Repost. Important News Article.
If you have not read this yet, then read it now!As the PowerPoint underscored, people inside Volkswagen were aware that its diesel engines were polluting significantly more than allowed. Yet company executives repeatedly rejected proposals to improve the emissions equipment, according to two Volkswagen employees present at meetings where the proposals were discussed.
The management board led by Martin Winterkorn, the chief executive who resigned in September after the admission of cheating, repeatedly rebuffed lower-ranking employees who submitted technical proposals for upgrading the emissions controls, according to the two people who attended meetings where the proposals were discussed. The management board rejected the proposals because of cost, the people said.
So what this says is that the board was horrible at enterprise risk management. They made a bet that based on their sales being far lower than that of the previous record holders, Hyundai-Kia, they would also be in for less than $100M, which they deemed an acceptable total loss even if they were fined that much. They likely believed their expected loss would be far lower than that, and continued with the cheating. The probability of occurrence of the risk event, which they judged as "being caught by American regulators," was indeed negligible. So, their risk management plan was to quietly negotiate with the regulators if caught, and absorb the loss. This is clearly what they have done both with the EPA/CARB, and in the court in front of Judge Breyer. The probability of risk event occurring and resulting expected loss were low enough to accept the loss if the risk event occurred and the full impact (i.e., worst-case loss)* was experienced. The alternative of implementing a fix and taking a hit on sales would have, in their estimation, cost them more.
Unfortunately, they did not correctly determine the risk event, or all of the impact event drivers. From their perspective, this was a black swan event. Just shrug and deal with it - that's all you can do with black swans. But from the perspective of literally everyone else, the true risk event was "being caught," and there were many drivers that determine the severity of the impact event*. It was not a black swan. So, they vastly underestimated the probability of the risk event and the impact drivers - chief among the impact drivers being an American government under an administration dedicated to leaving a legacy of environmental activism, and next on that list of drivers, Volkswagen being Not American. Finally, they misjudged the fervor of American environmental activism and the way that can play in to court selection and the various personalities among judicial districts.
Bet they wont make that mistake twice...and neither will any other automaker. Any other automakers trying shenanigans in America are quietly and quickly crashing their engineering schedules to implement fixes.
The only thing they seem to have got right is that most owners don't care about the emissions - they care about the driving dynamics, and they're more pissed off about the hit to resale value than anything else.
BTW, I saw a 2015 TDI Sportwagen yesterday with temp tags and VW dealer placards in the plate holder. I'm sure it was not sold new, but people are still buying them.
*I'm referring to the Standard Risk Model proposed by Smith & Merritt.
