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Forgive and Forget?

Volkswagen’s new advertising campaign raises some questions.

VW committed a crime. They lied about emissions testing for their Diesel powered vehicles and got caught. This affected about 500,000 cars in the US and another 10.5 million worldwide. As a consequence the air we breathe was dirtier than we thought it was. In the US they paid a hefty price – settlements were north of 30 billion dollars! That is a lot of change! You could buy 750,000 Tesla Model 3s with that money. Did VW do 30 billion in damage by being obNOxious (get it, get it?)?

The answer is no. One estimate puts the damages closer to 100 million dollars. And here is another one showing direct effects on low birth weights and increased asthma in children. So why were the penalties so large? There is a big literature in law and economics that basically says the fine should not be equal to damages, but larger. It should take into account the fact that whether you cheat or not depends on the probability and consequence of being caught. Hence the optimal fine could be defined as damages divided by the probability of being caught, which was very small in this case (these cars were on the road for years before this was uncovered). So fines can end up being orders of magnitude bigger than the damages caused by cheating.

So now that they have paid up, is it time to move on? Maybe in the eyes of the law. But there is still this pesky little consumer. We hold a grudge. It’s like finding a cockroach in your delicious organic salad at your favorite restaurant. While adventurous foodies may enjoy eating the occasional bug, most won’t come back to the restaurant and will whine digitally on Yelp. So the restaurant will make its best effort to convince us that they have changed! Chipotle promised us that its lettuce will longer make you projectile vomit. And they will throw in free liquid cheese to make you want their product again!

VW is following the same strategy. During one of the worst hours of television ever (Klay Thompson’s ACL injury) VW aired an ad showing the new VW ID Buzz – the electric successor to the beloved 1960s VW bus. Only now it has all wheel drive, close to 400 horsepower and enough room for 7! Plus it probably does not smell of patchouli and other now legal substances. My immediate reaction was – “I WANT ONE”. I am a sucker for German stuff that goes fast. But then my inner economist voice, which admittedly sometimes gets on my last nerve, spoke up.

And it said “is that enough to make me come back”? Much better and rational economists (like Gary Becker or my friend Lucas Davis) would argue that if the penalty was assessed at the proper amount all should be forgiven. But I am not that rational. I want more. So what would it take? And the answer is more than a picture of a cool looking van. I would like VW to emerge as a leader in the optimal electrification of the future. Specifically, I would like them to help us gain clarity about two things.

What is the expected benefit of VW’s EV strategy in environmental terms? There is lots of cool work out there showing what the emissions consequences of plugging in an EV are for any plug in the US. The bus is likely going to cost north of $70k. Very few of us will get one (I am , so I guess my kid is not going to college). I would like to be convinced that there is a plan to sell enough EVs that people want, at a price point that makes them want to buy them. VW has a number of vehicles planned, but they need to tell us concretely how they are going to make the world a better place. Simply putting a plastic flower in a vase on the dash ain’t gonna do it for me.

Global warming is, well, global. While the NOx scandal was not about Global Warming, but local air pollution, I would like to know VW’s strategy for addressing climate change. Do they have a plan to electrify the bigger markets like China and Europe? Will they help those places  put in place the necessary infrastructure to accelerate rollout? In the case of China, it is questionable whether this is a smart idea, given how dirty their grid is, but with Europe’s greening grid, this should be NPV positive. I don’t know the answers to these questions, but I want a concrete roadmap.

VW has had the technology and market share to take a true and smart leadership role in this space. Instead of doing the minimum to meet regulations (like pretty much all of their peers) and at the same time trying to make us feel warm and fuzzy with fancy ads, get real. If they want us to forgive and forget, they should take that leadership role seriously and make sure that “the people’s car” runs on green electrons not gas.

Keep up with Energy Institute blogs, research, and events on Twitter @energyathaas.

Suggested citation: Auffhammer, Maximilian. “Forgive and Forget”, Energy Institute Blog, UC Berkeley, July 1, 2019, https://energyathaas.wordpress.com/2019/07/01/forgive-and-forget/

Maximilian Auffhammer View All

Maximilian Auffhammer is the George Pardee Professor of International Sustainable Development at the University of California Berkeley. His fields of expertise are environmental and energy economics, with a specific focus on the impacts and regulation of climate change and air pollution.

15 thoughts on “Forgive and Forget? Leave a comment

  1. Great piece, Max. Thank you!

    Ironically, I was at an Energy Conference a couple of weeks ago when a panelist foisted this ad upon the audience without any context. I would say the response was somewhere between perplexed and uninspired.

