By on September 12, 2016

Volkswagen TDI

On September 9th, Volkswagen engineer James Liang pleaded guilty after being indicted on a variety of crimes related to VW’s deliberate use of a software routine that cheated on government diesel emissions testing.

Until his guilty plea was entered in United States District Court in Detroit, Liang’s indictment was under seal. Now that it has been made public (full PDF version here), we know more details about VW’s cheat and it turns out that the German automaker even updated the original software cheat — apparently to work more effectively — with a patch delivered in the guise of fixing emissions related warranty claims.

As the scandal was breaking, Volkswagen also deliberately supplied government agencies with false data to make the problem appear to be the result of a mechanical malfunction, not a defeat device.

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Liang had worked at VW in Germany on diesel engine development from 1983 until 2008, when he transferred to the company’s American subsidiary to help launch vehicles using the EA 189 engine, taking a position as Leader of Diesel Compliance. It’s in that capacity that Liang signed off on false certifications for the U.S. Environmental Protection Agency and for the California Air Resources Board.

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Those certifications are the basis of many of the criminal charges against Liang, though the criminal conspiracy goes back to when the team in Germany responsible for the then-new EA 189 realized they could not meet both VW’s performance objectives and pending U.S. diesel emissions standards, thus decided to cheat. An unidentified “Company A” is mentioned as a co-conspirator, having helped develop the defeat device with Liang’s team in Germany.

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The cheat worked via a software routine that could tell when the EPA or CARB was testing one of Volkswagen’s diesel-powered cars. Modern automobiles have all sorts of sensors and it’s not too difficult, using those sensors, to figure out the standard testing conditions — especially ones that rarely happen in the real world, like the front wheels moving (on a chassis dyno) while the rear wheels remain stationary. When tested, the engines were clean, but they put out as much as 40 times the allowable limits of oxides of nitrogen when driven on the open road.

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As the EA 189 engines aged, VW started experiencing increased warranty claims on the emissions control systems for those motors, apparently the result of emissions testing of consumers’ cars in emissions-strict states like California. VW announced to customers and the public in 2014 that they were going to update software in customers’ cars as a fix for those warranty claims. In fact, the software update was intended not to fix the cars but rather to update the software cheat so it would read steering wheel angle to more accurately detect when the car was being emissions tested.

It’s not entirely clear from the indictment, but it’s possible the update may have helped the defeat device work when the cars underwent annual state testing. It’s also possible the update to the cheat was intended to reduce warranty costs. One purpose of the software update, according to the indictment, was to “reduce the stress on the emissions control systems,” which I believe means reduce the amount of time the engine was running in compliant mode.

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VW was working hard that year to keep the scandal from breaking, to no avail. Also in 2014, a study performed at West Virginia University for the International Council on Clean Transportation confirmed discrepancies between dynamometer testing of VW diesels versus real world, on-the-road results. Following the publication of the ICCT commissioned study, CARB, in conjunction with the EPA, started asking VW more detailed and specific questions, as well as performing their own testing. The indictment alleges that in response to those inquiries, VW made false and fraudulent statements to the EPA and CARB when providing data, test results and presentations, making it appear that the non-compliant emissions were due to innocent mechanical and technological problems. That deliberate obfuscation was also charged to be criminal.

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The government further alleged that a 2015 voluntary recall announced by VW, supposedly to fix those mechanical problems, was knowingly fraudulent since it did not remove the defeat device.

Though it wasn’t identified, we know that Company A is not Bosch, an important supplier of diesel technology. The indictment describes Company A as “an automotive engineering company based in Berlin, Germany [specializing] in software, electronics, and technology support for vehicle manufacturers. ” VW AG is Customer A’s largest customer and the automaker owned 50 percent of Company A at the time of the conspiracy. Robert Bosch GMBH is 92-percent owned by a charitable foundation established by the company’s founder. The VW group owns effective controlling interests in a number of automotive companies, so I’m not going to speculate on who Company A is without more information.

