Herbie the Love Bug was dreamt up by Adolf Hitler. The iconic Volkswagen Beetle, as it came to be known, was originally marketed to the subjects of the Third Reich as the KdF-wagen, or “strength through joy”-car. Few Beetles were actually produced during the Nazi era, as the firm’s Wolfsburg factory put its resources mainly towards the war effort. But eventually, in occupied postwar West Germany, the brilliantly designed little VW, air-cooled, cheap, and surprisingly spacious, started rolling off the line in big numbers, and a car born from fascism became an unlikely phenomenon, especially among free Europe’s rising middle class and, later, the anti-authoritarian counterculture that developed on both sides of the Atlantic. By the new millennium, VW Group was one of the biggest players in the global auto industry, and it owned a bouquet of prestigious marques, including Rolls Royce, Audi, and Porsche.
In 2016, the company met an audacious, seemingly impossible goal set by a string of single-minded chief executives: It beat the GMs and Toyotas of the world to become the top-selling automaker globally, two years ahead of schedule. But by then, it was no time for celebrating, with the automaker fighting against an ongoing scandal that threatened to destroy everything it had built: In the relentless drive to reach ambitious benchmarks imposed from the top, the company perpetrated one of the great frauds in corporate history, producing millions of diesel-powered cars fitted with “defeat devices” that modified the engines’ real-world performance when they sensed they were in lab-testing conditions. Once caught, VW didn’t come clean, choosing instead to stall, twist the truth, shirk blame, and to a remarkable degree refuse to change. (Volkswagen did not offer comment on specific facts mentioned in this article, but in a statement said that the company had “taken significant steps to strengthen accountability, enhance transparency and prevent something like this from happening again,” and pointed to a “series of agreements which offer a resolution to all customers with affected vehicles” in the U.S.)
The reporter Jack Ewing has been covering the scandal faithfully from Germany for The New York Times since it broke. His timely new book, Faster, Higher, Farther: The Volkswagen Scandal, takes readers through the combination of pressures that produced what may be the biggest corporate scandal ever, detailing the company’s personalities and the history behind the saga with fluency and wit. I recently spoke to Ewing about the ongoing scandal, what it means for Volkswagen, and what it says about the future of how cars will be powered. The interview that follows has been edited for length and clarity.
Nicholas Clairmont: One of the most striking things in the book was how you traced themes from the early history of Volkswagen through to the current scandal. A lot of people may not know that Volkswagen’s story begins in the Nazi era.
Jack Ewing: I think a lot of this wasn't all that well known even in Germany. I made some discoveries myself when I started researching the book. Just the fact that the [Nazi-era Volkswagenwerks] factory basically functioned as a concentration camp during the war, and also that the members of the Porsche family, primarily Ferdinand Porsche and Anton Piëch, absconded with the cash in the final days of the war and then later built the private company in order to justify taking the money. It's an interesting question how much that contributed to the culture that later grew up at Volkswagen [of imposing ambitious engineering goals from the top, and punishing anyone who suggested that they might not be feasible.]
In 1992, Ferdinand Piëch, the grandson of [VW’s founder and the designer of the Beetle] Ferdinand Porsche, became the chief executive. He's the one who really then created the corporate culture that existed when the cheating, the fraud, first came into being. So I think the connection is in a way a family connection.
Clairmont: In the book, you also brought up some more structural causes of the scandal. It sounds like one key feature of the company is that, thanks to a settlement in the 1940s between the Porsche-Piëch family and the occupying coalition in postwar West Germany, the regional government and employees get seats on the corporate board. Can you talk about how that shapes how executives behave?
Ewing: Right, the structural thing is the degree of power that the workers have. The temptation this created for management was, you never had to worry about any outsiders if you could appease the workers and the state of Lower Saxony . It allowed the chief executives, if they were willing to sort of make this pact with the workers and the politicians, to have almost dictatorial power, more power than one would get at other companies. There was no real oversight from shareholders.
Clairmont: I want to ask about the role America plays in the context of the Volkswagen scandal. If I were a European Volkswagen customer, I would of course feel cheated by Volkswagen. But I would also feel cheated by the regulators in Europe, who didn’t do a good job enforcing the rules, and I'd feel cheated by the U.S., in that the $20 billion-plus in penalties that America has now levied against Volkswagen eat up most of what Volkswagen can stand to pay out worldwide. Is there another, unmentioned scandal here in terms of how European regulators and other officials have handled things?
Ewing: Yeah, that’s one of the big things that this case has exposed. I think there's a tendency for Europeans to feel like they're superior to Americans on environmental issues. But what emerged from this case was that America, first of all, has stricter emissions standards. And the U.S. enforces them. Even though Europe had a lot of the same rules on the books—almost word-for-word the same rules—they just weren't enforced at all. It was a total joke. That’s something Europeans have certainly noticed.
