Transcripts For CSPAN2 Faster Higher And Farther 20170709 :

Economics and monetary policy. Another part of his coverage including the european car industry which gave motivated to write his new book, faster, higher, and farther the volkswagen scandal. Faster, higher, and farther has found an appreciative audience with readers and critics alike and praise of his research and narrative style publisher weekly rights his compelling prose makes the book reads like entertainment more than education and the story of volkswagens fall have the company cheated emission testing devices was exposed by West Virginia University Researchers and finally with public excited by the epa, is a study and corporate hubris. Interest in this now faded scandal may be confined to a niche audience but readers to pick up the book will be glad they did. Please join me in welcoming jack ewing. [applause] thank you very much, marc and its great to be at the politics and prose which i understand is quite an institution in the washington area. The way that this book got started was that the editor and chief of norton sent me an email and asking if i ever thought of writing a book about the volkswagen scandal to let them know and i let them know about five minutes later that it would be interested. One of the first things we were taught but have the book should be written, one of the first things that he said to me was jack, i dont care about cars. Im not a car person. You have to write a book that is to want to read. Iced sort of quarrel with what Publishers Weekly said about this being for a niche audience because i try to make it a deal thats really about ambition, abuse of power. Its a book about how a toxic Organizational Culture can push ordinary basically decent people to commit crimes. And its also a tragedy because the whole scandal threatens the jobs of hundreds of thousands come literally hundreds of thousands of volkswagen workers what nothing to do with the wrongdoing. Let me talk very briefly about the history of volkswagen because that has an effect on what happens later. Volkswagen started was actually basically a propaganda project by the nazis. They wanted come hitler was upset that americans, middleclass americans were driving around in model tease and germany had nothing equivalent, that anybody could afford. They came up with the idea of the peoples car, the volkswagen and he hired a guy named porsche to design and thats what they became the beetle. This is in the late 30s but actually they never managed to build that many cars before the war got started, and the factory were shifted to military production. After the war it could well happen that volkswagen never existed because the fact was bombed out. As assistant never actually produced that many cars, and what saved the company was actually a british major who was part of the occupation force and he noticed the beetle standing around in the rubble and a british on at the time needed transportation and they had a a bunch of workers who need something to do. So this major got them producing the car again. That was really the beginning of volkswagen as a company. As you know it was the car, the beetle was a huge hit in the postwar market. It was simple and cheap and just what people needed at that time. Ed was also very popular in the United States. In fact, by the late 60s volkswagen was the leading import brand in the United States. This was before toyota, nissan was big as they are today. But when the beetle inevitably started to become obsolete, volkswagen had a lot of trouble replacing it. And by the early 1990s the company was in pretty serious trouble. There was talk of michael baker. They have built more cars than they could sell and they were in serious trouble. This is where the porsche family comes back into the store remember porsche designed the first beetle in the early 1990s, his grandson whose name was became the chief executive. He had come up to the ranks at audi. He was in many ways even more of an automotive genius and his grandfather, and he succeeded in turning volkswagen rent. He improved the quality and the static of the cars. Sales recovered, profits recovered but he also had a dark side. He was dictatorial. He was known come he had no compunction about firing people that didnt meet his standards and he was known as many anecdotes about him calling engineers into the room and saying, this is what i want you to do. You had this much time, and if you fail you will be fired. So it was a very difficult corporate culture. Another big achievement was in the realm of diesel. Volkswagen is one of the First Companies that figured out how to sort of civilized diesel for passenger cars. Diesels were known for being smelly and smoky and noisy, and volkswagen figured out how to combine Engine Computers and fuel injection to make diesels much quieter and cleaner than they had been. And just to tell a little about his character, he was an automotive genius on one side, while he was at a volkswagen the were a number of scandals. There was a corporate espionage scandal. Volkswagen was accused of stealing secrets from general motors. There was a scandal with head of personnel was found to offensive line prostitutes who labor leaders to keep them happy. And he himself with some who just didnt live by the same rules as most of the rest of us. Just give you a little little anecdote out of his life, yet it will push started having an affair with his cousins wife. Had two children with her and at the same time to children with another woman. And this is out of 12 children total during his lifetime. And he wrote about all this in his autobiography. Its not something he was ashamed of. If anything, he was proud of it. So after the scandals, there was never really any reform. At a Healthy Company was Something Like this happens you should reform the