Why It Seems Like Open Season on Car Companies: QuickTake Q&ABy and
Sometimes it can seem like the entire automotive industry is under investigation, at least in the U.S. Volkswagen is racking up fines and has had seven executives indicted for the tricks it played to enable its diesel-powered vehicles to pass emissions tests. Audi -- a VW unit -- also is accused of similarly rigging gasoline-fueled cars. Fiat Chrysler has been accused of cheating by the EPA and Germany’s Daimler AG has also been sued over diesel emissions. Mitsubishi Motors admitted to doctoring fuel-economy ratings. Takata agreed to plead guilty and pay $1 billion to settle an investigation over more than 100 million faulty air bags linked to 17 deaths worldwide. The General Motors ignition-switch debacle was blamed for the loss of at least 120 lives and led to $2.1 billion in fines and legal settlements. In the European Union, however, regulators are finding some reluctance among member nations to crack down the same way.
1. Why are so many companies in trouble?
Most of the environmental cases in the U.S. deal with stringent emissions standards put in place by the Environmental Protection Agency in 2001. Carmakers were given until 2010 to comply. Chrysler and the maker of its engines bet they could beat the competition to market. They did so, in 2007, but with a truck allegedly incapable of meeting those standards over its lifetime, according to a consumer lawsuit, which says Chrysler’s diesel Dodge Ram trucks from 2007-2012 were rigged to cheat smog tests.
2. Then why is VW the poster child for emissions cheating?
Chrysler has been accused of having done it first, but VW already admitted fault and so far has set aside $23.9 billion to cover cheating-related expenses that range from buybacks to compensating dealers and settling criminal charges. The carmaker still faces hundreds of lawsuits in Germany and a criminal probe. Chrysler could soon join VW in taking a hit to its reputation due to diesel cheating. The Italian-American automaker received an EPA notice of a Clean Air Act violation in January. The issue is being probed by the U.S. Justice Department, Securities and Exchange Commission and several states’ attorneys general.
3. Is this the first time carmakers have been caught cheating?
Emissions cheating dates back to at least the 1970s, when carmakers were rolling out automobiles that turned off anti-pollution systems when the air conditioning was on. Others had sensors to activate pollution controls only at testing temperatures. In 1973, U.S. regulators accused VW of cheating. It settled with a $120,000 fine. GM paid $45 million in 1995 after being accused of circumventing pollution controls.
4. Is emissions the only issue?
Not by a long shot. In addition to Takata’s exploding air bags, lawyers and government investigators in recent years have delved into Toyota accelerator pedals, Honda’s underreporting of fatal accidents and injuries, incomplete safety recalls by Fiat Chrysler and overstated fuel economy by Ford, Hyundai Motor and Kia Motors. GM hid changes the company made to its faulty ignition system only to have the undisclosed fix revealed in a deposition by a trial lawyer. Federal safety regulators discovered it later. Similarly, Takata and Honda had settled lawsuits before issuing widespread recalls of the air bag inflators.
5. What do the different scandals have in common?
Lawyers. Though researchers first uncovered VW’s cheating in September 2015, lawyers followed up with their own investigations of carmakers -- first VW, then its Audi and Porsche units, then Mercedes and Fiat Chrysler. Some of the same lawyers behind the VW diesel case also filed the Audi gasoline-engine lawsuit and the Chrysler case and continue to investigate additional potential violators of the U.S Clean Air Act. Meanwhile, the researchers at West Virginia University who first detected VW’s excess emissions continue to search for pollutant-spewing automobiles.
6. What’s going on in Europe?
The European Commission issued warnings in February to five countries including Germany, France and the U.K. for failing to address “repeated breaches of air pollution limits.” That doesn’t necessarily mean cheating, though -- European law allows carmakers to exceed legal levels of nitrogen oxide emissions in certain circumstances.
7. What? European law allows for pollution breaches?
Cars in Europe are equipped with devices that control nitrogen oxide emissions, but these may be legally disabled in order to protect the engine or ensure safety. Figuring out to what purpose the systems were designed requires very detailed measurements, which means that some cheating mechanisms will probably never be discovered. Tests have shown that some cars emit nitrogen oxides that are as much as 10 times higher than the EU limits.
8. So will there be an EPA-style crackdown in Europe?
Probably not. While regulators are working hard to crack down on emissions violations, politicians are reluctant to heavily penalize these companies, of which a handful are partly state-owned and among the region’s biggest employers. Plus, the EU doesn’t have a regulator with EPA-style enforcement powers, and the system’s more complicated because national governments -- and not the EU -- approve vehicles for the road.
9. What’s all this doing to the global auto industry?
With diesel’s credibility now in question, carmakers are putting more resources into electric vehicles. That kind of innovation is expensive, and the fines they’re facing are potentially huge. VW recently agreed on a deal with employees that will slash as many as 30,000 jobs worldwide to save 3.7 billion euros ($3.9 billion) and aid its recovery efforts. VW’s financial ability to make investments in model updates and self-driving vehicles is being hampered by scandal costs that so far exceed $23 billion.
10. How do consumers know whom to trust?
Carmakers have won back customers after previous cheating scandals, just not right away. VW, which had thrived on a global reputation as automotive royalty, has been tarnished by its self-professed deception. The question for consumers will not only be if or when to trust these automotive brands, but whether to trust new technologies. That’s exactly why it’s so important for VW and other carmakers to figure out their path forward in a future of lower emissions and higher scrutiny.
The Reference Shelf
- A QuickTake explainer on the slow road to cleaner cars.
- A QuickTake Q&A on Volkswagen’s long way back from scandal.
- A deep dive into Takata’s 60 million car bombs.
- How handing Chevy keys to their daughter led to her death.
- VW seeks to clear air in its next settlement.
- An investor lawsuit against VW has a lot riding on it.
- A Bloomberg View column on why VW didn’t have to compensate Europeans.
— With assistance by Margaret Cronin Fisk, and Ania Nussbaum