Industry Views: The Death of Volkswagen … or Diesel?

Another nail in the coffin for liquid fossil fuels

CAPE CORAL, Fla. -- The Volkswagen scandal has generated a number of opinions regarding the viability of the automakers brand, as well as the viability of diesel in general.

Norman Turiano

First, let us look at Volkswagen, whose roots began in 1930s Nazi Germany. Initially created in order to provide German people with an affordable car (previously, the German auto industry focused mostly on luxury vehicles), production switched to wartime vehicles toward the end of the decade. The company’s postwar existence is a miracle in and of itself, considering its heavily bombed factory was so damaged, that reputedly production needed to be shut down on rainy days.

While much of Germany’s heavy industry was dismantled by the Allies at the end of the war, Volkswagen’s early existence was supported by the occupying powers, which needed transportation and provided an order for 20,000 vehicles. The company was offered to foreign automakers, who rejected it, claiming that it would fail within two years. In fact, it was offered free of charge to the Ford Motor Co. in 1948, who passed on a deal that they felt was worthless. Yet, Volkswagen managed to rise from the ashes of World War II to represent West Germany’s postwar rebirth.

The Volkswagen Anti-Bandwagon

Many pundits are forecasting Volkswagen’s demise, but I would not be so quick to pile on that wagon. The scandal the company faces today is arguably less harmful than the one it faced in 1998, when it finally admitted that it used slave labor during the Nazi era to produce vehicles. After survivors filed a lawsuit for restitution, the company voluntarily set up a fund for them, earning praise as a result.

As Volkswagen is such a strong component of the German industrial complex, do not underestimate the government support level for its survival. German Chancellor Angela Merkel believes that Volkswagen could put the affair behind it if it fully disclosed what happened and changed in a way that ensures that something like this can never happen again. Similar to how the U.S. government would not allow American automakers to fail during the great recession, I don’t believe the German government has any desire to see Volkswagen fail.

My optimism about diesel is not quite as rosy. Let me first clarify my opinion by stating that I in no way have any bias for or against any fuel that America uses for transportation (and that our industry sells more than 80% of at our sites); however, my lack of bias does not stop me from acknowledging that there are forces at work and trends taking place that make me believe that certain eventualities will take place across the landscape.

“Clean diesel” was seen as a great opportunity to reduce greenhouse gases by increasing efficiency and producing less of those gases. Volkswagen (and all of Europe itself) have invested heavily in diesel, seeing it as a solution to increasingly stringent carbon-emission requirements as well as those regarding fuel efficiency. Unfortunately, the scandal has shown that Volkswagen has been unable to build efficient diesel cars that meet these requirements and not compromise performance without cheating.

This of course begs the question: If much respected “German engineering” is not able to solve this problem without breaking the rules, can the problem be solved?

Even more troubling is the fact that the cheating was done through computer code, not with equipment, illustrating that cars have become such complex wonders that nearly no one really knows how they work.

Beyond Diesel

In my opinion, this is yet another nail in the coffin for liquid fossil fuels. Tesla Motors co-founder Elon Musk said, “What Volkswagen is really showing is we’ve reached the limited of what is possible with diesel and gasoline.”

In the eyes of many people, this scandal only proves what they believed all along: Fossil fuels (and especially diesel) are dirty fuels.

Recent headlines have discussed how our youth are filing lawsuits against almost every state and the federal government, pushing for them to adopt climate-change legislation. The Obama administration has, at least for now, killed the proposed Keystone XL pipeline after seven years of political maneuvering. Whether there is a strong argument supporting or denying the role of humans and fossil-fuel greenhouse gas creation and its impact on the global climate is immaterial. The political winds are blowing, and they do not bode well for fossil fuels. The VW scandal only adds to the course, and “clean diesel” will likely be the first casualty.

People will forgive Volkswagen and forget its transgression if it accepts full responsibility and re-images itself as a creator of great vehicles. Indeed, it has taken full responsibility, vowed to change, and in the aftermath of the scandal, has increased its commitment to zero-emission technology, committing to producing an electric-vehicle version of its Phaeton luxury sedan.

I suspect that it will leave diesel in the dust, and recreate itself as an industry leader in electric technology. If nothing else, this gives pause to the movement in the United States of retrofitting gasoline sites to sell diesel fuels, and adds more importance to successfully pricing and retailing liquid fuels today.

Norman Turiano is principal at Turiano Strategic Consulting LLC, Cape Coral, Fla.

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