    Not trusting my own instincts I shared the ad with my teenage daughter, who “gets” all of this social media stuff a lot more than I do. She noted a few things. First, Simon & Garfunkel music is a “meme” often used in social media to poke fun or tease something. Hmmmm, so VW is poking fun at itself? Ironic, also, that the heroic figure in the ad——–a mid-level designer—–has actually been VW’s convenient metaphorical scapegoat for the scandal Up until a few months ago VW’s C-Suite has been wagging the finger of blame at mid-level employees (i.e. “we didn’t know that they were tricking the detection systems”)

    The ad also presumes forgiveness—-which is really weird. In my experience (especially with my wife!), one may ask for forgiveness, but ultimately it is the counterparty that grants forgiveness. Confusion around this not so subtle point has created many long-simmering resentments.

    From VW’s C-Suite: “We’ve offered thousands of apologies,” said Scott Keogh, who became chief executive of Volkswagen’s American unit in November. “For us, this wasn’t about the apology — we’ve been doing that. This is the reassessment of the brand, of the company, and how we want to move forward.”…“We wouldn’t be capable of telling that story without first having this moment to clear the air, to make the pivot,” Mr. Keogh said. “We couldn’t pretend it didn’t happen.”

    Consumers remember the company’s poor and unexplainable behavior. No need to recreate the dystopian allusion in the ad. Nor does one slick ad buy forgiveness, nor do I expect it will propel VW to be a leader in E-Vehicle sales.

    I’m still scratching my head on this ad, but at the end of the day, maybe VW has achieved the odd feat of forgiving itself.

    • Ironic isn’t it, to blame it on mid-level employees, while entering into a plea agreement that restricts the sentences on whoever is found guilty of it. If it was really mid-level employees then the company would be doing everything in its power to ensure they were found and appropriately punished.

  2. When I saw the ad for the VW van, my reaction was exactly the same – “I want that!” 🙂 – now to convince the family that its a better option than other electric options.

    How clean is the electricity that we are using to charge our cars and feeling superior about while driving them? I would love to get some hard data on that; if you can point me to any sources, I’d be grateful.

    • Matesh, though the Union of Concerned Scientists probably has more attorneys, marketers, and policy wonks on staff than scientists, they have a history of reputable research on the well-to-wheels (“cradle-to-grave”) emissions of electric vehicles. The latest shows what you can expect in in mileage compared to internal combustion vehicles.

      https://www.ucsusa.org/clean-vehicles/electric-vehicles/life-cycle-ev-emissions

      If you’re interested in gCO2e/mile, with hundreds of variables you can change yourself, download the Department of Energy’s GREET model (tortured acronym for “Greenhouse Gases, Regulated Emissions, and Energy Use in Transportation”) in Excel format. Warning – it’s easy to kiss an afternoon goodbye running GREET macros.

      https://greet.es.anl.gov/

  3. “As a consequence the air we breathe was dirtier than we thought it was.”

    You seem to have poor writing skills. The air was exactly as dirty as we thought it was (it was analytically tested after all). What was different is we assumed the source was not the vehicles in question.

    “In the US they paid a hefty price – settlements were north of 30 billion dollars! That is a lot of change! ” Is this some sort of joke? Very poorly worded.

    “Did VW do 30 billion in damage by being obNOxious (get it, get it?)?” That would be $30 billion – note the additional of the $ sign in the absence of the word “dollars”. And one question mark please. And yes we get it.

    “There is a big literature in law and economics…” I get that English may not be your first language, but can someone make a small effort to edit this? A friend perhaps?

    No sense reading any further….

    • Dear Paul:

      Thank you for your editorial suggestions. If you would like to edit my future posts, I am happy to send them your way. You are correct, English is not my first language. My manners, however, are impeccable.

      Sincerely yours,

      Max

      • Agreed Max, criticizing your language (especially since you obviously aren’t writing in your first language, and since the comment was anonymous) seems to be an intention to distract from the substantive questions raised by your article (and by the other commenters).

  4. A friend of mine just bought an electric VW Golf for $19,000, or 10,000 off the MSRP of $29.000. So VW may still be suffering being only able to sell their electric cars at a significant loss.

  5. “Instead of doing the minimum to meet regulations (like pretty much all of their peers) and at the same time trying to make us feel warm and fuzzy with fancy ads, get real.”