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Liang’s attorney says the his client is cooperating fully with government investigators. It’s a safe bet there are lawyers in Germany going over that country’s extradition treaties with the United States as you read this.

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50 Comments on “Indictment: Volkswagen Updated Emissions Cheat in 2014, Hid it From EPA and CARB...”


  • avatar
    APaGttH

    This just got really U-G-L-Y. I hope the C-suite and executive team at VW have outstanding lawyers, they are going to need them. And James Liang, better not have any unfortunate, “accidents,” while in custody.

    As far as VW corporate behavior, absolutely, completely, reprehensible. There is zero moral equivalent here from any other auto maker and their behavior in the last 40 years. Nothing even comes close. No, no one directly “died,” but these actions defrauded tens of billions of dollars, if not more from share holders, fund managers, little old ladies counting on retirement money, consumers, businesses, and governments. They put competitors at an unfair advantage who couldn’t figure out how to even get engines certified (Mazda) or had to charge a crippling premium (GM). The tentacles from these decisions stretch across the globe. The scale of this wasn’t just some aggressive engineers afraid of leadership – a picture is emerging that makes Takata look honest in comparison – which is mind blowing to consider.

    Had VW been honest about this, small diesel engine technology in any nation that remotely cares about emissions would have died likely 10 years ago. This was a decision made purely on profit, and not to have to answer to shareholders on why $1 billion was invested in a dead end technology. They always say it isn’t the lie that gets you, it is the cover up. And now there is hard evidence that VW knew at a high level, and continued to try and cover up this cheat since 2009 in an increasing effort to not spend money to come up with a fix, but keep the lie going.

    We also know why they didn’t spend money on a fix – there is no fix possible that isn’t prohibitively expensive and/or cripples the engine from a performance, fuel economy, and/or service life standpoint. If it was possible, they would have done it after being caught. Their bean counters doing the Fight Club math concluded it was cheaper to buy the cars back and crush them. Even Tyler Durden would shake his head.

    This will impact VW for decades to comes in hobbled R&D, destroyed trust, sanctions, and lost market share. This has likely destroyed the small displacement diesel engine from anyone. This will likely have additional impact to all automakers of increased regulatory oversight by nations beyond the United States, which means higher costs for global consumers.

    Absolutely reprehensible.

    • 0 avatar
      SCE to AUX

      Very well said.

      I’ll add that I believe the 3.0 TDIs will end up being crushed as well. The spectacle of an Audi A7 or Porsche Cayenne going into the jaws of death will be a YouTube video to behold.

      • 0 avatar
        sirwired

        Nah, they’ll be parted out. Plenty of other things on those 4-wheeled Yellow Citrus Fruits to break… it’ll save VW from having to make additional spare parts.

        • 0 avatar
          APaGttH

          They aren’t allowed as I understand it. The fate of the buy back vehicles is Chinese appliances and ironically, Buicks.

          • 0 avatar
            sirwired

            They can part out the vehicles as long as they rip out the entire emissions system first. (Think of it like Cash For Clunkers, except they don’t have to actually grenade the engine block.)

            There’s no prohibition against using them as a source of other parts.

            But yes, in the end, I imagine the crusher will be the most common fate; these are popular cars, but there’s no call for THAT many used parts.

        • 0 avatar
          thattruthguy

          People will be able to make a new generation of Harlequins, except in whiteblacksilvergray.

    • 0 avatar
      pragmatist

      With a donation to the Clinton foundation, I’m sure it can be determined to be ‘not prosecutable ‘

    • 0 avatar
      DenverMike

      “And James Liang, better not have any unfortunate, “accidents,” while in custody.”

      I’ll be ruled a “suicide”.

    • 0 avatar
      NMGOM

      APaGttH – – –

      Very good analysis and comment.

      But let’s clarify one thing. You said, in part:
      “…there is no fix possible that isn’t prohibitively expensive and/or cripples the engine from a performance, fuel economy, and/or service life standpoint.”

