Thursday, September 24, 2015

For How Long Should Volkswagen Be Barred From Doing Business In America?


When Trump mentioned that he thought grasping, greed-driven hedge-fund managers and banksters should pay their fair share of taxes, the grasping, greed-driven hedge-fund managers and banksters doubled down on sabotaging his campaign. They are getting slime-ball lobbyists, like  Grover Norquist  and the Club for Growth, to "work on" the congressmembers the banksters own or rent. Club for Growth has already pledged to run millions of dollars of ads against Trump. Here's the first one:

When it comes to their pocketbooks, these monsters will do anything-- not almost anything-- to not give up a nickel, no matter what the damage to society, to the nation, to anyone. They may know where the best clothes money can be bought, but they are primitive, tribal and barbaric-- and they have gotten away with their sociopathic behavior for far too long. 

All week we've been getting to know a little about America's newest arch-villain, Martin Shkreli, the former hedge-fund manager-- and the love child of Voldemort, Scrooge, and Faust-- who jacked up the price of a life-or-death drug, for no good reason other than sheer greed and because he could, from $13.50/pill to $750/pill. And while Shkreli deserves his new status as a poster boy for grotesque antisocial behavior, he's not alone as the embodiment of what Pope Francis calls "the dung of the devil" when referring to the unfettered lust for money that has become so dominant in Western culture. 

As Bernie put it in a tweet yesterday after the Pope had finished speaking, "The pope is saying that money, the accumulation of money and the worship of money is not what life should be about."

As I was driving to the hospital for a day of cancer remission maintenance, I listened to an interview with Uri Gneezy, a professor of behavioral economics at UC San Diego, who wrote The Why Axis: Hidden Motives and Undiscovered Economics of Everyday Life. He made the point that fining corporations doesn't necessarily change sociopathic corporate behavior-- unless the fines are gargantuan and close to existential, and they take the behavior out of the realm of morality and into the realm of cost-benefit analysis. But the discussion wasn't about the execrable Martin Shkreli. 

It was about Volkswagen, the company founded in 1937 by the German Labour Front as an antidote to the then completely dominant luxury-car market, and run most recently-- until yesterday, when he was forced to resign-- by another Martin, Martin Winterkorn. Winterkorn, of course, refused to accept any personal responsibility for the criminal enterprise Volkswagen has turned into on his watch.

(Disclaimer: My first car was a VW van, and when I moved to Europe in 1969, I bought a second one, at the factory in Wiesbaden-- for $2,500, a fully equipped camper if you promised to export it out of Europe. I promptly drove to India and wound up living it in that van for several years.)

Professor Gneezy says the only way to really change the kind of behavior Volkswagen was engaging in-- and keep other corporations from doing the same in the future-- is to throw the book at them. (I believe I heard him use the word "execution," although that was probably just wishful thinking.) Germany may open a criminal investigation, but, given VW's outsize role in the German economy and what this scandal could do to it, that could well be part of a cover-up/wrist-slap strategy.
The Volkswagen emissions scandal will cost billions and could tarnish the entire German auto industry.

The company had made bold claims about being greener than other automakers, and had a reputation for reliability and quality engineering. Suddenly, the "Made in Germany" branding doesn't look so hot anymore after it apologized for cheating on diesel car emission tests.

...Here are seven key facts that show what's at stake:
1. The Volkswagen group accounts for roughly one in 10 vehicles sold globally.

2. The auto industry is the largest industrial sector in Germany, contributing about 2.7% to gross domestic product.

3. Some 20% of Germany's exports are made up of vehicles and parts.

4. Domestic auto sales and exports were worth 368 billion euros ($411 billion) in 2014.

5. Most German auto sales came from the Volkswagen group, which reported just over 202 billion euros in revenue in 2014.

6. Roughly 70% of Volkswagen vehicles are sold outside German borders.

7. Volkswagen employs nearly 600,000 people around the world, and more than a third of the 775,000 people who work in the auto industry in Germany.
That said, the editorial board of the Chicago Tribune knows how egregious the charges against VW are-- and they decided to share it with their readers, although without calling for VW from being barred from doing business in the United States.
There was a time when car shopping involved questions about price, performance and warranties. Maybe it's time to update the list of questions:

Do your vehicles accelerate unintentionally, as Toyota's did?

Do the ignition switches on your vehicles ever turn off suddenly while cruising on the highway, as GM's did?

Do your emissions systems evade federal law and secretly spew fumes, as Volkswagen's did?

The dangerous errors and calculating behavior of some auto manufacturers are astonishing.

Toyota paid a $1.2 billion penalty in 2014 to settle federal charges that it concealed safety defects that caused sudden-acceleration incidents. Last week, GM agreed to pay a $900 million fine for failing to disclose the installation of defective ignition switches that have been linked to the deaths of more than 100 people. Justice Department officials said that in both cases they would defer prosecution, giving the companies three years to prove they have changed their ways.

Now comes Volkswagen.

The U.S. Environmental Protection Agency says the German automaker slipped a "defeat device" into the emissions systems of diesel vehicles. In effect, the government charged, VW hacked its own engines to let its cars run dirty. The cars could detect when they were hooked up to a government pollution test and instantly the engine would clean up its act.

The scope of this scandal is stunning: Volkswagen said Tuesday that 11 million cars worldwide are fitted with the software responsible for the cheating. The company is setting aside $7.3 billion (about nine months' profit) to pay for the mess, including anticipated fines. But that's not the end of it.

In the U.S., Volkswagen will need to recall and fix 482,000 vehicles. The company faces fines under the Clean Air Act that could total $37,500 per car, as much as $18 billion. The Justice Department is reportedly pursuing a criminal investigation. VW's stock has plunged about 30 percent this week.

Volkswagen's global CEO Martin Winterkorn is under fire. Germany's economy minister is fretting about the damage the VW scandal has done to the country's reputation for reliable engineering.

Volkswagen didn't report its behavior; the company got caught by federal and California investigators. The rigged cars emitted up to 35 times the legally allowed amount of nitrogen oxide, a component of smog. Running dirty apparently improved acceleration and gas mileage. The cars involved in the U.S. include the diesel versions of the Jetta (2009-15); Beetle (2009-15); Golf (2009-15), Passat (2014-15) and Audi A3 (2009-15).

"Our company was dishonest, with the EPA and the California Air Resources Board," Michael Horn, Volkswagen's U.S. boss, said this week at a New York Auto Show event. "We have totally screwed up."

Winterkorn, in a video statement Tuesday, said he was "endlessly sorry" and acknowledged the company's culpability. "To make it very clear: Manipulation at VW must never happen again."

International competition has benefited consumers with far more reliable, technologically advanced, fuel efficient-- and fun-- cars. You're more likely to have a better shopping experience these days, thanks in part to Internet research tools. The Toyota and GM controversies do not seem to have shaken consumer confidence-- sales figures have generally been strong.

Perhaps VW can weather the storm too. But you have to wonder at what point consumers lose basic trust.
The fine the EPA is talking about-- $18 billion-- is the equivalent of VW's worldwide profits for the entire year and then some. Is that enough? Professor Gneezy seemed unconvinced. (Probably all the more so as it leaks out that Winterkorn is leaving his job with at least $32 million in severance, etc.) And this morning, it appears that the cheating scandal may not be confined to VW. Next up" BMW The stock price started crashing this morning as Auto Bild reported that its diesel engines were "significantly" exceeding regulatory limits, emitting nitrogen oxide levels that were 11 times more than the current limit set by the European Union.

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