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© 2016 by Steven Mintz and  Do Good PR Group

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Corporate Irresponsibility: VW Settlement Underlies Ethical Problems at the Auto Maker

July 5, 2016

 

 

Cost-Benefit Analysis Can’t Hide Unethical Behavior by Car Companies

 

Finally, an agreement with German car maker Volkswagen AG. On June 28, the automaker agreed to spend up to $14.7 billion to resolve federal and state civil allegations of cheating on emissions tests and lying to customers. The company has admitted that it rigged diesel vehicles using a "defeat device" to pass emissions tests.

 

VW’s “Defeat Device”

VW allegedly equipped its 2.0-liter diesel vehicles with illegal software that detects when the car is being tested for compliance with EPA or California emissions standards and turns on full emissions controls only during that testing process.

 

"During normal driving conditions," the Department of Justice (DOJ) said, "the software renders certain emission control systems inoperative, greatly increasing emissions." The defeat device resulted in cars that met emissions standards in the laboratory but during normal driving conditions emitted up to 40 times EPA-compliant levels.  

 

VW will spend up to $10.03 billion for a consumer buyback and lease termination program. The program covers nearly 500,000 model year 2009-2015 2.0-liter diesel vehicles sold or leased in the U.S. The settlements resolve claims that VW violated the Federal Trade Commission Act through deceptive and unfair ads for “clean diesel” vehicles. Similar claims by California were also part of the settlement.

 

VW will also spend $4.7 billion to mitigate pollution from the cars and invest in green vehicle technology.

VW’s settlement is certainly good news for the driving public and is a first step in regaining the trust of American consumers. The next step is for the company to resolve federal criminal liability. According to Deputy Attorney General Sally Yates of the DOJ said the DOJ's criminal investigation "remains active and ongoing."

 

The Ongoing Saga of Corporate Irresponsibility in the Auto Industry

 

What is it with the automobile industry? When will they learn their lesson? How many times is the driving public’s safety going to be placed at risk for greedy car companies that either hide damaging information about car safety and/or ignore it even when it is brought to light? These are irresponsible actions and not just limited to VW. VW, like many other car companies, have lost sight of their corporate social responsibilities.

 

At about the same time as the VW incident, General Motors agreed to pay $900 million to resolve a federal criminal investigation of ignition-switch flaws linked to at least 124 crash deaths and the recall of 2.59 million cars. So far, no individuals have been criminally charged in the GM case, but prosecutors have said the probe is continuing. In an earlier case concerning cars that allegedly accelerated spontaneously, Toyota reached a $1.2 billion settlement with the Justice Department, the largest-ever U.S. criminal penalty for a car company until the settlement with VW.

 

I could go back to the 1960s and rehash the Ford Pinto debacle when crashing testing at low speeds determined that the gas tanks regularly ruptured and the cars could be engulfed in flames causing accidents or deaths. This case is important because it helps to understand the mindset of a car company when analyzing whether defects should be fixed. In the Pinto case, the company did a cost-benefit analysis as follows:

 

Benefits of Fixing the Pintos

  1. Savings: 180 burn deaths, 180 serious burn injuries, 2,100 burned vehicles

  2. Unit cost: $200,000 per death (figure provided by the government); $67,000 per burn injury and $700 to repair a burned vehicle (company estimates

  3. Total benefits: 180 × ($200,000) + 180 × ($67,000) + 2,100 × ($700) = $49.5 million

Cost of Fixing the Pintos

  1. Sales: 11 million cars, 1.5 million light trucks

  2. Unit cost: $11 per car, $11 per light truck

  3. Total cost: 11,000,000 × ($11) + 1,500,000 × ($11) = $137 million

Based on this analysis and other considerations, including not being required by law to change its product design, Ford decided not to change the placement of the fuel tank. (Back in the 1960s the gas tanks were routinely placed behind the license plates).

 

Ford's risk-benefit analysis relied only on act-utilitarian reasoning, an approach that ignores the rights of various stakeholders. A rule-utilitarian approach might have led Ford to follow the rule: “Never sacrifice public safety.” A rights theory approach would have led to the same conclusion, based on the reasoning that the driving public has an ethical right to expect that their cars will not blow up if there is a crash at low speeds.

 

Star Trek Loses Yelchin Because of an Auto Defect

 

As a fan of Star Trek, I was particularly distressed to learn two weeks ago that gear shifting problems in a 2015 Jeep Grand Cherokee led to the untimely death of Star Trek actor Anton Yelchin. Yelchin, known for playing Chekov in the rebooted series, died June 19 after his vehicle pinned him against a mailbox pillar and fence at his home.

 

A government investigation into confusing gear shifters like the one in the SUV that crushed and killed Yelchin found 266 crashes that injured 68 people. Investigators also found 686 consumer complaints about the shifters and said that Fiat Chrysler received negative customer feedback shortly after the vehicles went on sale. The company also appeared to violate basic design guidelines for vehicle controls with the shifters, according U.S. National Highway Safety Administration.

 

Yelchin’s Jeep was among vehicles recalled in April due to complaints from drivers who had trouble telling if they put the transmission in "park" after stopping. Many reported the vehicles rolled off after the driver exited.

 

The vehicles now sound warning chimes and alert messages if the driver's door is opened while the engines are running and the cars are not in park. Fiat Chrysler now urges customers to set parking brakes before exiting their vehicles, and to follow instructions in owners' manuals and information cards that were mailed by the company. This is all well and good but the warning chimes should have been present in the affected vehicles all along as they are in most other vehicles.

 

Trust but Verify

 

Trust is the basis for good business. If the driving public cannot trust that their cars will operate safely under all conditions, then the guilty company’s should be punished. Irresponsible behavior is unacceptable, especially in an industry where people’s health and welfare – and very life – is at stake.

Auto companies should not be allowed to rationalize unethical behavior by utilizing a flawed-reasoning approach to decision-making about how to deal with car defects as Ford did in the Pinto case. There is no price to put on a human life. There is no way to justify decisions made under the guise of risk-based analysis that makes a company blind to the ethical consequences of selling unsafe cars to an unsuspecting public.

 

Blog posted by Steven Mintz on July 5, 2016. Dr. Mintz is Emeritus Professor from Cal Poly San Luis Obispo. He also blogs at www.workplaceethicsadvice.com.

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