There's also the financial factor, where a lot of Volkswagen owners in Germany were basically getting nothing and saying, "Why do the Americans get so much, and we get nothing?"
Finally, there is resentment, particularly among some people in Germany, that the fallout is draining resources from Volkswagen in a way that could permanently damage the company. The jury's out on that, but all carmakers are very worried about the future. They're expecting big changes in the auto industry, from self-driving, from electrics. And they need to put as much as they can into research and development. The damages represent $22 billion or more that is being siphoned off to the U.S. government and American owners. It could well cripple Volkswagen's future ability to deal with all of these changes.
Clairmont: There are things that make the Volkswagen case a particularly huge story, but Volkswagen’s is not the first defeat device ever discovered. What is the history behind this?
Ewing: Well, one of the things about the VW scandal that left people in the United States kind of astonished is that there had been this big case around the end of the 1990s where the truck makers were found cheating, and they had to pay around a billion dollars when all was said and done. It seemed like a huge amount at the time. That sort of put everybody on notice. It was so clear that you were not supposed to do it, and that the penalties could be severe.
Clairmont: Can you state what the stakes are when cars emit more pollutants than promised?
Ewing: The main pollutant is nitrogen oxide, which is actually a group of a bunch of gases that are byproducts of diesel motors. It causes people to develop asthma, especially children. If you already have asthma, it can cause you to have an attack. It causes bronchitis. It's linked to cancer, although there's some debate about whether it's just a marker or the actual cause. Nitrogen dioxide, one form of nitrogen oxide, is the main cause of smog. So that's particularly a problem in big cities.
There have been a lot of studies, and they are all sort of extrapolating, but they conclude that certainly there have been significant numbers of premature deaths which you can trace back to nitrogen oxide. How many depends on the study. In Europe it's in the tens of thousands of premature deaths. It's quite serious.
These effects are sort of invisible, because it's a long-term effect. It's hard to isolate. It's not like a car drives by and somebody keels over. That makes it kind of easy to ignore. In a way it's sort of like the tobacco companies. But the cumulative effect is enormous, and people in Europe are waking up to that.
Clairmont: One of the things that's so upsetting about this is that when I think of the Volkswagen owners and enthusiasts I know, it's a betrayal of exactly what they liked about their cars.
Ewing: Right, that was the other big thing they did. Not only did they cheat, but then they went out and crowed about how clean they were. That turned what was already a pretty serious regulatory violation into a consumer fraud. And that's one reason why it turned out to be so expensive for Volkswagen. They did everything wrong you possibly could. But in Europe, there's not that much recourse for consumers. Most of the countries don't have class-action suits. It's very hard for consumers to go after a company that's cheated them this way.
Clairmont: One of the things that the book raises and doesn't quite answer—there may not be an answer out there—is that a lot of the deception at the VW Group seems to trace back to the Audi division specifically. Do you have any guesses as to why this is?
Ewing: That's an interesting question. It does seem to have been something that originated at Audi, although the Volkswagen brand is where they sort of put it into mass production. I guess there would be two explanations. One is that a lot of the advanced technology comes from Audi because that's the premium brand. They're often the first to have any kind of new feature or technology, which then spreads around the company—in this case in a negative way.
Second, it raises the question of whether this was a habitual way of dealing with problems. Since this had been done at Audi for years and then spread to Volkswagen, you get the feeling this was something that they had done before, despite denials from Volkswagen insisting that this was a few rogue engineers. But it really seems to be something that was habitual.
Clairmont: A chapter of your book is called “Justice.” Where do things stand now with the company and its management?
Ewing: I'm fairly critical of [how little has changed] in the book. Basically, Martin Winterkorn, the former CEO, resigned. And then a whole bunch of mid-level people were disciplined or fired or suspended. But the current chief executive, Matthias Müller, was very involved in engine development for the last decade, and he's still running the company. The chairman of the supervisory board, Hans Dieter Pötsch, was the chief financial officer of Volkswagen throughout the whole period of the cheating. He's only gotten promoted as a result of the whole thing. It's still really the same group of people who are running the company.
Clairmont: The annual shareholder’s meeting happened recently. What's the latest news on the future of Volkswagen?
Ewing: Basically, they talk a lot about creating a new company culture. But Pötsch, the head of the supervisory board, said the company wasn’t going to release the internal report they’d commissioned from Jones Day, the law firm that they hired for this big internal investigation. Some shareholders are pretty upset about that.
It just shows how this is still an issue more than a year and a half after it first came to light. And it really shouldn't be. With better crisis management they could have put this behind them in six months or so. But they would have had to make a lot more changes than they were willing to.