VOLKSWAGEN DEFLATED BY A CHIP

This was the first article of a new column for Business Standard (Saturday) Weekend

The Volkswagen (VW) factory at Volksburg near Berlin was the first car factory I saw in 1980 before I became an auto scribe. Even back then it was almost fully automated producing a car every two minutes. It was amazing to also see their flexible manufacturing system where one assembly line could be building several different cars with different body shells, engines, colors, music systems, seat covers, etc. The master computer would send out every customer’s specific choices to a huge number of sub assembly stations that would then deliver them sequentially to the main assembly line. An army of robots like giant red insects seemed to be doing all the work and the few human beings would only spring to life if an alarm indicated some malfunction. The line could not stop and the workers would rush to fix the problem or put a magnetic marker showing the difficulty that was later fixed in the rework section at the end of the line. It was interesting to learn that auto technology was not only about cars but about the production technology.

A poor man’s car had been the Holy Grail for several automotive companies. Apart from the VW Beetle there was the older Fiat 500, the British Mini and the French Citroen 2 CV. After the war Japan also promoted a few smaIl very basic cars and one of these was to evolve into the Maruti 800 that revolutionized Indian roads. I first drove a battered Volkswagen Beetle in 1957 when it was being repaired at a workshop next to where I was trying to restore an old 500 cc Jawa 4-stroke motorcycle that I had found junked in Old Delhi. It felt a bit strange driving with a rear engine car but I found the ride and handling very good and the inner space and comfort amazing, The small boot in front of the passenger compartment was also very inadequate. It was however very strongly built and the owner loved it as is the case with most Beetle owners. In 1959 I went to France to study and fell in love with another strange car that too had once sold in millions. This was the Citroen 2-CV that had a compact engine and gearbox in front. I later drove one from Mumbai to Delhi in the monsoons and so fell in love with it that I persuaded Escorts Limited in 1983 to try to make it in India. The Indian government would not approve it as they felt it might affect the Maruti project.

VW began life before the Second World War in 1937 and its first car was a very basic car designed to be cheap to make and cheap to run. It had a small air-cooled engine in the rear to make place it close to the transmission for reducing the fuel consumption and increasing space in the passenger compartment. It evolved in a number of models to ultimately become the famous `Beetle’ that became one of the most popular cars in the world. 15 million units were produced at Volksburg upto 1972 until new safety and emission norms made it necessary to shut down. I continued to however be made in Mexico till 2003 by which time it had a record production of 21.5 million units. Though VW also made many other successful cars a demand for the iconic brand resulted in a modern new Beetle but it was not however a great success. In 2014 VW was neck to neck with Toyota as the largest automaker with a global production of just over 10 million cars and commercial vehicles.

Despite a formidable pedigree VW got off to a slow and shaky start in India. For many years it dismissed India as being an unsuitable production centre until they saw that several international brands, including their own fully owned subsidiary Skoda, were doing very well. Then in 2005 one of their senior representatives got into an ugly bribery scandal in Andhra Pradesh so VW ended up as being the last major auto company to set up shop in India. In 2007 they began production and today have a big plant at Chakan near Pune and investments of Rs. 4000 Crores to make 200,000 units per year.

The Polo hatchback is their most popular model but they also make the Vento, Jetta and Passat saloons. In 2014-15 VW sold 42,827 units making them India’s ninth largest automaker. VW also market several imported models like the Taureg SUV the new Beetle and the luxury Phaeton saloon but these imports are not very popular. Despite their great reputation, competitors led by Maruti-Suzuki but including Hyundai, Toyota, Honda, Tata, Ford and GM have done much better. In a highly competitive market customers want the best cars their money can buy and the magic of the great VW name has become a bit tarnished.

In the last two decades auto technology has steadily moved from mechanical engineering to electronics. Even small cars have over a dozen microprocessors and chips to control engine management, suspension, braking steering, climate control, lighting and almost every function. These are essential for the constantly increasing demands of safety, fuel efficiency and pollution control. Modern cars now have more chips in them than a packet of wafers. The most important component is probably the electronic control unit (ECU) that calibrates the fuel supply to meet every road and load condition with sensors to measure the temperature, oxygen levels, speed and every other parameter.

VW however took its technology a bit too far. Since 2009 VW began introducing an secret code into its diesel vehicle software to track the steering and pedal movements when these indicated that the car was being tested for nitrogen oxide emissions and the car would automatically turn its pollution controls on. The rest of the time, the pollution controls were off. The regulators had no way of knowing about this technical ruse. The problem was discovered by the International Council on Clean Transportation, which wanted to investigate why there was such a huge discrepancy between laboratory tests and real-road performance for several of VW's diesel cars. Investigators stuck a probe up the exhaust pipe of some VW's clean diesel cars and drove them from San Diego to Seattle and found that VW's Jetta and Passat were emitting many times as much nitrogen oxide as was found in lab tests.

In May 2014, both California's air pollution regulator and the EPA ordered Volkswagen to fix the problem but the road performance still didn't match lab tests. VW finally cracked and admitted the existence of these pollution defeat devices, which had been carefully hidden in their software codes. VW admitted that some 11 million clean diesel vehicles were affected. The models expected to be recalled and rectified include: The 2009-2015 VW Beetle 2.0L TDI; 2009-2015 VW Golf 2.0L TDI; 2009-2015 VW Jetta 2.0L TDI; 2009-2015 Audi A3 2.0L TDI; and 2014-2015 VW Passat 2.0L TDI. It has been the biggest ever scandal of the global auto industry that will cost the company a fortune in recalls and fines. It took generations to build the great VW reputation and one little chip was to completely deflate a great company.

When the scandal broke in September 23, 2015 Martin Winterkorn the CEO of Volkswagen AG said…”I am shocked by the events of the past few days. I am stunned that misconduct on such a scale was possible in the Volkswagen Group. As CEO I accept responsibility for the irregularities. I am doing this in the interests of the company even though I am not aware of any wrongdoing on my part.” Everyone loves a good disaster and there are now reports that Hollywood is planning to do a film on this corporate disaster.