The Software That Cheated the Diesel Test

In September 2015, the United States Environmental Protection Agency disclosed that Volkswagen AG had installed software in approximately eleven million diesel vehicles worldwide that detected when the vehicle was undergoing emissions testing and adjusted engine parameters to produce lower nitrogen-oxide output during the test than during normal driving. The cheat, known internally as the "defeat device," had been in production use since approximately 2009. It had been verified by independent academic researchers at West Virginia University before the EPA's formal action.

The financial consequences were enormous. The company has paid, over the subsequent decade, in excess of thirty billion dollars in fines, settlements, and recall costs across the United States, Europe, and other affected markets. Several executives, including a former engineering chief, were charged criminally; some served prison time. The chief executive at the time of disclosure, Martin Winterkorn, resigned within days; the German prosecution of Winterkorn has continued in various forms for years.

The Mechanism. The defeat device was, technically, a software algorithm that monitored steering-wheel position, vehicle speed, atmospheric pressure, and engine-load patterns to determine whether the vehicle was on a dynamometer (test bench) or in real-world operation. When on the test bench, the engine would activate a higher-quality but performance-limited exhaust treatment mode. In normal driving, the higher-performance mode was activated, but actual nitrogen oxide emissions ran up to forty times the regulatory limit. The software was deliberately designed to deceive both regulators and customers.

The Internal Pressure. The decision to install the defeat device, by multiple subsequent reconstructions of the corporate decision-making process, was made by mid-level engineering management responding to pressure from senior leadership to deliver "clean diesel" vehicles at production cost targets that were not technically achievable through legitimate engineering. The technology to meet the emissions standards existed (urea-injection systems used by competitors), but it added cost and complexity that conflicted with Volkswagen's product positioning. The defeat device was, in effect, a low-cost shortcut that allowed the company to claim performance that the underlying engineering could not deliver.

The Industry Effect. The disclosure ended the global automotive industry's brief enthusiasm for diesel passenger vehicles. Diesel market share in Europe declined sharply over the following years. Manufacturers reallocated capital toward electric vehicles. Several other manufacturers (Daimler, Fiat-Chrysler) were subsequently implicated in similar emissions deceptions. The industry-wide cost, in cumulative penalties and accelerated electrification spending, has been estimated at over a hundred billion dollars.

The cultural reset within Volkswagen took years. The company has since reorganized its engineering culture, restructured its corporate governance, and accelerated its electric-vehicle transition. The diesel customer, the regulator, and the shareholder paid the bill. The defeat device, now a Harvard Business School case, is taught regularly to undergraduates.