Volkswagen Today

leader of the company, would actually fulfill that vision. In the interim, Volkswagen had leaders who had pushed the company beyond its dependence upon the Type one car. Type one is what we in America called the Volkswagen Beatle. Now, in fact, Volkswagen's manufacturing facilities in Germany had already stopped producing the Beatle by early nineteen eighty. The original plan was to stop in nineteen seventy nine, but as they were getting towards the end of the year, they realized

that they had way too many orders to fill. They had to actually keep going, keep producing beyond when they had planned to stop, in order to meet those demands and to keep building that reliable little car. By mid nineteen eighty, that had changed and production had shifted to Volkswagen's facilities in Brazil and Mexico, so the Beetle was still being produced there, but was no longer being produced

in Germany. While the company made far fewer of the Type one vehicles, the facility in Puebla, Mexico churned them out all the way up until two thousand three. That means Volkswagen was making the Type one air cooled rear engine Volkswagen Beetle for nearly sixty years without an eruption. In Mexico, the car became a popular option for tack sea drivers because the vehicles were small, they had good traction, and they were easy to maintain due to their simple

mechanical structure. Eventually, in the Mexican government outlawed the Beatle as a taxi cab car, deeming it too unsafe for that purpose. Oh and before I move on, I should at least mention that Volkswagen began making the Jetta model

of vehicles starting in nineteen seventy nine. The design of the Jetta aimed at a customer that wanted something a bit larger than the Volkswagen Golf known as the Rabbit here in the United States, and the Jetta is one of the models Volkswagen still produces today and is consistently one of their more popular models. It also comes in a lot of different configurations. Two door, four door, five door.

I had to mention it because my producer Tari used to drive one, though she drove a more recent model than in nineteen seventy nine Jetta. I imagine she's nodding yes in case he can't hear her nod. But let's talk about Volkswagen the company from the time Doctor Han took over up to present day now. One measure that Han took was to work with China to establish Volkswagen's

presence in the vast Chinese market. In the early nineteen eighties, China was just starting to enter into a massive economic transformation, one that we're still seeing play out today. Volkswagen would be one of the first Western automotive companies to work with China. In fact, it was the first Western automotive company to work with China to create an early automobile industry in that nation. It would be incredibly important both

to China and to Volkswagen itself. After all, China has the largest population of any country in the world, and for several years Volkswagen was the only non Chinese car company operating within that country, and as you might imagine, that meant Volkswagen was able to get a big jump on top of the other car company. Today, Volkswagen and its partners manufactured vehicles and parts in more than thirty

manufacturing facilities throughout China. Dr Hahn also continued Volkswagen's practice of acquiring other companies, and acquisitions are going to play a really big part in today's episode as well. Here later, but he oversaw the completion of Volkswagen's acquisition of fift of the Spanish car company Seat in nineteen eight six, as well as gaining a substantial stake in a check company called Skota in nineteen These two companies would be

the first non German subsidiaries for Volkswagen. The first subsidiary, if you remember from the last episode, was Audi that was another German car company, though Volkswagen would later acquire more ownership of both car companies, eventually owning both outright, and Volkswagen would become a leading car company in Europe,

particularly in the southern and Eastern European markets. The subsidiaries make talking about Volkswagen a little tricky, as there's the Volkswagen Group that includes all the companies and brands like Audi, in addition to Volkswagen the car company, which is specifically the company that makes branded Volkswagen vehicles like the Beatle.

