Over the last two years, auto makers have been more in news for their large-scale recalls due to safety concerns. The developments in last one week made matters worse for the industry, with credibility hitting a new low.
Last Thursday, Detroit-based General Motors Co. (GM) entered into a deferred prosecution agreement (DPA) with the US department of justice (DoJ), agreeing to pay a criminal penalty of $900 million for concealing a deadly ignition switch-related defect, which led to at least 174 deaths. The company admitted that “it failed to disclose a safety defect to the NHTSA (National Highway Traffic Safety Administration) and misled US consumers about that same defect”, DoJ said in a release.
“For nearly two years, GM failed to disclose a deadly safety defect to the public and its regulator. By doing so, GM puts its customers and the driving public at serious risk,” said US attorney Preet Bharara.
The financial penalty of $900 million, according to The Washington Post , is “less than a third of its $2.8 billion in profit last year”.
“GM engineers knew before the Defective Switch even went into production in 2002 that it was prone to easy movement out of the Run position. Testing of a prototype showed that the torque return between the Run and Accessory positions fell below GM’s own internal specifications. But the engineer in charge of the Defective Switch approved its production anyway... In June 2005, GM made public statements that, while acknowledging the existence of the Defective Switch, gave assurance that the defect did not pose a safety concern,” it added.
More recently, on Sunday, Volkswagen found itself in what is now being called the “clean diesel scandal”. Apparently, their diesel cars were programmed to emit fewer pollutants during testing than they would when used on road under normal conditions.
The US’s environmental protection agency (EPA) in its letter to Volkswagen wrote, “VW manufactured and installed software in the electronic control module (ECM) of these vehicles that sensed when the vehicle was being tested for compliance with EPA emission standards... The ‘switch’ senses whether the vehicle is being tested or not based on various inputs including the position of the steering wheel, vehicle speed, the duration of the engine’s operation, and baromatic pressure.”
It further states, “At all other times, during normal vehicle condition, the ‘switch’ was activated and the vehicle ECM software ran a separate ‘road calibration’ which reduced the effectiveness of the emission control system (specifically the selective catalytic reduction or the lean NOx trap). As a result, emissions of NOx increased by a factor of 10 to 40 times above the EPA complaint levels, depending on the type of drive cycle (city, highway etc).”
The EPA letter said that all Volkswagen models (from 2009-2015) with 2.0 litre diesel engine, including the Passat, Jetta, Beetle, Golf and the Audi A3 were affected by this defect. The EPA said that Volkswagen had violated the Clean Air Act (CAA), the US federal law which essentially controls air pollution at a national level.
On Monday morning, soon after the scandal came to light, VW’s stock price plunged 19%, with the company losing “nearly one-fifth its market cap in a blink”, according to VOX . The company has sold more than 482,000 clean diesel cars since 2009, the report adds.
In a statement, the chief executive officer (CEO) of the Wolfsburg-based car maker Martin Winterkorn said, “I personally am deeply sorry that we have broken the trust of our customers and the public. We will cooperate fully with the responsible agencies, with transparency and urgency, to clearly, openly and completely establish all the facts of this case. Volkswagen has ordered an external investigation into the matter.”
This is not the first time that reports of auto makers gaming emissions has come to the fore. In 1998, several auto companies including Caterpillar Inc., Volvo AB and Renault SA were hauled up by the EPA for a similar offence. They were asked to pay $83.4 million in civil penalties, “the largest in environmental enforcement history at the time”.
In March last year, the world’s largest auto maker, Toyota Motor Corp., was forced to pay a whopping (and record) $1.2 billion fine for hiding safety defects in its vehicles.
The Japanese car maker entered into a deferred prosecution agreement with the US DoJ after a four-year investigation revealed that Toyota “concealed information about defects from consumers and government officials, putting lives at risk because of faulty parts that caused sudden, unintended acceleration in several of its models”.
The then Attorney General of the US, Eric Holder was cited as saying by The New York Times , “Other companies should not repeat Toyota’s mistake. A recall may damage a company’s reputation, but deceiving your customers makes that damage far more lasting.” The company, in 2009 and 2010, recalled over 10 million vehicles for “problems relating to unintended acceleration”. The safety defect, as per the Times’s report, led to 12 deaths.
And then, there’s the curious case of Takata Corp. The Japanese company, founded in 1933, is among the world’s largest suppliers of airbags. Takata has been in the news for its deadly airbags, which has resulted in at least eight deaths and nearly 139 injuries. According to Consumer Reports, “the airbag’s inflator, a metal cartridge loaded with propellant wafers, which in some cases ignited with explosive force. If the inflator housing reptures in a crash, metal shards from the airbag can be sprayed throughout the passenger cabin—a potentially disastrous outcome from supposedly life-saving device.”
An New York Times investigation in September last year revealed that the airbag defect was long known to car maker Honda Motor Co. Ltd and Takata. However, it did not lead to a recall, until several accidents began coming to light. Since then, Honda has recalled nearly 24.5 million units worldwide, the highest among Takata’s clients. Eleven automakers, who use airbag systems provided by Takata had to recall nearly 57.5 million units, the highest ever in automative history. Out of these, 34 million were in the US alone.
With several controversies plaguing the auto industry, particularly in the last decade, the companies have taken a massive beating as far as trust is concerned. In the latest trust rankings (2015), published by consumer research firm Temkin Group, the highest ranked car maker is Lexus (rank 12), with others like Volkswagen (209), General Motors (202), Jeep (202), Kia Motors (195) and Mercedes-Benz (169) and Hyundai (156) finding themselves at the lower end of the table.
Toyota and Honda are ranked 36 and 93, respectively.