The Volkswagen Debacle: Corporate Greed Versus The Environment

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The foundations laid down in the year 1937 having the strongest footholds are now shaking, and this turmoil can lead to an end of an era. Volkswagen Company, the second largest carmaker of the world after Toyota is now standing under the sword of lawsuits, fines, bans and even for non-usage of diesel. The German giant’s image which is renowned for making efficient diesel consumption cars is in despair as a result of the recent revelations that it used software to bypass the strict US emission standards of nitrogen oxides collectively known as NOX.

This was one of the greatest channelized frauds committed by a company which threatens to swallow down the whole industry, as The Economist has reported. With a fall in its share prices, the company’s image has also fallen down into the dark distress. This debacle has even brought a shock wave to the company’s home country with Germany’s Environment Minister declaring that she was “more than astonished”as the emission norms had been broken and the authorities were deceived.

Manufacturing of diesel cars which is the forte of company, had its efficiency from burning fuel at high temperatures, thus emitting NOX. The fraud broke out on 18th September when America’s Environment Protection Agency (EPA) reported that the cars were switching to the NOX-controlling technology only when they faced conditions which were test predictable. Otherwise, normally they emit 40 times more than the prescribed limit which is 0.07 grams per mile (0.04g/km). The authorities came to know this through the whistle-blowing of International Council on Clean Transportation (ICCT), an independent body, in the year 2014, conducted a study and obtained data on 15 vehicles through three different sources, though no strong action was taken as a consequence. At, the very first instance it was thought that there had been a mistake as the data obtained showed a large discrepancy from the official emission recordings available at hand. The vehicles were then driven from San Diego to Seattle, and the entire US west coast affirmed their fear that there was something wrong.

In 2009 year model, the company started to migrate its engines from the Turbocharged Direct Injection (TDI) to a common rail fuel injection system resulting in better fuel optimization, better air/fuel ratio and a better control for emissions which it achieved through electronically controlled fuel injectors allowing a fuel delivery at higher precision. Such a controlled mechanism earned the engines as “clean” or “cleaner” status than US and Californian standards, making the company eligible to cherish the tax benefits and subsidies which were then given to green cars in the United States. This control surfaced only when the car faced test-predictable conditions, while on normal usage all the emission laws and standards were put to rest.

After complying with the regulation standards of the US and that of California, the company entered the US market which was the hardest to crack, keeping in mind the strict emission standards which are very difficult to comply for a carmaker. The cost benefit analysis of the car industry makes it very difficult for the manufacturers to comply with such standards as drivers do not like reduction in fuel efficiency and power resulting in low sales and therefore this compromise was reached. With this compromise being made it should also be seen that such emissions do not affect the climate on the same scale globally as the carbon dioxide, but it worsens the local conditions resulting in smog and making a harsh impact on lungs and plants. So, the countries with these cars running on their roads are now planning to bring an end to these operations.

The first one being the United Sates itself, the Department of Justice under the Clean Air Act is preparing to fine the company with a hefty sum of 18 billion dollars having its basis on the sale of 4,82,000 cars and estimating a fine of 37,500 dollars fine per vehicle. This is being done following the precedents of when General Motors was fined for 900 million dollars as it continued to ignore the problem with ignition switches and Toyota, which was fined 1.2 billion dollars due to problems relating to acceleration. Seeing such storms, the company also prepared itself by keeping 6.5 billion Euros as reserves to cover the compensation costs, but they  proved too little as the company’s value was reduced to 26 billion Euros by that stage.

This financial turmoil can even worsen the situation as the other operations of the giant like giving loans to car buyers, taking up of deposits will also suffer. Its assets have doubled in the past decade summing up to 44% of the total, but are vulnerable to run. With around 164 billion Euros and some investments, the company has enough to make it up, but if the lenders and their counterparts refuse to lend money to it, it will come to stand still for a while as it has 33 billion Euros in cash and marketable securities.

The question that comes before us is that whether such irregularities can be curbed by the power of money only. Money when stuffed up in the mouths which shout against such discrepancies becomes the main executor and brings them to silence. The CEO of the company, Mr. Martin Winterkorn, has also resigned, thus shedding all the responsibilities, a man who is famous of having the knowledge of the details has escaped by a simple resignation. The possibility that he was aware of this scam can’t be ruled out but no stern action can be taken against him at the moment. Therefore, it should be given a thought that merely imposing monetary punishment should not be the sole goal, rather the veil should be lifted and the real culprits should be brought before justice.

Even, the existence of diesel is in question because if it is not successful in complying with the standards then the makers have no other choice than either to shift to any other alternative or bring themselves back to their old companion petrol. With cut throat competition rising new petrol efficient engines are to be developed otherwise, the industry will have a tough battle if nothing comes to its rescue.

Indian Government too is keenly observing the developments in the international arena and is reserving its action as the Union Road and Transport Minister, Mr. Nitin Gadkari, said that right now the developments taking place in the US are not a concern for India. The Automotive Research Association of India (ARAI) is investigating into the loopholes as the concerns are rising on the Indian front, so that it becomes immune to any such future erosion.

The European front too is acting like its counterparts and will now act in a strict manner on emission standards despite the long lobbying going for no need to do so till 2017. Let’s see where this debacle will take the giant and the industry, as the future developments come into picture.

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