How should VW make up for the environmental damage caused by its cheating?

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Option 1 – Fines: Penalties and sanctions may hurt the company and they have the potential to avoid more cheating in the future, but they won’t be able to compensate for the damage already done. Even their suitability to discourage future misbehavior can be doubted. Not only because they put pressure on the company to somehow still deliver the results its shareholders expect, but also because fining an employer often means relieving employees from individual accountability and liability. 1

Option 2 – Recalling and fixing every affected car: Like penalties, this option inflicts financial damage on VW while doing little to make up for the damage already done. Each recalled car would marginally reduce the total future negative environmental impact but would at the same time externalize the cost of VW’s malpractice to the owners of the troubled cars. That’s also the reason why it’s really unlike to get a significant number of cars outfitted with any fix.

Option 3 – Burden VW with an environmental liability. And offer a way to pay actually pay it off: That’s the idea a group of smart people in the US came up with. In „An Open Letter To California Air Resources Board Chairman Mary Nichols“ they suggest to relief VW of their obligations to recall vehicles and pay fines in exchange for a commitment to strengthen and fasten the company’s investment in zero-emission vehicles.2 Unlike options 1 & 2 this would provide a realistic option to make up for past and future environmental damages created by the cars already on the road, without affecting their owners. Like fines, it would hurt VW financially in the short term, but unlike pure financial penalties the investment can generate returns in the future, thus making the deal easier to sell to shareholders. Now that leaves the question, why VW didn’t come up with this proposal on its own?3

Possible explanation A – VW doesn’t see an EV future (for itself): Even before the Paris deal, this would have been extremely shortsighted, now it’s just not an option anymore. Eventually, the world will move towards modes of transportation that don’t require fossil fuels because we will run out of fossil fuels. This is a scary thought for VW and most other legacy car makers, because they have two core competencies: One is designing and producing internal combustion engines (ICE) and the corresponding powertrain, the other one is assembling cars at scale. Currently, the global market for electric cars is not even close to the volumes that VW churns out. Even once the market has grown big enough, there won’t be any need for ICEs. Moving into a market that doesn’t need what you’re best at is a scary thing and for a publicly traded company it can be a tough sell to shareholders. Especially if growth of this new market might cannibalize your traditional sales. But then, turning a blind eye on the future never worked out for anyone either.

Possible explanation B – supporting the network of dealerships and workshops: Sales in the US dropped significantly YoY and that also affects the dealerships, who might suffer more than VW itself, because they’re smaller and not as diversified as Volkswagen Group. A recall of thousands of vehicles would not only mean a cash inflow (although small) for the workshops, but also reassures VW’s partners that the company stands by them. EVs contain fewer moving parts and hence require less servicing, leaving less work for the workshops and fewer opportunities for the dealerships to upsell on maintenance contracts. Speeding up the transition to an electric VW could make it (even) less attractive for the car maker’s partners which are a key element of the distribution strategy of legacy automotive companies.

It’s not easy being VW these days – with the cheating software they chose the short term „solution“ over the right thing to do. Will they do it again?4

  1. Whether or not individuals should be liable for actions taken in their roles as employees shall not be discussed in this article. Currently very few employees face criminal or civil charges due to non-compliance in their job, especially in high-profile cases.
  2. I understand that these vehicles are not actually zero emission as long as we produce electricity from fossil fuels. However, our energy mix is moving towards renewables even if it takes a long time. Switching significant parts of the vehicles on the road to EVs will also take a long time. There’s no reason to not do both things in parallel.
  3. Maybe they did and just didn’t go public with it. This seems unlikely, given that such a move would show that they are proactive and hence would generate some positive PR.
  4. Yes this assumes that CARB or other agencies would agree to such a deal in the first place, but I don’t see why they wouldn’t. With Elon Musk from Tesla, a key competitor supports this move and it just makes more sense than fines and recalls – it would be hard for anyone to argue against it.

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