    I remember well the 2011 Chicago Auto Show, when VW was the only big car company without an EV (or at least a prototype) on the floor. Since my first car was a 1977 Volkswagen Rabbit, I was disappointed. I had hoped VW would offer the next generation the chance to have all the stupid fun I had in my car, but with fewer carbon emissions. “Any plans for an EV?” I asked.

    “Volkswagen has no plans to build an electric car. We see high-performance diesel as the future of consumer car culture,” replied the terse German salesman. And then…this.

    VW will be back, but there’s still penance to pay. After GM killed the EV1 under pressure from oil companies, with CEO Bob Lutz proclaiming, “global warming is a crock of sh*t” and “hybrids don’t make economic or environmental sense,” I had vowed to never consider a GM car when Chevy burst on the scene with the Volt, then the Bolt – to rave reviews, and personal redemption.

    Maybe in 5-10 years there will be hope for VW – but it will be a long, slow crawl back to the charging station.

  6. Max,
    Volkswagen gets the message. The Volkswagen ID.3 hatchback is coming soon to a showroom near you (complementing the e-Golf and e-Up models). Subsidiary Audi has already launched an all-electric SUV (the E-Tron), and the luxury division has the Porsche Taycan ready to go.

    With a bit of Bayesian hindsight, it appears that the probability of getting caught (eventually) was not low after all. A dynamic version of the Becker FOC equates the present value of the penalty-times-risk stream with the present value of the cost savings. The problem was that Akerloff-Rat-Race executives at VW had high discount rates and/or truncated time horizons.

    Faced with its current reputation, the executives may now be “virtue signalling by using an extreme green policy to win over doubters” like you. (Quote from a financial pundit at Forbes Magazine.) The market will reveal whether they have gone too far.
    Jim

  7. Well lets ask the consequences.

    On the monetary side : A huge fine to the company which maybe was as you say impact x probability but was still only a few month’s profits.

    But how about on the human, non monetary side – there’s been a massive health impact on kids from breathing diesel fumes, while on VW’s side, only one person went to jail (and that was just for 7 years – people regularly don more time than that in the US for possession of weed !), Their ex-CEO is still in court, but probably has expensive enough lawyers to get off lightly as well.

    So, no, I won’t be buying a VW in the forseeable future, because why would I buy a high tech piece of engineering from a company with a systematic culture of lying to the consumer about its quality – and if that culture wasn’t rotten from top to bottom then why isn’t VW itself suing every executive who knew, rather than doing plea-bargains to make sure the responsible parties are unpunished. Sure they can buy “justice” but they can’t buy public opinion. I wouldn’t buy from an engineering company that fakes data any more than I’ll bank again with Wells Fargo after it got caught several times stealing from its customers.

    What should the penalty be … I’d suggest something that more than made up for the emission damage, how about recalling EVERY ONE of their polluting diesels and replacing them with an equivalent EV, and then being required to use all of their profits for the next 10 years to subsidize 50% of the cost of that cool EV VW bus so that its a better price than the diesel belching equivalent. That might be an appropriate punishment for their crimes.

    • So you would never buy a Ford [Pinto] or GM [Corvair] or use Tylenol [poisoning] or generics from india [unhygienic conditions]. Or be/remain a citizen of ‘whatever’ because of the [unethical] acts of govt!!

      • It depends a lot on how the company handles it …. If its a rogue within the company AND the company makes good on the harm caused then over time I think the lapse in processes can be dealt with. But then we would expect a process where the company itself was seeking out the wrong doers and ensuring they were prosecuted both for the harm to the public, and the harm done to the company. In VW’s case they entered into plea deals that if I understand it correctly limited the time served by the key US criminal to 7 years, rather than the 169 years if he’s answered to his crimes. This along with the companies active participation for I think ten years in the crime, shows how rotten VW is to its core, that this was a systematic attempt to lie about its produts and is why I would never trust them again. It doesn’t take a degree in law to know that in our “justice” system, corporations are treated very much better than humans, and in particular poor humans.

        IMHO we have lowered our expectations of public and/or large institutions – its all part of the same problem – we expect Banks to steal our money and keep existing, expect politicians to take bribes (aka campaign contributions) to under-regulate businesses, expect the justice system to deliver justice based on an ability to pay – expect our media to lie.

        I believe we need the corporate equivalent of the death sentence is required for a violation this serious – break the company up, sell off its assets and use it to pay restitution as a company this rotten has voided its social licence to exist.

  8. Do you think VW will be able to sell those new electric cars? Have you seen their ads on the sound of silence? Are you aware of the electric network they are building? I would concentrate on the positive rather than the negative of the past as your article has done.

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