The Volkswagen Scandal Is A Roundhouse Kick In the Head to Innovation

We may never fully comprehend just how much damage this egregious subterfuge will really do

The Volkswagen the EA211 TSI diesel engine 2015

The Volkswagen the EA211 TSI diesel engine 2015

A four-cylinder turbocharged and direct-injection engine introduced by Volkswagen with great fanfare in August 2015, just a few months before the emissions testing scandal erupted.Volkswagen

In technology—as in science—skeptics are everywhere. Google, for instance, fell on its face while wearing Google Glass to cocktail parties because people didn't buy into the benefits of the tech. Apple, while a media and consumer darling, nevertheless faces exceptional snark from certain corners with every product it releases. Is a "Retina Display" truly a thing, outside of marketing? Why won't this amazing Watch run forever on a single charge? Even Tesla Motors, the ultimate darling of media darlings, hasn't quite convinced many analysts that its technology is truly sustainable, at least in terms of a business case.

People often assume that politics or greed or ignorance or incompetence lurk in the background of the innovations paraded in front of us. Many even think we’re flat-out lied to about technology on a daily basis.

This week we found out that we were, in fact, lied to, in a huge way

Well, guess what, this week we found out that we were, in fact, lied to, in a huge way—and the repercussions could spread far beyond Volkswagen's bank account or stock price. To sum up: Last Friday, the EPA revealed that Volkswagen had installed so-called "defeat devices" to help their diesel engines pass emissions tests in the United States. The software would detect when the vehicles were being tested, and then make adjustments to ensure its emissions were reduced. After the test, it would revert to "normal" emissions, which appear to be up to 40 times higher than EPA limits for diesel engines.

The reasons for this are simple: Volkswagen wanted its diesel engines to be achieve efficiency and performance—that is, the powerful, fun responsiveness of high-torque diesel engines—without having to use the same tactics other manufacturers had to, namely the addition of urea into the exhaust to neutralize those emissions. That is, evidently, considered too much of a hassle for consumers. So the company appears to have done this simply to sell cars to a public that thought it was getting legitimately innovative engineering in these smart-looking German sedans.

But it wasn't. The cars simply couldn't achieve the emissions without sacrificing performance or fuel economy, and now the fallout appears to be dire. This was apparently no honest mistake—it was deceit. There will be penalties from the U.S. government, and whatever other governments around the world find they were similarly duped. (The number of affected vehicles stands at 11 million — so far.) There are already class-action lawsuits being filed on behalf of consumers who were duped into thinking they were purchasing awesome, hyper efficient, next-gen diesel cars. There may be criminal proceedings.

I'm not a business analyst, so I can't adequately predict what this will ultimately mean for Volkswagen. The dust will have to settle, and the breadth and depth of their crime will need to be honestly and thoroughly examined. I tend to be of the innocent-until-proven-guilty mentality, even when the suspects immediately cough up confessions, as Volkswagen CEO Martin Winterkorn did on Sunday. Maybe there's an explanation lurking somewhere that can diminish the impact somehow. Was this, perhaps, the work of a rogue engineer hoping to cover his ass over some technical shortcoming? (Doubtful.) Was it, somehow, an honest mistake or a miscommunication on some level? (Also doubtful.)

What it appears to be what we all suspect: a willful deception in order to sell Volkswagens that couldn’t live up to marketing hype. From a purely Monday-morning-quarterback perspective, the coming months will be fascinating. Who agreed to this? What was their specific motivation? Who developed this solution? Why did they think it would work? What ethical argument could they possibly make to justify it?

What’s truly tragic is the knock that innovation in general could take as a result.

That will all be revealed. Volkswagen will have little choice but to purse completely transparent investigations, in additions to the transparent investigations inflicted upon them. Heads will roll—and may already be starting to, with unconfirmed reports that Winterkorn is already on his way out (which he's denied)—and Volkswagen will need to start digging itself out of an exceptionally deep hole with consumers and the media. This is disappointing, since the company had worked so hard recently to recover from a protracted nadir in consumer satisfaction and product quality. Now it's been knocked far below that previous low point.

Ultimately, the fortune and trust that Volkswagen will lose as a result of this debacle will be a trifle—a company that size can recover, if it hires the right consultants plays its cards judiciously. What's truly tragic is the knock that innovation in general could take as a result. The re-introduction of diesel fuel was being only slowly and reluctantly embraced by the U.S. population overall, despite the enthusiasm of many consumers, and despite the legitimate innovation of other brands, including Mercedes and BMW. (The fuel has always been a common alternative to gasoline in Europe, where emissions standards are lower.) The Volkswagen scandal could set back diesel adoption a decade, and could for decades to come be a punchline any time any company promises win-win solutions to big problems—in VW's example, offering better fuel economy and fun, powerful cars, absent the inconvenient hassle of a urea canister needing to be topped off during the oil changes you need to make anyway.

But maybe, on the other hand, this is all a good thing. After all, there’s no free lunch, and now VW will pay for the one it enjoyed—with incalculable interest—and any company in the future will hopefully think twice about rolling out any innovation that isn’t absolutely defensible on every conceivable level.