Updated: September 25, 2015 12:10:27 am
The emissions cheating scandal involving Volkswagen (VW), leading to the resignation of the chief executive of the world’s biggest automaker, is no ordinary tale of corporate fraud. It’s already being talked of as the auto industry’s Lehman Brothers moment. The issue here is one of trust. How could a company symbolising the best of “German Engineering” — and owning iconic brands like Audi, Porsche, Bentley and Lamborghini — be caught for fitting some 11 million diesel cars with software that masks vehicular pollution, often 30 to 40 times the permissible limit? VW faces penalties of roughly $18 billion from US regulators after admitting to systematically installing such software since 2009, apart from suffering a similar fall in its market capitalisation this week. But more than money, the real collapse is of public trust: If VW can do it, can one expect other automakers to be any different?
To be sure, this is not the first time that VW, or for that matter the automotive industry, has been caught cheating. In 1973, the US Environmental Protection Agency, which uncovered the latest scam, had penalised VW for installing a so-called “defeat” device to shut down the vehicle’s pollution control system. In 1974, the EPA made Chrysler recall more than 8,00,000 cars after similar devices were found in their radiators. But despite the bans, such devices have survived and, in fact, become more sophisticated. Recognised global brands, including Toyota, Hyundai, Kia and GM, have also been found to be duping customers by either overstating mileage or understating emissions. Yet, what is remarkable in the latest scandal is the scale and kind of sophisticated software algorithms deployed, which can apparently recognise when a pollution test is being conducted and turn on full emissions control just for that moment. And there will be questions asked now on the viability of new-age diesel engines, which witnessed a renaissance after being projected as much cleaner than before.
As far as India is concerned, the VW scandal may not have an immediate direct impact on consumers. The level of fuel emissions allowed here are much higher than in the US or Europe. So, the cars being made and sold by the German auto major here may not meet the fate of VW or Audi diesel vehicles in the US. But there could be an indirect impact on the country’s auto ancillary industry, which supplies a range of components to global vehicle majors. That impact may not be small, if the VW case turns out to be a mini-Lehman.
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