Transcripts For CSPAN2 Faster Higher And Farther 20170710 :

In a New York Times publisher award in 2011 for coverage of the european debt crisis. Keeping study in his pursuit as a journalist, jack continued to write about business, banking, economics and monetary policy. Another part of coverage included the european car industry which gave a motive for him to write his new book faster, higher, farther from the volkswagen scandal. They found an appreciative audience with readers and critics alike and praise of research and narrative style publisher weekly writes a compelling prose makes the book reads like entertainment more than education and in the story how the company cheated devices and was exposed by West Virginia University Researchers and finally publicly cited by the epa as a corporate hubris. Interest in this now faded scandal may be confined to a niche audience that the readers pick up the book will be glad they did. Please join me in welcoming jack. [applause] thank you very much. Its great to be here at politics and prose which i understand is quite an institution in the washington area. The way this book got started is the editor in chief martin sent me an email one day asking if i ever thought of writing a book about the scandal to let them know and i let them know about five minutes later that i would be interested. One of the first things he said to me was i dont care about cars, im not a car person. You have to write a book i still want to read so i sort of follow with what they said about this because i tried to make it a tale that is about ambition, abuse of power, but have a toxic Organizational Culture can push ordinary basic people to commit crimes and its also a sure tragedy because the whole scandal threatens the jobs of hundreds of thousands of workers who had nothing to do with the wrongdoing. But they talk very briefly about the history because it has an impact on what happens later. It was basically a propaganda project by the nazis. They wanted hitler was upset that middleclass americans were driving around model t. s and germany had nothing equivalent that anybody could afford so they came up with the idea of the peoples car, the volkswagen and he hired a guy to design it and that is what later became the beatles. This was in the late 30s but actually they never managed to build as many cars before the war got started and the factory was shifted to military production. After the war it could well have happened but it never existed because the factory was bombed out and as i said they never produced as many cars. What saved the company was a british major who was part of the occupation force and noticed the beatles standing around in the rubble and the british army at the time used transportation and had a bunch of workers who needed something to do so this majors name is ivan hirst and they got them producing the car again and it was the beginning of volkswagen as the company. As you know, the car was a huge hit in the postwar market it was simple and cheap and just what people needed at the time. And it was also very popular in the United States. By the late 60s, volkswagen was the leading import brand in the United States. This was before tea toyota and nissan were as big as they are today. When beetle inevitably started to become obsolete, they had a lot of trouble replacing it and by the early 1990s the company was in pretty serious trouble and there was talk it might go bankrupt. They were in serious trouble and this is where they come back into the story, remember they designed the first beetle in the early 1990s his grandson became the chief executive and came up through the rain and he was in many ways even more of an automotive genius than his grandfather and succeeded in turning it around. He improved the quality and style of the cars. Sales recovered, profits recovered but he also had a dark side. He was dictatorial and had no compunction about firing people that didnt meet his standards and had many known anecdotes about him calling engineers into a room and saying this is what i want you to do. You have this much time and if you fail you will be fired so it was a very difficult corporate culture. Another of the achievement was in the realm of diesel. Volkswagen was one of the First Companies that figured out how to sort of civilized diesel for passenger cars. They were known for being smelly and smoky and noisy and they figured out how to combine computers and fuel injection to make them quieter and cleaner than they have been. To tell you a little about the character, an automotive genius on the one side while he does have volkswagen there was a member onumber of scandals. There was a corporate espionage scandal accused of stealing secrets from general motors. There was a scandal where the head of personnel was found to have been supplying prostitutes to labor leaders to keep them happy, and he himself was somebody who didnt live by the same rules as most of the rest of us. Just give you a little anecdote of his life, at one point he started having an affair with his cousins wife, had two children with her and at the same time, two children with another woman and her 12 children total during his lifetime. He wrote about all of this in his autobiography. Its not something he was ashamed of if anything he was proud of it. So after these scandals, there was never really any reform. But at a healthy company, went Something Like this happens, you should reform the compliance and look at your code of conduct. You should think about ways that you can prevent this kind of thing from happening in the future. And that didnt happen at volkswagen. So, around the mid20s euros