While Volkswagen was growing through these acquisitions, it was also in some ways following a plan very similar to what had been the cornerstone for the company during much of its history. So for decades, the Beatle had been the primary product from Volkswagen. While Volkswagen was finally retiring the Beatle in this time, it was essentially doing the same thing. It was following the same play with a different sensible car,

which would be the Golf. It's not incorrect to say the Golf was intended for the same type of consumer who previously would have purchased a Beatle, but Han recognized that the strategy alone would not be enough to sustain the company, and in fact, it was depending too heavily upon any one veha a model is a recipe for potential disaster if markets should change. With that in mind,

Han gave more freedom to the Audi division. Now, this really isn't an episode about Aldi, so I don't want to get too far off track here, but it would mean that the Audi brand was given a bit more slack to develop cars for a higher end market than Volkswagen's Golf catered to. And it would give Audi the the the freedom to start experimenting more and uh really branching out from what it had been doing. Breaking free of a perception that Audi was a brand that made

cars that old people liked. It was able to get past that an Audi for the most part, operated as an independent division within Volkswagen. Around this time forward, one enormous political event that would hit close to home for doctor Han quite literally was the reunification of Germany. Towards the end of the nineteen eighties, it became clear that the Soviet Union days were numbered, and that entire story is far too big to fit into an episode about Volkswagen.

But one of the many consequences of the Soviet Union's collapse was that East and West Germany would reunite into a whole nation. Now, this was when the Berlin Wall, which once stood as a symbol of oppression and authoritarianism was pulled down to the ground. For Volkswagen, it would mean the opportunity to establish new manufacturing facilities and what had previously been Soviet controlled territory. As for dr Han, the meaning was much more personal. He had grown up

in Chimnets, which is in eastern Germany. After World War Two, his family left the region as that region was falling to Soviet control. In fact, Dr hans father was one of the founders of Auto Union, which would later evolve into AUDI. So for Dr Han this was more than just Volkswagen growing its production facilities. It was coming back to a part of Germany that hadn't been you know, approachable for years. It had been behind Soviet control, behind

the Iron Curtain. Part of hans reasoning, in fact, a large part of it when it came to opening up manufacturing facilities, was that relying upon a centralized production model wasn't necessarily efficient or cost effective. He wanted to build more plants in various regions so that the production facilities weren't that far away from the people who were actually

buying the cars. That really cut down costs. If you're building the stuff near where the people who want the stuff can get the stuff, then you're cutting down costs significantly. So he was looking ahead to a more unified Europe and he wanted to build a car company capable of flourishing in that environment. At the same time, expanding operations costs a lot of money, and Volkswagen was spending a

ton to build out these manufacturing facilities. Moreover, Han felt that the European market would serve as sort of the foundation for the rest of Volkswagen's businesses around the world, so most of his focus was on developing the European market and investing in that market, which meant Volkswagen's presence in other parts of the world, notably in North America and the United States, really began to fade quite a bit.

Fans of Volkswagen in the US felt like they were being neglected, something that stung more than a little bit considering the fact that Dr Han had once been the head of the American division of Volkswagen. The popularity of Volkswagen in America had been on shaky ground since nine when sales figures dipped from year to year. It went down from nineteen one. Now the numbers fluctuated a bit

over the next several years. Sometimes they would go down quite a bit, sometimes they would rebound a little bit. But the general trend from nineteen eighty one all the way to nineteen nine three was to see declines in sales. And I'm sure most of you know that's the opposite of what you want to see in a sales chart. And when I say a decline, I mean there was a really big drop off. So back in nineteen eighty Volkswagen sold around three hundred thirty eight thousand vehicles in

the US market. In that number dropped down to fewer than fifty thousand vehicles. So three d thirty eight thousand down to less than fifty thousand. That's catastrophic. So what caused that number to drop down so low in the

United States? Well, one reason was that the general consensus was that the cars coming out of the American manufacturing plant were substandard, and another was that the cars coming out of Mexico were similarly unreliable, and the Puebla manufacturing facility in Mexico was experiencing a ton of different problems. So it wasn't until nineteen when Volkswagen introduced the third generation of the Goulf and the third generation of the Jetta models in the US that sales began to recover.

The American market was fiercely competitive at that time. Japanese automakers were really filling in the void that had been left by Volkswagen, and the Japanese companies were offering cars that aimed at customers who were looking for reliable, inexpensive vehicles. So in the nineteen seventies, if you were talking about an auto import in the United States, you were probably talking about Volkswagen. But by the mid eighties that had changed.

