What really happened at VW

Faster, Higher, Farther: The Volkswagen Scandal. By Jack Ewing. W.W. Norton; 352 pages; $27.95. Bantam Press; £20.

WHEN an American policeman pulled over a Volkswagen (VW) Jetta in 2013, he suspected that the array of pipes sticking out of the back of the car and the grey box and portable generator in the vehicle were a sign of something fishy. He was right. The West Virginia University researchers inside the car had nothing to hide. But the tests they were conducting on the exhaust fumes, meant to prove the cleanliness of modern diesel engines, uncovered one of the biggest and boldest frauds in corporate history. The decision by VW, a pillar of Germany’s car industry, to fit “defeat devices” and cheat emissions tests in up to 11m cars has so far cost the company $21bn in fines and compensation in North America alone.

Why did the company deliberately set out to engineer cars that spewed out up to 35 times more poisonous nitrogen oxides on the road than stated in official tests? Jack Ewing, a journalist for the New York Times, offers a timely guide to the scandal, setting out in detail why VW’s corporate culture led to the deception.

He delves into VW’s origins, when Adolf Hitler ordered the construction of a “people’s car”, or Volkswagen in German. VW set up shop in the German countryside. Wolfsburg bred a “headquarters mentality” that insulated the firm from outside influence. Unprecedented union power, handed over in the 1960s as the price the federal government paid for floating the firm on the stockmarket, and the sway of the state of Lower Saxony, which retained a 20% voting stake in the company, gave outside shareholders little say.

This allowed autocratic bosses to have their way. Ferdinand Piëch became chief executive in 1993 at a time when the company was struggling. To win back sales, Mr Ewing argues, he created the conditions that allowed the fraud to “fester”. To keep workers onside, the company had to carry on growing. Managers were kept quiet through fear. The ruthless Mr Piëch replaced almost the entire management board by his second year in the job.

His successor as CEO, Martin Winterkorn, a man cut from the same cloth, wanted the firm to become the world’s biggest carmaker. An assault on the American market, where VW was weak and emissions regulations much tighter than in Europe, was vital to overtaking Toyota and General Motors. To meet that demanding target, though, VW had to cheat.

Mr Ewing explains why VW cheated, but pinpointing who was responsible has been much harder. The company insists the deception was cooked up by middle managers and that senior bosses, despite a reputation for microscopic attention to detail, knew nothing of the fraud until it was too late. If there is clear evidence implicating bigger fish it has yet to emerge.

The scandal still haunts VW, despite a settlement with American law enforcers and compensation for American car-buyers. European customers are pursuing class-action lawsuits for compensation, though VW insists it did nothing wrong in Europe, where the rules are laxer. Mr Piëch left the company before the scandal erupted and Mr Winterkorn has since resigned. Several employees have been arrested or charged with criminal offences in America. German prosecutors are investigating nearly 40 employees and have begun a probe into Matthias Müller, the latest CEO and another long-serving insider, for failing to warn shareholders in a timely manner about the scandal. The company has denied those allegations. In any event, Mr Ewing’s tale will need a new edition with extra chapters.