compliance. You should look at your code of conduct. You should think about ways that you can fit this kind of thinking happening in the future. And that didnt happen at volkswagen. So around the mid to thousands 2000s, theres one thing that he never managed to do during his tenure and that was to recapture volkswagens glory in the United States. And that bothered him around the mid2000s, volkswagen decided it wanted to become the largest car company in the world. They couldnt do that without also being a force in the United States. And by then actually volkswagen had become religious and niche brand they were selling about as many cars as subaru and that long since been overshadowed by toyota et cetera looking for a way, some kind of unique selling point that would help get back the market share in the United States. And they hit on diesel. Diesel had been very successful in europe. By then it accounte account forf all new cars were diesels. The biggest fans of diesel is fuel economy. That was a big selling point in europe where fuel is very expensive. So they thought lets try that in the United States, and we will sell diesel as an environmentally Friendly Technology and try to go people who might otherwise buy a toyota previous. And he decided to develop a brandnew Diesel Engine to do this. But, of course, the problem was that they found out that they couldnt make the Diesel Engine clean enough for u. S. Emission standards. Europe has a reputation for being more environmentally friendly and strict than the United States, but actually the United States have stricter limits on nitrogen oxides which are the most harmful component of diesel exhaust. And around 2006 the engineers realized they couldnt meet these u. S. Standards, and probably the smart thing to do would have been to delay the project, look at other technologies, spend some more money, figure out a way to make it cleaner. But thats not what happened. In late 2006 a group of engineers and managers got together at the research and Development Center at volkswagen, and Information Technology guy had prepared a powerpoint presentation. Im convinced everything evil that happens at a corporation anywhere starts with a powerpoint, and the powerpoint showed how you could, the computer in the age in which sits under the hood could recognize the cycle the regulars use when youre testing cars emissions. They put the car on rollers in a garage and mystic instruments at the tailpipe and they run a simulated driving cycle, that is supposed to simulate hills and city and highway and so on. But the cycle itself is predictable. Its Public Knowledge what that cycle is and so it volkswagen did is programmed the computer to recognize when that curve was, when the car was being driven according to that cycle and then to crank up the pollution controls so that the car would look clean. If they had the pollution controls all the time the car couldnt take it. Some of the components could fail but it would deliver clean tailpipe emissions, some of the time. Its worth noting that there was a serious debate among those present about whether this is really a good thing to do. There were people that were against it who felt bad about it, but at the end of this meeting which lasted less than one hour, they decided to go ahead. The last words of the senior person there as he left the room was come dont get caught. I think another thing thats worth noting about this particular, this behavior, was that if you look at the banking scandals, people were motivated by money, by greed. They wanted to get bigger bonuses, stock options, whatever that wasnt a factor here. The people who did this were really just trying to hang onto their jobs. None of them got promoted or any more money. It was just about keeping your job. I think that says a lot about volkswagen culture and the culture of fear that existed there. I think the other important thing is that it really wouldve cost volkswagen made a couple hundred dollars more per car to make it clean. And also as the years went on there were many times when changes in models, changes in the design of the cars when they could have upgraded the emission system to make it compliant, but every time they came to one of these decision points when they could have made the cars clean, they didnt. Once they got started cheating, it was a habit that was hard to break. And this went on until early 2014. I just want to back up a little. The regulators never tested cars on the road. It was always in the crotch and thats what enabled, thats what made it possible for volkswagen to cheat. But in the mid90s there was a guy at the epa who started working on portable emissions technology, something to put in a vehicle and driver measure the emissions as they were underway. I do want embarrassing babies in the room right now. That is leo. Raise your hand, leo. [applause] leo was a guy who started experimenting with this and developed company owns some of the patterns on the technology that allows, makes it possible to measure emissions. [inaudible] [laughing] makes it possible to measure emissions under way and that was really a very crucial in whole chain of events that led to volkswagen being exposed. So many years later, 2013, there was a Nonprofit Group called the International Council on clean transportation. And they wanted to see what kind of technology that german carmakers were using in the United States with their diesels that because of the time there was a debate in europe about making the standards stricter and the carmakers over in europe or say no, we cant do it, its impossible. And this nonprofit said wait a minute, theyre doing in the United States and their say they cant do it in your. Whats going on . So they awarded a 70,000 grant to a group at West Virginia university which has a center that is well known for his expertise in emissions