If you were talking about an import, you were probably talking about Japanese car. And Dr Han didn't seem too concerned about reversing that trend, as he was focused more on the European market at the time. Now that's not to say Volkswagen wasn't introducing new vehicles during Dr hans time as CEO. The company produced new models like the Volkswagen Santana also known as the Quantum, which evolved from

the Volkswagen Pasat. Volkswagen also made a few cars for various regional markets like Brazil or Eastern Europe, and these were very much peculiar to those agents. So if you weren't from there, you were not likely to see one of these types of Volkswagen's. In Volkswagen launched an ad campaign in the United States that I still remember quite well. The company introduced a new word to Planet Earth. That

new word was far fig nugan. This was technically a brand new word made up of two existing German words. You had fatherin, meaning to drive, and very NuGen, which means enjoyment. So this was supposed to be about the enjoyment of driving driving enjoyment varvig NuGen. This was not an existing German word, rather one that was invented for

the ad campaign. However, I will say that the German language frequently strings together multiple words to create a new word, rather than just inventing a sensible short word to handle things. That's why you will occasionally run into German words that are incredibly long, because they've just strung together a bunch of pre existing words to describe something new. Now, despite the ad campaign, the general feeling in the US was that Volkswagen was just focused on other markets and not

in North America. In Dr Han retired as CEO, and remember, the worst year for North American sales would follow in partly because Dr Hans strategy hadn't really supported the North American market. The new head of the company would be a man named Ferdinand Psh. And by the way, I know, I butchered the pronunciation of Psh in a previous episode

when I talked about this family. But Ferdinand Psh had previously helmed the Audi division under Volkswagen Group, and beyond that, he traced his lineage back to the very founding of Volkswagen. His grandfather was Ferdinand Porsche himself. His father was Anton Psh, who married Ferdinand Porsche's daughter Louise headvig Annie Villehelmina Portschah.

What a name. And so if you listen to my first episode in this series, you know that Anton Psh had been the director of Volkswagen during World War Two. That meant he was overseeing operations back when Volkswagen was dependent upon forced labor, and reportedly he ran off with a significant amount of money from Volkswagen while fleeing Allied forces. In he would get arrested by French authorities along with Ferdinand Porsche and spent a couple of years in jail

before finally being released. Well, Ferdinand pH had previously worked at Porsche mainly in efforts to build high performance racing cars, with the primary goal of building a vehicle that could win the Laman's endurance race. This type of race is different from those that are all about the first vehicle to cross the finish line after a given number of

laps or distance. Instead, the winning vehicle at Lament's is the one that has covered the most distance in a twenty four hour period, So whichever car has gone the furthest within twenty four hours across a predetermined route. Porsche had been entering versions of its Porsche nine seventeen for twenty five years before a Porsche driver took home the top prize. Ferdinand had achieved his goal of engineering a winning race car at great expense. In fact, it was

such an expensive endeavor that it nearly bankrupted Porsche. In nineteen two, Ferdinand Psh would transition from Porsche to go work at Audi. Now this wasn't necessarily by choice. Pasha's obsession with creating faster racing cars had almost brought down the company, and ownership of the company fell to two families, the Porsche family and the pH family, and both of those families trace their history back to the founder Ferdinand Porsche.

Both of them owned about fifty of the company Porsche, and the two sides were beginning to fight with each other, and I swear going through the stories makes it seem like it's a season of Game of Thrones. We'll learn more about that later in this episode. So in order to prevent this rivalry from tearing the company to pieces, the two families agreed that no one from either side should be involved in the day to day operations of Porsche.

So that's why PSH would leave Porsche the car company Porsche, not the holding company for Audi. Ferdinand. PSH would Transformality from that brand that was being viewed as a bit old fashioned in catering to the elderly into more of a luxury sedan brand, and so it brought Audi into competition against vehicle makers like BMW or Mercedes. But PSH had grander designs. He wanted to head up Volkswagen itself.