      It may not be inexpensive to “fix” a diesel engine once made to run with the “defeat device”, but it is possible to build them economically with good performance, and to run clean without one! How?
      ANS: The proper catalytic converters and the DEF ammonia-injection system: BMW, Mercedes, and Cummins (among others) have been doing this for years. And nobody complains about the 900 lb-ft of torque from that Cummins (as one performance example)!

      So, diesel fuel is not the issue (and in fact biodiesel may ultimately be one of the “greenest” practical ways to move vehicles); and the problem is not diesel engines in general: the problem was VW’s corruption. But the bad-karma spillover from VW may diminish diesel sales from other more honest manufacturers. And that is a shame.

      ===============================

  • avatar
    sirwired

    Well, the bit about the pre-2014 software breaking cars because the emissions system was running too often answers the question as to why VW isn’t just re-flashing to run in emissions mode all the time and export the cars to a place that doesn’t care about performance.

    Apparently not only is EvilDefeatMode performance sucking, (and probably sucks down extra diesel (or DEF) like an heroin addict trying to get high on Immodium-AD) it actually breaks the car if you run it that way more than once a year.

    Lovely.

    On another note, I wonder who he’s agreeing to squeal on in exchange for his testimony. Because as the head “compliance” engineer, it sounds like they had him dead to rights anyway, and wouldn’t have needed the guilty plea and his cooperationg to just convict him.

    Lastly, I’ve said from the beginning that whatever crazy-high costs the EPA/CARB was going to impose were/are the tip of the proverbial iceberg. Anybody that thought otherwise forgot about the whole alphabet soup of other agencies that are ready to sink their teeth in, most notably the DoJ and SEC.

    This indictment shows that the DoJ is just getting started. Since this is the first plea deal, you can be sure there are higher-ups that are on the target list for later on.

    I don’t think they’ll necessarily be looking to extradite the CEO (or former CEO) but there are almost certainly more personal indictments coming, and you can be sure a whopper of a criminal fine is coming to. I believe the standard formula is triple the amount of the unjust profits. The DoJ usually pleas down from there, but the length and egregiousness of the conduct suggests that the “negotiation” with VW AG is going to consist largely of the DoJ informing VW how much they are going to pay.

    EDIT: There’s a bunch of e-mails (likely provided by Liang) in the indictment. There is a long list of people in a very large amount of trouble. When you send/receive emails that includes text like “If the Gen 1 goes onto the roller at CARB, we’ll have nothing more to laugh about!!!!” and “seeking input on how to respond to U.S. regulators… the key word ‘creativity’ would be helpful here.” Well, you better hope Federal “PMITA” Prison is just a figure of speech. (And apparently those Germans aren’t as smart as they thought… real master criminals know to never, ever, Ever, EVER type anything like this in an e-mail!)

    • 0 avatar
      Scoutdude

      I think the fix to reduce warranty claims is in regards to the cars that didn’t pass local testing because the test didn’t properly trigger the emissions compliance mode. IE particular vehicles were not passing the local test which didn’t trigger “acoustic mode”. Hence the update to look at steering wheel angle to recognize that the vehicle was being operated on a dyno.

      • 0 avatar
        notwhoithink

        No, this was actually covered in the DefCon presentation from last year. The issue is that the parameters that the defeat device was looking for were not specific enough, and they believed that because of this the “clean mode” was being engaged during normal driving. This was causing premature wear of the emissions control system components (LNT and DPF, etc) that were failing under the warranty period. So in an effort to save money they updated the software to be much more specific, thus ensuring that it only engaged when actual testing was occurring.

  • avatar
    haroldingpatrick

    Does the VW corporate Airbus A319 have sufficient range to carry a load of naughty German executives on a non-stop one way trip to South America?

  • avatar
    dal20402

    Wow. Every time a new rock gets turned over there’s a teeming colony of cockroaches under it.

    If you are the lawyer defending the individuals, this is where you start to really wonder whether in the end the company will still have the money to pay you. These investigations are going to eat up many millions in legal fees alone, with each decision not to disclose something making it worse. And when all the other liabilities to customers and governments are added in, I don’t see how VW avoids a company-threatening total amount — tens of billions.