euros, volkswagen there was one thing that they never managed to do and that was recapture volkswagens glory in the United States and that bothered him. Volkswagen decided they wanted to become the largest car company in the world and they couldnt do that without also being a force in the United States and by then, volkswagen had become just a niche brand of sending about as many cars as subaru and they have been overshadowed by 200 so they were looking for some kind of a unique selling point that would help give back the marketshare in the United States. Diesel has been very successful in europe and by then it had accounted for all of the cars that were diesel. It was a big selling point in europe where fuel is very expensive, so they thought lets try that in the United States. We will sell it as an environmentally Friendly Technology and try to go after the same people that might otherwise buy a toyota three s. And they decided to develop a brandnew Diesel Engine to do this but of course the problem was they found out they couldnt make the Diesel Engine clean enough for u. S. Emission standards. Europe has a reputation for being more environmentally friendly and strict in the United States but actually they have stricter limits on my church and knocks aside to eat krispy six nitrogen oxide. Around 2006 the engineers realized they couldnt beat the u. S. Standards and 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 that isnt what happened. In late 2006 a group of engineers and managers got together at the research and Development Center at volkswagen and add in Information Technology guide prepared a presentation im convinced anything evil that happens at a corporation starts with a powerpoint. The powerpoint showed how the computer and the engine that sits under the hood could recognize the cycle regulators used when they were testing the cars emissions. They put the car on rollers in a garage and stick instrument estp the tailpipe and run a simulated driving cycle, supposed to simulate fills in the cities and highways and so on. But the cycle is solved is predictable. Its Public Knowledge what is. So what volkswagen did his program the computer to recognize when that, when the car is being driven according to the cycle and not to crank up pollution controls of the car would look clean. They had the controls of overtime and the car couldnt take it into the components would fail but it could deliver cleaner tailpipe emissions some of the time. And its worth noting that there was a serious debate among those present about whether this was a good thing to do. There were people against it and felt bad about it but at the end of this meeting that lasted less than an hour, they decided to go ahead. And the last words of the senior person as they left the room was dont get caught. I think another thing that is worth noting about this particular behavior was bad if you look at the banking scandals, people were motivated by money, by greed. They wanted to get their bonuses, stock options, whatever. That wasnt a factor here. The people that did this were just trying to hang onto their jobs. None of them got promoted or any more money. It was just about keeping your job. That says a lot about the culture that existed. I think the other important thing is that it would have cost maybe a couple hundred more dollars per car to make it clean. As the years went on, there were many times when the changes in models of changes in the design of the cars when they could have upgraded the 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. This planned on until early 2014. I just want to back up a little here. The regulators never tested cars on the road. And that is what made it possible to cheat. But in the mid90s, there was a guy at the epa who started working on portable missions technology is something you could put in the vehicle and try to measure the emissions as they were under way. I dont want to embarrass him, hes in the room right now. Raise your hand, leo. [applause] leo is the guy that started experimenting with this and developed beyond some of the patents on the technology that allows and makes it possible to measure emissions. [laughter] makes it possible to measure emissions and that was crucial in the whole chain of volkswagen being exposed. Many years later, 2013 there was a Nonprofit Group called the International Council on Green Transportation and they wanted to see what kind of technology the german carmakers were using in the United States with their diesels because at the time there was a debate in europe about making the standards stricter and carmakers in europe said we cant do it, its impossible in this nonprofit set wait a minute, they are doing it in the United States and saying they cant do it in europe, whats going on . So they awarded a 70,000dollar grant to a group at West Virginia university which has a center that is well known for its expertise in missions testing. They tested teufel slackens out on the west coast mostly a bunch of graduate students, some of them from india. They quickly noticed that theres a difference between the cars emissions that were produced on the highway and what they produced in the lab. They tested the cars in the lab to get a baseline and then they took them out on the road with a portable technology that since by then had been commercialized iand they saw that there was something wrong. They didnt know at that point what was wrong just something was fishy and they published a study about that in early 2014. Nobody noticed much but outside the industry, outside actually this subculture of people who follow the emissions but among those who noticed was