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All right, let's get back to the episode. Now. We're getting into an era in Volkswagen's history that was particularly complicated by family politics. This stuff gets juice. There's betrayal, there's shifty maneuvering, there's backstabbing, their extramarital affairs. I mean, if you look at the Porstcha and PSH families from the nineteen seventies to the two thousands and a little bit beyond, it sounds like the stuff out of a

soap opera, like Dynasty or Dallas. It's crazy. On top of that, we enter into a bizarre corporate structure in which different companies gain a stake in each other, and in some cases it looks to me like the whole thing is oura borus. You know, the snake eating its own tail. And I'll do my best a little bit later in this episode to try and work out how that actually ends up being structured. For no other reason that to illustrate how the ownership of these companies is

incredibly complicated and at least to me somewhat ikey. In the meantime, we've got other stuff to touch on now. While I'll have lots of critical things to say about pH one thing that's clear is that his ambition pushed Volkswagen to new heights. He was reportedly a very hard boss to work for, Like he was incredibly demanding and ruthless. Uh. He was quick to throw you aside if he didn't think you were useful. And there are a lot of

other negative things I could say. But in nine the company would introduce the new Beatle and that would become available for purchase in the United States the following year, and that showed that they were now paying attention to the North American market again and no longer keeping such a laser focus just on Europe. This was a combat car that was inspired by the original Beetle, but it

featured sleeker lines, front mounted inline four cylinder engine. If you listen to the first part of the series you remember that the original Volkswagen Beetle was an air cooled rear mounted engine, so it was very different from that, and Motor Trends would actually name it the import car of the Year in nineteen Despite its small size, it really wasn't the most efficient vehicle on the road. It

averaged twenty one miles per gallon. You would have thought that perhaps it would have been a little better about that, but no. Well, the new Beatle, along with an updated Passat and a new Jetta model all helped revitalized Volkswagen sales in North America after that market had been largely forgotten about for more than a decade. Meanwhile, on the corporate side of things, pH was leading some pretty serious

efforts to really expand Volkswagen's assets. One of the big acquisitions at this time was Bentley Motors, the company that had gone through a couple of changes in ownership, having been part of Rolls Royce for nearly forty years before a company called Vickers Plc purchased the Rolls Royce Motor division in nineteen seventy. Twenty eight years after that, PSH and Volkswagen came calling with an offer to purchase the

Bentley brand. Though Volkswagen would not acquire ownership of the Rolls Royce logo or name, they did get hold of the designs. They could use the car designs, but they could not use the logo or name of Rolls Royce Bentley's. In case you don't know, our luxury cars like as luxury as luxury gets really crafts. People hand make many of the details on the vehicles like you'll get like

hand carved dashboards, for example. So the manufacturing process is guided by a human touch nearly every step of the way. It is slow and methodical, and these are extremely expensive luxury cars. They're also extremely British. The cost of the acquisition was four hundred thirty million pounds. But we're not done with Volkswagen's purchases in n yet. The company also acquired the rights to use the Bugatti brand name. Now,

Bugatti has its own odd past. In fact, at this point I think it must come as a prerequisite for car companies. It was founded in the early twentieth century by a Torre Bugatti, who built many successful race cars in the early nineteen hundreds, but after his death in the nineteen forties, the company kind of lost focus, and by the nineteen fifties it had pretty much faded from memory.

It wasn't really producing cars anymore. In nineteen seven, Romano are totally an entrepreneur, acquired the rights to the Bugatti brand and built new manufacturing facilities with the the intent of making Bugatti a prestige brand again. The new Bugatti company produced several cars, but a recession in the nineteen nineties took a big chunk of the company's assets and it was essentially a failed business by so three years later in nine Volkswagen acquires the brand name Bugatti and

starts up production with new model designs. So today the Bugatti brand is associated with super cars that come with incredible high end price tags. And I think it's most a testament to Pasha's interest in fast cars, Like he clearly always had a fascination with building incredibly fast vehicles, and Bugatti are the type of cars that look like they're going fast even when they're sitting still. And I'm still not done with their acquisitions. One other big brand

