Volkswagen and the "Diesel Dupe"

Beginning in 2009, German car manufacturer Volkswagen (VW; http://en.volkswagen.com) launched a global marketing campaign promoting the low emissions of its diesel cars. During this period, global sales of VW diesel cars increased noticeably, and the vehicles won several environmental awards. The low emissions became a critical selling point as consumers and governments became increasingly concerned with pollution and global warming.

On September 18, 2015, the U.S. Environmental Protection Agency (EPA; www.epa.gov) sent a notice of violation of the 1970 Clean Air Act to VW. The agency charged that VW had installed software in millions of its diesel cars that could sense when the cars were undergoing emissions testing and then could alter the performance to meet federal standards.

Essentially, Volkswagen had intentionally programmed these diesel engines to activate certain emissions controls only during laboratory emissions testing. During this testing, cars are usually placed on a stationary device called a dynamometer. The programming caused the vehicles' output of pollutants known as nitrogen oxides to meet U.S. emissions standards during laboratory testing. However, during actual driving the software shut down the emissions controls. As a result, the cars provided better performance and fuel economy. However, they also produced up to 40 times more nitrogen oxides. Approximately 11 million cars worldwide, manufactured between model years 2009 and 2015 included this programming, known as a "defeat device."

The case against Volkswagen was solid. Volkswagen fully acknowledged that they had manipulated the vehicle emission tests after being shown the evidence of the defeat device. Both VW CEO Martin Winterkorn and VW America CEO Michael Horn admitted the charges were valid.

The consequences of the scandal, which became known as the "Diesel Dupe," have been severe. The issue wasn't limited to the United States. Authorities in Britain, Canada, Italy, France, Germany, and South Korea are among those investigating the automaker. These countries are questioning whether any of the emissions testing of VW vehicles was legitimate.

The EPA announced that should the allegations be proved, VW could face fines of up to $37,500 per vehicle, for a total of approximately $18 billion. On September 20, 2015, the company officially stopped selling affected diesel vehicles.

Shortly thereafter, VW announced plans to repair up to 11 million vehicles affected by the scandal. It was unclear whether the repairs would include both software and hardware modifications. The recall began in January 2016, with all of the affected cars projected to be fixed by the end of that year. The carmaker earmarked $18 billion to settle the worldwide costs of the recall, fines, and other repercussions. Of this total, $10 billion were for the company's settlement with car owners in the United States. In addition, Volkswagen established an online service in which customers can learn if their car is impacted based on the car's vehicle identification number (VIN).

The timing of the emissions scandal was significant, because the sales of diesel vehicles had already been declining. In Europe, the impact of the scandal could be devastating, perhaps prompting consumers to switch to gasoline-powered cars.

On September 23, 2015, VW CEO Martin Winterkorn resigned, although he denied any personal wrongdoing. It remained unclear which company executives knew what and when they knew it, although the German newspaper Der Spiegel reported that at least 30 people in management positions at VW were aware of the deceit for years. VW denied this allegation.

In November 2015, the EPA announced that it was investigating Audi and Porsche for allegedly using defeat devices on their diesel automobiles. The costs of the Diesel Dupe were to blame for VW's first quarterly loss in 15 years as the company suffered a large writedown. In fact, Volkswagen's stock lost up to 40 percent of its value after the scheme was discovered.

Hundreds of class-action lawsuits were filed in the United States on behalf of Volkswagen owners, claiming fraud and breach of contract. The lawsuits claimed that diesel vehicles will be worth less money because they will need to be fixed to conform to pollution regulations, due to expected reductions in horsepower and fuel efficiency. By the end of that month, the resale value of the affected cars in the United States had declined between 5 and 16 percent, based on used car auction prices listed in the Kelley Blue Book (www.kbb.com).

In mid-2016, Volkswagen announced it would settle U.S. diesel emissions claims to a maximum of $14.7 billion. The agreement includes paying up to $10.03 billion to purchase cars with the cheating software at their values before the scandal. The car buybacks began in the fall of 2016. However, the U.S. settlement applies to just a portion of the 11 million affected diesel vehicles worldwide. Furthermore, Volkswagen could still be fined up to $45 billion by the U.S. Environmental Protection Agency for violations of the Clean Air Act.

In November 2016, Volkswagen announced an agreement with employees to eliminate some 30,000 jobs around the world. The automaker stated that it needed to save $3.9 billion to help defray the costs attributed to the "diesel dupe."

Perhaps the most significant element of the VW scandal is that the workaround to improve emissions during testing was coded into the software that controlled the vehicles' emissions. Cheating that occurs within the software can be difficult to pick up. The significance of the software cheating could have ramifications in other situations, as similar software is being used in everything from voting machines to electric power distribution. As software becomes more pervasive, these technologies need to be more trustworthy and transparent.

Question: Describe the role that information technology played in Volkswagen's Diesel Dupe.