How Did Volkswagen Go Wrong?

It’s been a few months since the world found out that VW had installed a “defeat device” in nearly 12 million cars worldwide that detected when emissions were being tested, allowing it to cheat pollution standards. Since the scandal broke, VW has been scrambling to limit the damage, which could surpass $85 billion.

The scandal has immense implications for the company and for the systems used to regulate automobile emissions. On October 12, three Yale faculty members discussed the political, business, and global facets of the VW scandal.

Paul Bracken, a professor of management and political science, suggested that as Volkswagen has transitioned from a company built for European scale to a global operation, its corporate structure did not keep pace. Lacking, he said, is the ability to assess the consequences of its actions, both in terms of its brand and how governments around the world deal with it. “The problem here is not poor risk management,” he said. “It’s the absence of risk management.”

David Cameron, professor of political science and director of European Union studies, described how Volkswagen’s drive to become the top automaker in the world could have fostered an environment where such cheating made sense. The issue for VW, he said, is poor penetration of the U.S. market. With just a 2% share, Cameron said, there was no way the company could pass Toyota globally. VW saw “clean diesel” technology—now revealed as an illusion only made achievable through the emissions cheat—as key to its expansion. But the company made a serious miscalculation. “Volkswagen had the longtime notion that a clean diesel engine would be something people would flock to,” Cameron said. “But Americans don’t really care for diesel.”

David Bach, Yale SOM’s senior associate dean for executive MBA and global programs, and a senior lecturer in global business and politics, said that varying national regulations might also have muddled Volkswagen’s incentives and impacted how the company operated.

European Union regulations emphasize the amount of carbon dioxide a vehicle outputs, Bach pointed out, while the U.S. focuses on particulate matter. Diesel engines traditionally do better than gas engines on the first, but significantly worse on the second. The emissions cheat made the engine seem much cleaner to American regulators, which, combined with its good performance and excellent gas mileage, was supposed to make Volkswagen diesels more appealing to buyers in the United States. “This is a symptom of what happens when a company is working globally in a world where regulation is quite fragmented,” Bach said.