testing. And they tested to volkswagens, and agenda predicted out on the west coast. Mostly just a bunch of graduate students. Several of them from india. And they quickly noticed there was a big difference between what the cars, the emissions they produce when it out on the highway and what they produced in the lab with the students had first tested the cars in the diet to get a baseline and then they took it out on the road with his portable technology which leo has invented, and then and commercialized. And saw that there was something wrong. They didnt accept that point exactly what was wrong, just that something was fishy and they published a study about that in early 2014. Nobody much noticed, but outside the industry, outside actually this very kind of subculture of people who follow emissions, but among those who notice was the California Air Resources Board which is the regulator that enforces the clean air laws in california. And they were concerned enough that they put together what they call a compliance project. They use their clout as a regulars to assemble a small fleet of volkswagens and then did intensive testing. And it volkswagen had been smarter they would have at that moment can fast and said, you know, mea culpa, we did something bad, we are really sorry. He will fix it. But the stuff the way the people at volkswagen kicked. Instead they mounted a coverup which lasted, walid of blasting a good year and a half. They fed the regulators misleading information, false information. There was this dialogue between the california regulars and volkswagen, long discussions about what was causing this problem and volkswagen kept telling them it was some technical issue. They would get it under control. They did a recall to update the software. That didnt fix the problem but is basically just a smokescreen delaying the day of reckoning. And finally you have to give carb some credit. They really stuck with it, kept pushing and eventually in september 2015 volkswagen ran out of excuses. One of their engineers went up to one of the top people at card at a conference and said, its a defeat device. In other words, has with this type of software is called, its designed to defeat the emissions. And the regulators were extremely angry, to put it mildly, because they felt they had been jerked around for your and a half and that made the whole thing much more expensive for volkswagen because they had squandered any goodwill they mightve had with the regulators. I think if they had fessed up right begin it might have been, cost and and the hundreds of millions or maybe a few billion at the most people end up costing them 22 billion in the United States, so far. And there are still a lot of outstanding cases in europe. So where do we stand now . Theres been, the settlements that a mention, six executives have been indicted. One of them is in jail. I guy named Oliver Schmidt was one of the point people with the regulators. He made the mistake of visiting the United States for the Christmas Holidays and was arrested at the airport. The other people that have been indicted are in germany which does not extradite its own citizens. And the investigations are continuing. One thing im often asked about is how high up did it go . Im not sure we fully know the answer to that yet, but we do know, i just wrote about this for the New York Times a couple weeks ago, that back in 2007 there was extensive discussion at the level just below Management Board with people exchanging emails and powerpoint presentations where they went into some detail about how this Illegal Software would work. Volkswagen says that knowledge never made it to the next level at the Management Board. We will see what happens. But in any case, your not later its still a big issue for volkswagen. It would be easy to say that the volkswagen, this is something exception of bauxite because it does have a unique history. But i think that actually its something that could happen at any large corporation. I dont think its at all unusual because in the corporate world for managers to set a very Ambitious Goals and to make it clear that the penalty for failure is to get fired. And i think, recent example is the wells fargo, the California Bank which had very similar type of thing involving consumer fraud. And i think the lesson from a business point is theres nothing inherently wrong with setting Ambitious Goals for people, but it has to be very clear what the boundaries are, how far youre supposed to go to meet these goals. At what point do you say i cant do this ethically or legally and we have to come up with a different plan . Thats what was missing at volkswagen. The engineers who did this obviously felt this was expected of them by management and also that they had come those who had concerns, who worried about whether that was the right thing to do, they had no place to turn. They had nobody they could turn to to express their feelings without destroying their own careers. I think the other thing is its crucial, if companies of values, and volkswagen had a coat of compliance. What really matters is the signal set a coming down from the top. If you have, you are had a person was found to have been supplying prostitutes and labor leaders and nobody really seems all that upset about it, a few people take the fall and then business goes on as usual. I think that sends a much more powerful signal to the people below management that any code of conduct or anything written on paper. Just looking to the future, i think volkswagen will survive this scandal. Its a very powerful company. They have a lot of cash. I dont think theres any issue of them going bankrupt, but it has hurt their market share in europe. Diesel which is a big part of their Business Model is dropping. The popularity of diesel in europe is dropping very quickly. Thats a probl