Tuesday, 22 September 2015

Car company LIBOR


The fixing of emissions by VW strikes me as comparable to bank fixing scandals.  

The rules were in place but, as with any regulation, the industries effected do their utmost to play the rules to their advantage. In the case of VW they were obviously hoping that the rules meant that their cars had to pass the test rather than perform to the test outcomes permanently. They adjusted their behaviour to pass the test rather than observe the essence of the regulation. 

Now call me a cynic, but I find it hard to believe that VW were alone in this practice as many car manufacturers produce similarly impressive figures with engines that are no more advanced than VW’s. Much as the LIBOR or FX fixing or PPI misselling scandals provoked industry wide investigations and fines I would not be at all surprised if the VW case initiates the same within the car industry. 

VW stock has been crucified and the reputation of the company sorely hit, but the cost to the business is going to be comparative. Buyers may move to other brands if emission tests results are recalibrated and the outcome makes VW’s uncompetitive, but that assumes that the competition is untouched and not equally branded as cheats. I would not be surprised that if VW go down for this they will try and play a whistleblower role (as bank dealers do in financial scandals) and take down the competition too to keep the playing field level, all be it at a lower level. 

If the banking model is anything to go by, the HQs of all global car manufacturers are going to be hives of desperate activity checking that a) they haven’t been doing the same, b) if they have, trying to bury the evidence or backtrack (can they really remote hack car software and reset it?) c) Contain the fire by finding internal scapegoats, firing them, offering them up as sacrifices to the judicial system and then declaring that they have put process in place to insure it will never happen to them and all is good. 

To be honest I don’t care too much if my car burps out more NO2 than declared in a test as long as I am street legal and the low running costs I am enjoying don’t change. But the tax man certainly does. I may decide not to buy a car if it jumps up a car tax band due to emissions but if the taxman has been defrauded out of billions due to cars being declared at a different tax band to where they actually lie then that is as good as fiddling your tax returns. The pollution issue is minor compared to what happens when you defraud a tax authority and this is where people go directly to jail. 

But it doesn’t stop at pollution emissions. I also understand that sound emissions are as important and only just found out that the cool opposite mounted twin exhausts on nearly every car these days has nothing to do with performance cosmetics but sound emissions. And even there the firmware in the car detects the sequence of manoeuvres  synonymous with a sound test (the distance of the max acceleration, the pause distance and number of repeats) allowing it to adjust for the final test sample. 

The one test that we all have questioned for years (the one we are all most selfishly concerned with) is the fuel efficiency. I am sure that you have to weigh only 10kg and drive the car full of helium along a steel road using solid titanium tyres in a vacuum to achieve some of the published results. 

The level of fines being imposed on large corporates is just eye boggling. I am not sure that car manufacturers will become the next ‘banker’ in the eyes of society but this VW Expos√© does little to enhance the reputation of Big Corporate. I do wonder if there comes a point where it just isn't worth being a big corporate. Private employment is seeing a growing trend of freelance and self employment, with groups working as collectives or hive minds of efficiency, so perhaps there is case for huge corporates becoming collectives of small companies. It would certainly make it harder for the regulator to pin a massive fine on them as they would be behaving as a swarm of bees rather than an elephant. Any component being fined could be sacrificed to bankruptcy and a new one grown using a lizard tail philosophy. I just don’t know where that point of efficiency lies.

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Footnote - I have just seen more on the same theme from Francis Coppola http://www.forbes.com/sites/francescoppola/2015/09/22/rigging-emission-test-results-proves-costly-for-volkswagen/

And here is more on the test
http://jalopnik.com/understanding-the-test-mode-that-let-vw-trick-the-emiss-1732175835


And it has correctly been pointed out to me (first comment below) that car tax is CO2 dependent not NO2. Know your pollutants. But I still bet every aspect of testing and firmware will be under investigation. Standing by for engineers incriminating chats to hit the wires.....




7 comments:

Anonymous said...

CARB gave VW a chance to fix this problem after raising it with them months ago:

http://www.arb.ca.gov/newsrel/in_use_compliance_letter.pdf

They couldn't fix it with software, which implies it's a mechanical issue. This shouldn't be a surprise to VW management and one might've thought they'd've got their story straight by now.

On the subject of tax, the UK's VED is based on CO2 not NOx because it's carbon that we're most concerned about, right?

Polemic said...

Good points - thanks

Booger said...

It wouldn't affect whether I buy a VW. As a consumer I thought the DSG controversy was a much bigger issue (reported "unexpected decellerations" in VW's, such as a woman being killed when her golf stopped on the highway with truck behind) and that did actually turn me off buying a VW! I reckon if you fancy VW stock, buy with abandon...

Michael said...

Because LIBOR fixing worked best as a conspiracy between many banks to affect the outcome, I don't think your analogy will hold. VW could deceive the regulator on its own and the evidence that the initial investigation generates will not necessarily contain links to other car companies at all.

The news is very bad for VW but I wonder if the impact on other car manufacturers may be more of a short-term positive as VW cars are removed from markets and its sales / reputation suffers in the rest of its line up. Do consumers delay buying a car because a particular make and model is no longer available?

Eddie said...

As far as I understand it they could have solved the issue in the first place by using a better filter which costs like EUR 100 more per car than the current one. The issue is, however, that the currently used smaller filter needs much more cleaning while driving which means increased gas consumption. This might have been the pain point for some managers in Wolfsburg.

hipper said...

This actually seems to be turning into a bigger witch hunt than I thought. Now they're going after every car manufacturer and probably later on every single diesel burning device. It's not anymore about whether VW cheated a bit or not, it's about a new excuse to fill the gaping hole in the broke governments coffers. What this means of course is more regulation a.k.a artificially rising transport, construction and miscellaneous costs affecting everybody which is going to turn out to be really bad on the consumer already being strangled by all sorts of other regulation. Just one more nail in the economies coffin for the long term.

Really diesels aren't bad, it's just a matter of perspective. Look, as technology goes forward, it's the first to set a new "natural" limit somewhere and only after based on that limit, the bureaucrats set a restriction norm for everyone to follow. You couldn't even dream of this level of regulation 20 years ago. Some facts from today:

http://www.smmt.co.uk/industry-topics/environment/intro/european-engine-emission-standards/

Total diesel NOX 1990 vs. 2010 down 81% despite 19% travelling distance increase. Filters capture 99% of all particles. You're pretty near the limit of tech now and shooting over the (especially US) ultra low regulation by 10 or 20 times doesn't really mean anything. In many other parts of the globe they still use tech from the 1960s which probably emit hundreds of times more NOX. In fact using restrictions to make diesel emit less NOX at this point involves trade offs that have very adverse effects on performance (mileage), functioning, increased formation of soot particles (unburned fuel) which might create health effects of their own. More CO2 from gasoline isn't really a much better alternative. In fact it's worse, since that's what basically every EU country seems to be basing their taxes on.

The world relies on diesel in so many applications that there's just no way to replace it no matter how much it get's demonized. So the only thing that's going to give here is just more regulation, more costs and thus very bad long term economic consequences in the DM, without any material impact on emissions.

Polemic said...

happening -> http://www.dailymail.co.uk/news/article-3259067/It-s-not-just-VW-Official-tester-claims-four-diesel-car-giants-break-toxic-emissions-limit.html#ixzz3nhZnVyeU face that VW suspected not to be alone.. surprise surprise