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VW Diesel Buyers Could Have Discovered Cheating Before the EPA Did

Economics, Energy, Economics Regulatory Policy

This article originally appeared in Market Watch

Once upon a time people could fix their own cars. They could change their oil, replace the spark plugs and do a basic tune-up. As a teen I could start my manual-transmission car when its battery failed by rolling it down a hill and letting up on the clutch to engage the engine. With the advent of more automatics and computer software in cars, fewer people are tinkering with the inside of their cars.

Now if a dashboard light goes on indicating an engine problem, or low tire pressure, most people cannot fix the problems and turn off the light themselves. They are forced to take the car to a mechanic or dealer. Allowing people to examine their cars’ software themselves, and fix these problems, might have exposed cheating far earlier.

Lack of transparency is one reason it took so long for the world to discover that Volkswagen had tricked emissions inspectors by installing “defeat” software in a range of diesel-powered VW VOW, cars and one Audi spanning six years.

Modern “defeat” devices are pieces of advanced software that moderate emissions and engine performance when they detect that the car is undergoing an emissions test. When the software ascertains that the car is out of testing mode and on the highway, the onboard computer raises the amount of nitrogen oxide (NOx), a pollutant that, in turn, raises fuel efficiency, resulting in dirtier air but better mileage.

Conditions under which a car is tested are public information and consist of putting the vehicle through predictable driving scenarios such as slow “start and stop” urban driving or aggressive highway driving.

Although tipped off in 2014 by road tests by West Virginia University and the International Council on Clean Transportation, the Environmental Protection Agency did not take action until last week.

The Clean Air Act regulates vehicle emissions for nitrogen oxide, hydrocarbons, carbon monoxide and sulfur dioxide. Those substances do more visible harm than mercury, ozone and carbon dioxide, the subject of recent EPA regulations. NOx causes smog to build up in congested areas such as cities and highways.

In 1998, Renault, Caterpillar CAT, Volvo and Ford  settled with the EPA over devices installed in their cars that deceived federal testers. This is not a new phenomenon, even though VW apparently did not install its own devices until 2009.

If the software were openly available for examination, then the cheating might have been discovered earlier. But with no outsiders permitted to look at the cars’ software, VW, the major diesel-car manufacturer, was tempted to cheat.

The Library of Congress is in the process of deciding whether the Digital Millennium Copyright Act, passed in 1998 to protect music, films and other creative works, allows people to tinker with their cars’ software. The EPA and the Auto Alliance, a trade association of 12 large auto companies, say that the software belongs to the car company and not the car owner. The Electronic Frontier Foundation and other groups say that if people purchase a car, the software is included and should be available for examination.

It is in the EPA’s interest to keep people from delving in car software codes because they don’t want owners disabling the emissions controls and safety devices. But then the agency has a responsibility to put in place mechanisms that enforce its own laws. Who knows if other companies that manufacture diesel cars, such as Mercedes and BMW, have similar “defeat” mechanisms in place? Is anyone checking? Can anyone check?

It is practically impossible for auto companies to cheat on fuel economy, because, unlike emissions, people would notice. Outside groups such as Car and Driver, Edmunds.com, and Consumer Reports compare cars’ stated fuel economy with what they see as more realistic measures because this is something that they can test and publish for readers. It is more difficult to road-test emissions, although some states do random stops on highways to check.

The timing of the VW scandal could not have come at a better time for those who want access to cars’ software, because it can be reasonably argued that the problems with VW may have come to light far earlier if auto and computer geeks had access to the software code inside cars’ engines.

VW has two significant hurdles that will be extremely difficult to overcome. One is financial and the other is reputational. VW is reported to be setting aside around $7.3 billion to pay for contingent liability and regulatory costs. This may not be sufficient because potential losses are open-ended. Beyond this, VW’s reputation has been badly damaged. Its ability to recover its credibility among car buyers around the world is in doubt.

Bruce Wiener, principal of Wiener Financial Management, told me: “Even if VW is able to withstand the financial hit of paying damages and lower revenues, they will have to pull off an incredible reversal of public perception. Owning the problem and being transparent is a good first step. The ripples will be felt here in America. Now is probably not the best time to be owning a VW dealership. We’re also seeing the stock of other car companies stocks declining.”

People see cars as an extension of themselves. VW’s Passat model was marketed as a “clean” diesel car and people who bought it thought they were getting a clean car. Imagine if people who spent extra thousands of dollars on a Toyota  Prius (sometimes termed a “Pious”) found that it generated extra emissions, and you can start to imagine the breach of trust that VW faces now.

 

Diana Furchtgott-Roth is a senior fellow and director of Economics21 at the Manhattan Institute. Follow her on Twitter here.


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