    • 0 avatar
      ItsJustaRide

      VW should absolutely be fined into oblivion.

    • 0 avatar
      jrhmobile

      @dal – Nah, that’s what retainers are for …

    • 0 avatar
      tedward

      In a former life I worked at a law firm that handled a ton of agency investigations coming on the heels of regulatory violations (pharma, insurance, banking, etc). The executives are usually covered by an insurance policy with a multi seven figure limit on legal costs. Where it goes sideways for individuals is after discovery (extremely costly, you’re duplicating, ocr’ing and reviewing a company’s entire database of saved communications!) when the government starts laying out named and revised charges. If, at that point, the interests of the executive and the company diverge the executive is basically fired as a client by the company’s firm and can be left swinging in the wind (relatively speaking).

  • avatar
    brettc

    So it sounds like the 23o6 update didn’t do as VW claimed in the letter they sent. Who would have guessed? This just keeps getting worse for VW. Spill the beans, James Liang!

  • avatar
    FreedMike

    Nasty stuff.

  • avatar
    Hamilton Guy

    Liang and his co-conspirators should have paid attention to the meme circulating on Facebook: Dance like no one is watching, e-mail like it will be read in a deposition!

  • avatar
    brn

    Looks like the Green Police are coming after VW
    http://www.youtube.com/watch?v=Ml54UuAoLSo
    Maybe the FCC needs to go after them for Truth in Advertising, also.

    Smug b*stards.

  • avatar
    Mike-NB

    And once again, VW’s Canadian customers are left in the dark. The latest update, posted last week, was that the next court date is in late October and the court has imposed a gag order. There are even court dates set for December. American VW customers will have their settlement packages in place before Canadians even have a clue what’s going on. Though with this new information it’ll be harder for the Canadian government to just give VW a pass and let the cars stay on the road. I only hope the Canadian government gets this worked out before there are nothing left but scraps to pick over.

  • avatar
    raph

    Sweet! I should be seeing some more fake VW owner testimonials on my FB feed talking about how they don’t really know what’s going on in the media but they want to take the time to deflect… talk about how their diesel wagon saved their in an accident and if it hadn’t been a VW diesel wagon they might not be around today to tell us how safe VWs are.

  • avatar
    Robbie

    Meanwhile, the mail this morning brought me VW’s attempt at keeping me as a customer: a 5% discount coupon on an oil change…

  • avatar
    s_a_p

    I’m starting to think that this could get big enough for VW to exit the American market. I’m skeptical that Audi can remain as unscathed as they’ve been this far. Secondly, doesn’t enough reverse engineering between car brands happen where they would know that this was the case?

    • 0 avatar
      thattruthguy

      The smoking ashes scenario is that VAG gets cashed out to pay off the billions in fines and damages that are coming. In a sell off, the retail chains and brands have value. The manufacturing facilities less so.

    • 0 avatar
      notwhoithink

      “Secondly, doesn’t enough reverse engineering between car brands happen where they would know that this was the case?”

      Yes, more or less. But other manufacturers had been scratching their heads for years trying to figure out how VW was able to make a compliant small diesel engine without an SCR system and were unsuccessful. Now we know why.

    • 0 avatar
      JimZ

      ” Secondly, doesn’t enough reverse engineering between car brands happen where they would know that this was the case?”

      yes, all car companies benchmark each others’ products. but chances are they would have just put any TDI cars they were testing on rolls and run the normal FTP, which the cars would pass.

      • 0 avatar
        heavy handle

        It could be that they knew VW wasn’t complying, but they didn’t do anything about it.
        If you live in a glass house, don’t throw stones…

      • 0 avatar
        NickS

        @jimz – surely it would pass but the next question an competitor’s engineer would ask would be ‘how’. They’d dive into it look at emissions equipment and EGR and LNT duty cycles, note the absence of a DEF tank on the earlier TDIs, then do a few patent searches, and in the end they’d know that no, vW did not invent some secret sauce hiding in plain sight that would allow them to somehow do it with no DEF (or with very low consumption), such great fuel economy, and at that price point.

