Dieselgate: the automotive emissions scandal

July 2016 | FEATURE | FRAUD & CORRUPTION

Financier Worldwide Magazine

After many years of generally avoiding exposure to major scandal, the automotive industry was thrust into the eye of the storm last year when Volkswagen (VW) was found to have been less than honest about the integrity of its car emissions testing. In a nutshell, the German car giant was selling diesel cars in the US and Europe (around 11 million vehicles) which possessed a ‘defeat device’ in their engines which could detect when they were being tested and then duly improve emissions results. Low emissions formed a major part of VW’s diesel cars sales strategy in the US.

Furthermore, when the US Environmental Protection Agency (EPA) discovered that the diesel engines actually emitted nitrogen oxide (NOx) pollutants 40 times higher than what US standards allow, the fallout included the resignation of VW chief executive Martin Winterkorn, who admitted that his company had “broken the trust” of customers. His replacement, Matthias Mueller, immediately vowed to “win back” that trust for the VW Group.

Following the outing of VW, other major car manufacturers – including Mitsubishi, Mercedes-Benz, Honda, Mazda and Daimler – were also found to have performed similar types of chicanery in their emissions testing (Nissan’s Qashqai cars have also faced allegations).

Broadly-speaking, there are three types of indiscretion that have come to light: (i) defeat devices explicitly designed to spot when a car is being tested and use a lower emitting calibration for NOx (e.g., VW); (ii) initiatives with some engineering justification that have the benefit of reducing NOx on the official cycle, e.g., reducing EGR or after-treatment below certain ambient temperatures (e.g., Daimler, Opel); and (iii) optimisation of the coast-down test or NEDC cycle to get lower CO2 or better fuel economy (e.g., Mitsubishi).

Trends and developments

“It’s getting more complicated as more manufacturers get drawn into this in multiple countries,” notes Nick Molden, CEO of Emissions Analytics. “What has happened with Daimler in the US is a bit different than what has happened with VW, in that this is not the product of an investigation by the US EPA or the California Air Resources Board (CARB). Rather, it is a legal case by consumers that has led the US Department of Justice (DOJ) to start investigating. As a result, Daimler has launched an independent investigation with Deloitte into whether there has been any impropriety in their emission testing. There are also some question marks in Europe around Opel’s NOx emissions and Fiat are facing similar questions as to real-world emissions that are 10 times the regulated levels.”

The nature of the scandal

Although the scandal appears to revolve around manufacturers all having a ‘defeat’ strategy (or something similar) when it comes to the official emissions tests, the truth is that the nature of the skulduggery differs from manufacturer to manufacturer and from jurisdiction to jurisdiction.

“They are now finding that various manufacturers have been doing different things,” says Mr Molden. “Mitsubishi was all about inflating tyres to get better fuel economy numbers in Japan, which is actually a long way from breaking US NOx regulations. And what Daimler is accused of is not a defeat device in the same way that VW’s was.”

Further malfeasance

As the scandals engulfing the automotive industry rumble on, it seems almost inevitable that further malfeasance by global car manufacturers will emerge soon enough – a likely scenario that may inflict further damage on the industry given the fresh emissions regulations that are due to be introduced in the coming months.

“The emissions scandal has rocked the automotive industry to its very core.”

“I think more could come to light, particularly in Europe, because the VW scandal – or ‘Dieselgate’ – has essentially prised the lid off and now everyone is having to retest to check whether they’ve been doing anything wrong,” notes Mr Molden. “Other things which are not, strictly speaking, linked to any ‘defeat device’ could be discovered during this process of examination.” The chances of more wrongdoing coming out are higher in Europe due to the extant regulations being somewhat laxer in this jurisdiction. The US and Japan, in comparison, are much stricter as to what can and cannot be done, he adds.

Measuring air quality

With the issue of air quality transparency now having taken on even greater importance, Emissions Analytics has responded by launching its EQUA Air Quality Index – a guide developed in conjunction with industry experts which will “allow manufacturers and retailers to show how different models compare in the showroom, whether diesel, petrol or hybrid”.

“All the passenger cars we test now get a rating for how low the NOx coming out of the tail pipe is,” confirms Mr Molden. “The reason for launching the EQUA Air Quality Index is because consumers are understandably very confused at the moment. A lot of people think that all diesels are dirty and all Volkswagens are bad. What our index shows is that diesels can be clean, and, in fact, VW cars are among the very cleanest.”

In addition, the International Council on Clean Transportation (ICCT) has said that, in Europe specifically, the effective implementation of the real-driving emissions (RDE) test (from 1 September 2017) would be a “major achievement” in improving diesel vehicle NOx emissions.

Without doubt, the emissions scandal has rocked the automotive industry to its very core, with the share prices of car manufacturers dropping sharply and public trust in the industry’s environmental claims severely damaged – perhaps irrevocably.

The industry must determine where it goes from here, and, crucially, how it can win back both investor and public confidence in the wake of dieselgate.

Fraser Tennant