Volkswagen Scandal

(12) Volkswagen.jpg

Volkswagen, one of Chattanooga’s biggest employers, is facing an emissions scandal, exposed to the public Sept. 18, that could cost the company up to $18 billion in fines in the U.S.

VW’s violation of the EPA’s Clean Air Act was first discovered in May 2014 by scientists at West Virginia University. The EPA began to confront the automaker throughout the past year, but the scandal only bubbled to the surface when VW validated that software inserted into diesel Passats, Beetles, Audi A3s, Jettas, and Golfs only reduced emissions to EPA standards during testing. Once the car runs normally, however, these “defeat systems” actually release 40 times the harmful gases than the standard.

This intentionally deceptive measure seems to be ironic for a company whose primary advertising campaign endorses sustainability and low mileage. VW’s diesel vehicles were promoted as the green alternative to regular sedans, and in response, federal tax credits were provided to reward 2009 Jetta owners for making an eco-friendly choice.

    While investigations were still ongoing, Oliver Schmitt, VW’s U.S. Head of Engineering and Environment, told NPR in an article in Jan. 2015 that “Diesel is as clean as the gasoline car today, and with the future emission regulations that are coming up, they are getting even cleaner.”

In 2011, the Chattanooga plant was constructed as the paradigm of VW’s new sustainable stance and the primary producer of “clean diesel” Passats.  The plant is the only LEED Platinum- certified VW facility in the world, boasting a 66 acre solar-panel farm among other environmentally friendly features, and is the primary producer of the Passat and an upcoming line of SUVs.

As VW confronts plummeting stocks, a slew of lawsuits, and the potential replacement of 11 million emission-gauging software systems, Chattanoogans have reason to fear repercussions. $358.2 million of the state’s tax money was invested in the facility at its groundbreaking, while local governments raised $219.2 million in expectation of approximately 1,500 jobs it would bring to the area.

Thus far, it appears that the scandal has not negatively affected the city’s economic powerhouse, and the new line will be released as originally planned.

City councilmember Carol Berzs, is confident that the emissions scandal would not constrict Chattanooga’s economy or the plant’s production.

“Production is much bigger than this episode—which was intolerable, but there were no major changes made for the good stuff,” she explained. Berzs represents Zone 6, which includes the VW Plant.

City councilmember Chip Henderson seemed less certain of VW’s future, but stated that the Chattanooga plant would continue to manufacture Passats and lay groundwork for the second SUV model.

“It depends on how they handle the situation,” he said. “I think they should make right with cars that are out on the road and buy back faulty emissions systems.”

Due to the additional 1,500 jobs offered at the plant and the thousands of jobs to suppliers throughout the state, $577.4 million was invested in the plant at its startup—primarily by state and local governments. Over 32,000 employees work at the facility currently, but 2,000 new employees will be hired once the second line of SUVs is released.  

“A lot of lives are dependent on the production of automobiles in Chattanooga,” said Moses Freeman, a city councilmember.  “A lot of lives are dependent on this second line.”

Early this September, Tennessee’s State Building Commission approved of $168 million in grants for the plant’s expansion—a drop in the $300 million raised by state and local taxes last year for this very purpose.  

Concerns arise from the atrophy of VW’s other locations and the countless economic chimeras that have reared up to punish the company for manipulating the “defeat software.”  The Berlin plant has omitted an entire shift and stymied the hiring of new employees, while CEO Martin Winterhorn resigned on Sept. 23. VW corporate has already shelled out 6.5 billion euros ($7.25 billion) out of an expected $18 billion to replace 11 million dishonest defeat systems and cover other costs.

However, a replacement will not console customers who purchased the vehicle primarily for its low emission rate nor placate the federal government’s threat to fine the company.

“We have been guilty of putting them on a pedestal, and that’s always a dangerous thing to do,” explained state senator Bo Watson, expressing his distrust of VW to NPR reporter Blake Farmerand. “When you’re caught committing fraud, it makes your partners question everything else you’ve done.”

According to the Times Free Press, Watson, Senate Speaker Ron Ramsey, and Senate Finance Chairman Randy McNally have discussed plans for a future hearing about the scandal.  Watson’s suspicion also stems from the plant’s union-twined history, a union that, according to Farmer, “has declined to comment [on the emissions issue] and instructed its members to do the same.”

Meanwhile, by Sept. 22—the same day these Tennessee lawmakers convened—VW’s market value plunged by $17.4 billion or one quarter of its original value. Last Friday, VW stocks dove to a quote of 92.36, $70.04 less than on the day the violation was announced.  

When gazing through the scope of a global and national economy, the future does not seem particularly promising for VW.

On the other hand, Jeremy McDougal (a pseudonym requested for job security), an intern at Chattanooga’s VW plant, reports that employees are “disappointed and ashamed,” but the daily function of the plant has changed very little.

“Most of the workers had no idea until they heard it on the news,” said McDougal. “Once they found out, [they had to ask themselves] ‘how could the company I work for do this and lie to the customer?’”

The only disruption has been the halted production of turbodiesel Passats and a stream of corporate announcements.     

“The PDI model is not being sold for obvious reasons, but once we get it fixed, we are going to continue selling diesel,” he said. The updated version of the diesel Passat will be released in September 2016.

With the Passat making up only 6% of global sales, McDougal doesn’t expect that the Chattanooga plant will be heavily impacted.  In order to pay for the software replacements, he imagines that the company’s “good perks and benefits will be scaled back, like it was for Toyota during their recall.”

He also hopes that the release of VW’s second line will allow both the company and consumers to start with a clean slate. The new SUV model is to be released within the next three years.

Councilmember Anderson also believes that after the scandal’s initial shock, VW will no longer be shunned by investors or consumers. He noted that when he ran across a poll on a private news website, 50% of the poll’s 2,500-3,000 participants claimed they would purchase a VW again in the future.  

“As in most things, if they repair the damage, people have a tendency to forgive and forget,” Anderson said. “Then we can watch sales pick back up.