manifolds, heat sensors, 20 liter AdBlue/urea or DEF [Diesel Exhaust Fluid] 5 storage, and delivery system and so on. Parts, not counting hours of labor alone will cost USD7,000.00 at VW of America prices. AdBlue refills will become part of scheduled service maintenance. In the US, AdBlue can cost as less than a dollar per liter while consumption, depending on driving conditions, can reach 4 liters between 15,000km service intervals. This is far less frequent than putting STP fuel additives every time you fill up in the early days of low octane unleaded.
Buyback program to support resale value
To head off a prolonged hangover of depressed used-VW prices, VW may buy back dieselgate units at depreciated prices, plus give the owner some incentive to purchase a new TDI or gasoline powered current VW model. In the US, a 2009 VW Jetta, the oldest model with the defeat device, would go for USD 9,000.00. This is still cheaper than the USD 37,500.00 per unit EPA fine. VW of America can ship these out for discounted resale to other markets or auction it out to independent resellers. It is likely that VW will not resort to a third country resale as it damages the quality image of VW, the very image it is trying to restore.
Unlikely insurance coverage
If VW's Recall insurance covers dieselgate, VW will then buy back the units to be destroyed. But considering that dieselgate, being an act of fraud, may void any Recall insurance. Destroying the unit, if financially supported and feasible by other means, reinforces the brand name of VW and insists that it will only sell correct quality brand new cars and not repaired rejects from other markets. This is the ideal but the most expensive.
It will be a while before trust in the VW TDI returns but after the furor dies down, there should be no collateral damage to gasoline powered VW models and the bigger displacement AdBlue fitted V-6 diesel engines of the Touareg, Phaeton and Passat. Ditto for the big V6 diesel engines of the Audi Q7. Without a doubt, local VW fans will be looking for large discounts for new TDI models if VW will adhere to promoting TDI “clean diesel” in its quest to restore its engineering reputation.
Towards a cleaner future
As for BMW, Mercedes, Peugeot and FIAT, they should not be affected by the VW diesel gate. Besides, all are well prepared for a market shift into gasoline hybrids while they will continue to work at cleaning up diesel engines for even stricter than Euro VI and EPA standards. As for the diesel engines of Subaru, Opel, Renault, Peugeot, Ford, Honda iDTEC and Mazda skyactiv, they have also chosen the correct path of spending billions in keeping the small displacement diesel engine alive and clean. For us here in Asia, the current crop of diesel engines that we get from Thai pick up truck makers, Korean, Indian and Chinese car makers all pass the Euro IV standards without resorting to activating any form of cheat software/defeat device anyway. We may be behind the ecology curve, but we are on track. VW's diesel dilemma at least keeps the global car industry on its toes and serves as a warning that cheating never pays. Better and stricter testing regimes are a must for a cleaner future.
Schadenfreude, German literally means harm/joy or pleasure derived from another's misfortune. One might think that with the outing of VW's cheating, its German rivals couldn't be helped feeling schadenfreude. Or the Japanese car makers who cast their lot with gasoline hybrids too. But no. It would be churlish to feel this way about VW's mistake as the impact of dieselgate may spell the end of a wonderful engine technology that was just waiting for a genuine breakthrough. Peugeot's use of a diesel engine to partner its electric hybrid shows that even hybrids and diesel work well, as compression ignition is still thriftier than spark ignition IC engines. Think why all commercial and industrial generators are run by diesel engines. It all depends if technology can overcome this defeat device debacle. Time will tell if this scandal has dealt the small diesel engine's future a body blow or a massive terminal injury.