        You can definitely conclude a ton about a competitor product if you spend sometime with it. I personally find it extremely unlikely that another OEM didn’t figure it out, or at least had strong suspicions of foul play. A large diesel OEM would be hugely interested to know how VW did it in small engines.

    • 0 avatar
      Varezhka

      There was a Nikkei article last year that quoted a Toyota engineer as having complained for years to German regulators of likely emissions cheating, but falling on deaf ears.

      • 0 avatar
        NickS

        Really? I must have missed this. Thanks for sharing it.

        That’s funny, I was originally going to speculate in my comment that Toyota would have every reason to find a weakness in VW but I took it out as too speculative.

        If Toyota discovered this I would have expected them to guard it and wait until the cheat had become a big part of VW’s business at which point revealing it would inflict a mortal wound. Mind you, it’s a little odd that this blew over at a time when VW had just managed to knock Toyota off the #1 spot. It might be coincidence but who knows.

  • avatar

    Those who knew and failed to expose the fraud are equally guilty and should be indicted.

  • avatar
    ToddAtlasF1

    The EPA knows their tests aren’t representative of real world consumption, which in turn means they aren’t indicative of real world emissions, even though the tests were originally developed for emissions measuring instead of fuel consumption. The EPA concedes that the tests aren’t representative by applying correction factors in estimating actual mileage on window stickers. The Department of Energy operates FuelEconomy.gov for tracking actual fuel consumption instead of the EPA’s alternative that needs to be dialed down by a large percentage to estimate anything.

    If the EPA knows and codifies the optimism of their own tests in estimating consumption and emissions, what makes VW special for not having real world emissions that match their test performance? Does anyone think automatic transmissions aren’t optimized to the test instead of the real world, costing real world performance? Smart companies program their systems to work in both environments by only acting for the test in specifically defined conditions. There are bound to be other automakers watching this with interest, and there are lawyers salivating to put EPA bureaucrats on the stand.

    • 0 avatar
      sirwired

      For starters, you could actually read the indictment. In it, you’ll see that manufacturers are required to disclose what devices are in place to regulate the operation of the emissions system. The EPA then works with the manufacturer to decide if that’s an allowed way. “Check the steering angle and front/back wheel speed to spot if I’m on a dyno undergoing an emissions test” is not on the allowed list of ways to regulate emissions. VW knew this, and specifically did NOT disclose it to the EPA.

      This is not some fuzzy grey area of the law. VW knew the law, and specifically chose to utterly ignore it. That’s what makes them special.

    • 0 avatar
      SCE to AUX

      Uhh, Ford, Hyundai, and Mitsubishi have all recently been burned in scandalous MPG self-reporting that wasn’t even close to EPA (or Japanese, in the case of Mitsubishi) ratings.

      Whether the test protocol is ‘real-world’ is another debate. Most can agree that it isn’t.

      The problem is when you lie about what mode you’re using to meet the test.

  • avatar
    tedward

    This, in and of itself, is no surprise. There had to be a cheat custodian. What is interesting is that he was attached to vw USA and was thus available for federal prosecutors to leverage. The real story, and possible surprises, comes out of his cooperation.

    I see a lot of people rooting for destruction level doj fines. As a car enthusiast I just don’t get that, I want options in my marketplace (no secret I love the golf product line). The guilty company just took an unprecedented, and massive, fine. It’s large enough already that the caa can be considered protected from callous violation indefinitely. What I want to see from the doj is criminal cases against responsible individuals. Personal prosecutions are a far greater deterrent in the corporate world than fines, and the reliance on settlement payments for white collar crimes in recent years has been very, and justly, criticized.

    As far as the uniqueness of this scandal goes, the cover up is same old same old. The real difference is in the premeditation of the original violation. So, it stinks to high heaven, but it’s still a very low impact scandal in terms of consumer damage. This is exactly what makes the whole thing so interesting.

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