the California Air Resources Board which is the regulator that enforces the law in california and they were concerned enough they put together what they call a compliance project. They use the clout as the regulator to assemble a small fleet of volkswagens and defended tons of testing. If the bolt slacken had been smarter they would have at that moment and said we did something bad. We are really sorry. We will fix it. But thats not the way the people at volkswagen work and instead, they mounted a coverup which lasted a good year and a half that they fed to the regulators misleading information, false information, there was a dialogue between the california regulators and volkswagen, long discussions about what was causing the problem and they kept telling them it was a technical issue they would get it under control. They did a recall to upgrade the software. It was all basically a smokescreen be laying the day of reckoning. Finally, you have to give some credit to the kind of stuck with it, kept pushing and eventually in september, 2015, volkswagen ran out of excuses and one of their engineers went up to one of the top people at a conference and said that the device to defeat the emissions. The regulators were extremely angry to put it mildly because they felt they had been jerked around for a year and a half and that made the whole thing much more expensive for volkswagen because they have squandered any goodwill they might have had with the regulators. If they said stuff right at the beginning, it might have caused them in the hundreds of millions or a few billion of the most but it wound up costing them 22 billion in the United States so far and there is still a lot of outstanding cases in europe. So where do we stand now . Thereve been the settlements i mentioned, six executives have been indicted. One of them is in jail who 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 were in germany which is not to 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 and i just asked about this for the New York Times a couple weeks ago that back in 2007, there was extensive discussion at a level just below the Management Board witof people exchanging emailsd powerpoint presentations where they went into some detail about how this Illegal Software would work and how volkswagen says knowledge never made it to the next level at the Management Board. We will see what happens but in any case, a year and a half later it is still a big issue for volkswagen. It would be easy to say that this is something exceptional to volkswagen because it has a unique history but its something that could happen at any large corporation. I dont think it is at all unusual for in the corporate world for managers to set up very Ambitious Goals and make it clear that the penalty for failure is to get fired. A recent example is wells fargo cut the California Bank that had a very similar type of consumer fraud. Theres nothing inherently wrong with setting up Ambitious Goals but it has to be clear what the boundaries are and how far youre supposeyouwere supposed t these goals and at what point do you say i cant do this and we have to come up with a different plan. That is what was missing. The engineers who did this obviously felt this was expected of them by the management and thosofthose that worried about r it was the right thing to do, they have no place to turn, nobody to go to to express their feelings without destroying their own career and i think the other thing is it is crucial that companies have values and they had a code of conduct that what matters is the signals that are coming down from the top. And if you are the head of personnel and were found to be supplying prostitutes to labor leaders and nobody seems all that upset about it, a few people take the fall and then business goes on as usual. That sends a much more powerful signal to the people below management van any code of conduct or anything written on a piece of 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 there is any issue with them going bankrupt. But it has hurt their market share in europe diesels which is a big part of their Business Model is dropping as the popularity is dropping very quickly that is a problem. Perhaps not surprising. I think the biggest problem for volkswagen is this is a moment of transition in the auto industry. Silicon Valley Companies are getting interested. You have tesla building electric cars and working on self driving cars, apple is said to be working on things, uber commanded these companies have more money than the makers because of the stock market so the carmakers have to be adjusting to this. And volkswagen now has to do that with a loss less money than they had before. They would rather be spending about 22 billion on research and develop and then on fines and legal settlements. I guess i mentioned at the beginning the tragedy and thats true in many ways the volkswagen was an incredible Success Story when you look out rose from the ashes of world war ii and became the biggest car company in the world one of the ironies of the whole story was a couple of months before the scandal broke, they surpassed toyota as the largest car company in the world and that surprises americans because we think of it as being kind of a niche brand and in the rest of the oldest huge, its the biggest carmaker in europe by far and then two months later this scandal hit and i guess the biggest take away shows from the profit point of view to have an ethical foundation. They may wind up suffering because volkswagen made themselves vulnerable to a handful of students with a 70,000dollar grant. I would be happy to take questions. Thank you to ev