Tests, Lies and Volkswagen

German automaker Volkswagen on Sunday admitted that it installed software that doctored the pollution tests for diesel vehicles sold in the United States. Volkswagen stock, which is listed in Europe, fell more than 20 percent Monday morning on the announcement.

The company apparently was concerned that meeting the federal emissions standards would require it to degrade the vehicles’ engines, thereby undercutting fuel efficiency, which is a key selling point for diesels.

Volkswagen had argued for the past year that any discrepancies between formal air-quality tests and the higher pollution levels in real-world road conditions were the result of technical errors, and that it hadn’t deliberately attempted to deceive the Environmental Protection Agency or other agencies.

However, the EPA last week threatened to withhold its approval for the 2016 models, and Volkswagen finally admitted the deception.

The agency on Friday issued a formal notice that Volkswagen AG, Audi and Volkswagen Group of America were in violation of the Clean Air Act.

Volkswagen and Audi four-cylinder diesel cars for the model years 2009 to 2015 include software designed to circumvent EPA emissions standards for certain pollutants, the notice of violation alleges.

The software is a “defeat device,” as defined by the CAA, EPA alleged.

California has issued its own violation notice to the company, and the California Air Resources Board has initiated an investigation.

The affected models included the 2009-2015 Jetta, 2009-2015 Beetle, 2009-2015 Audi A3, 2009-2015 Golf and 2014-2015 Passat.

Damage Control

Days after news of the deception broke, Volkswagen issued an apology and announced that it would not sell its 2015 and 2016 diesel cars in the United States.

“The U.S. Environmental Protection Agency and the California Air Resources Board revealed their findings that while testing diesel cars of the Volkswagen Group they have detected manipulations that violate American environmental standards,” Volkswagen CEO Martin Winterkorn said.

“The Board of Management at Volkswagen AG takes these findings very seriously,” he added. “I personally am deeply sorry that we have broken the trust of our customers and the public. We will cooperate fully with the responsible agencies, with transparency and urgency, to clearly, openly, and completely establish all of the facts of this case. Volkswagen has ordered an external investigation of this matter.”

Fines and Penalties

This could be a costly misstep for Volkswagen, which is the world’s largest automaker. In addition to Monday’s 19 percent drop in its stock price, it could face a fine of up to US$18 billion in the United States.

“Any time this happens, the fines and penalties are based on a number of factors,” said Greg Schroeder, assistant director at the Center for Automotive Research.

“Damages are based on the impact to society, the environmental impact, and what the reaction is from the company involved,” he told the E-Commerce Times. “All those things weigh in, and the number that is touted is based on a fine of $37,500 for each vehicle — so with 480,000 vehicles, that comes to $18 billion.”

It’s unclear whether Volkswagen will have to issue a recall for the cars that are on the road.

Too Easy to Hack

Stories about how easy it is to hack a vehicle’s computer system recently have surfaced, but this is the first time an automaker has admitted to using the software in a car’s engine to cheat a test.

“During a test, the system has to be able to recognize that it is in a drive cycle,” explained Schroeder, “but the software can certainly allow you to control the engine, depending on the situation, such as trying to optimize it for fuel economy. A lot of the factors within the engine are now software-related.”

Volkswagen’s deception was a simple software hack.

“Basically, it sensed when a machine was plugged into the OBDII port and then immediately turned on the smog systems and then turned them off when the plug was pulled,” said Rob Enderle, principal analyst at the Enderle Group.

“They could have simply used a contact switch and hardwired the solution, but [the company] used software, likely because they realized that they might have to change this and didn’t want to have to rework the cars in inventory,” he told the E-Commerce Times. “This has little to do with advancements in software.”

The software hack made it appear that Volkswagen’s diesels outperformed other cars in their class and that the emission systems would last indefinitely, Enderle added. The result was that consumers thought they were getting a vehicle that offered better performance and was still in compliance with the law, which “should make the coming litigation really fascinating.”