Trying to get away with it

Even in the wake of deadly defect scandals from Toyota and General Motors, Volkswagen’s diesel scheme to defraud regulators stands out in its brazenness. This wasn’t a failure of engineering and design, it was a successful use of technical know-how to cheat on clean air mandates.

The financial toll will be significant. The company most likely won’t be assessed the full $18.1 billion in civil fines it faces from the U.S. Environmental Protection Agency (EPA), but it will have to pay massive amounts to fix vehicle emissions systems, satisfy international regulators, and probably buy back cars from environmentally minded customers who never would have purchased the vehicles had they known they weren’t green.

Any time such a high-profile corporate scandal surfaces, the obvious question is why somebody would do something so reckless. Was beating Toyota to No. 1 in global auto sales worth the entire company’s reputation and financial stability?

Being No. 1 in anything is powerful. Outselling all rivals gives companies instant credibility with purchasers. VW officials have said that the path to No. 1 required increased sales in the U.S., though it achieved that goal globally despite falling sales here. The cornerstone of VW’s brand in America has been non-luxury, diesel passenger cars where its only competitor has been the low-selling Chevrolet Cruze (2,571 vehicles between January and August).

The lure of getting to the top spot, however, is dangerous. Athletes have risked their long-term health by abusing steroids to gain an edge. Toyota executives have acknowledged that their quest to unseat General Motors as the world’s largest automaker several years ago caused vehicle quality to decline. And to stay No. 1, GM for many years used profit-killing practices such as overproducing cars and selling them at steep discounts to rental companies – a strategy that depressed resale values, making GM products even less attractive to consumers.

It’s very possible that VW officials simply thought they’d get away with the deception. Had the International Council for Clean Transportation (ICCT) not contracted West Virginia University to study U.S. diesel emissions, the deceptive software might never have been discovered. Ironically, the ICCT commissioned the study to see how companies were meeting the tougher U.S. emissions standards in hopes of showing European regulators how diesels could be made clean. Even worse, their study showed that it can be done. BMW’s X5 diesel outperformed its EPA ratings, so the technology is capable of cleanliness.

Even with the low likelihood of discovery, however, it’s hard to justify putting the very survival of the company at risk.

Growth is important. Without a steady stream of new business, companies can falter and die. Size can bring on economies of scale and improve profitability, and it can give companies resources to develop new products and technologies. But as Volkswagen, Toyota, and GM have shown, there are consequences to cutting corners to get to the top of the hill. As VW tumbles down that slope, it provides a cautionary tale for every business that has put bragging rights and growth targets ahead of sound decision making.