that Volkswagen acquired that year was Lamborghini. That was the Italian luxury sports car company. It's now part of Volkswagen It was founded in the nineteen sixties. Largely it was intended to be a competitor to Ferrari and developing high performance race cars. As I mentioned earlier, is really expensive. I mean it nearly bankrupted Porscha. Well for Lamborghini, that

they were having the same sort of issues. They were spending way more money than they were making, and then that, paired with the oil crisis of the nineteen seventies, meant that very few orders for these high end sports cars were coming in. It led to a disastrous collapse of the Lamborghini company and the company went bankrupt and eighteen

seventy eight. A few years later, brothers Patrick and Jean Claude Memroun revived Lamborghini and it became a brand uh a new in the nineteen eighties, um with with models like the Kuntash, which I remember as a kid, I thought was the most amazing looking car I've ever seen. But then they ended up selling Lamborghini to the Chrysler Corporation. In Chrysler would in turn sell Lamborghini off to a Malaysian company, and it was from that company the Volkswagen

would acquire the rights to the Lamborghini name. And designs. Now, technically Lamborghini falls under the AUDI division at Volkswagen, and as I mentioned before, AUDI gets to operate more or less independently from Volkswagen, but it belongs to Volkswagen Groups. So Lamborghini is one of the brands under the Volkswagen Group name. All right, let's skip ahead to two thousand two. Volkswagen announced two new lines of vehicles that year. There was the Phaeton line that was a luxury car brand,

and there was the Tourig line, which are SUVs. Now. This was also the year that ferinand Psh would step out of the role of CEO for Volkswagen and he became the chairman of the board for Volkswagen Group for their supervisory and steering committees. pH would continue to have significant influence within the company. His successor as CEO was an engineer named Burned Peter Pischets Reader and I'm sure of butchered that last name, so we're just gonna call

him Burnt because it's a lot easier. In two thousand three, the final Type one Beatle, the original Volkswagen vehicle model that carried the company for decades, rolled off the manufacturing facility in Pueblo, Mexico, and it was actually given a number. It was number. It was car number twenty one million, five thousand, four hundred sixty four. It was not sold

off to some lucky motorist. Instead, it was actually shipped back to Volkswagen's headquarters in Volksburg, Germany, because, as Indiana Jones would say, it belongs in a museum. Burnt would only stay at CEO for just a few short years before he was essentially forced to resign, and allegedly the reason that he was forced to resign was because he was frequently coming to disagreements with pH, who really wanted

to keep control of this company. Martin Winterkorn, who had been the leader for the AUDI division, would then step in to take over the role as CEO. That would happen in January two seven, and winter Corn had been a pH protege though that would be put to the test in a big, big way. So at first pH thought, oh yeah, now I've got my guy in this space,

even though the pH had handpicked Burnt earlier. So um, the fact that he kept getting burned by people that he picked might say more about his management style, I guess. In two thousand and eight, Volkswagen announced plans to build an assembly plant in Chattanooga, Tennessee, a billion dollar assembly plant.

It would be finished by two thousand eleven. And this was the goal of producing cars for the American market, you know, within the market itself again, to augment Volkswagen's production facilities and reduce the cost of getting cars to Americans. That was also the year when we would see a game of thrones like struggle really heat up. So let me see if I can sort all of this out.

This is also gonna mean sticking with this particular story and skipping some other stuff in the timeline for now, but I want to try and work my way through this whole sordid affair, alright. So this is really the story of two companies, Volkswagen Group and Porsche se which

is a holding company. And it's also the story of two families, the Porsche family and the related pH family, their cousins to each other, and both of these trace their lineage to Ferdinand Porsche, the founder of both Porsche the auto company and Volkswagen the auto company. And it's also about a lot of complex corporate maneuvers that frankly, I don't fully understand, because tech is easy, but corporate

structures are really hard. Okay, So the Porsche pH families own a holding company called Porsche s E. And now, typically, a holding company's purpose is to create a central point of control for multiple distinct businesses while simultaneously isolating those businesses enough so that if one should fail or falter,

it doesn't drag the others down with it. So it's a way to limit liability in other words, And each business under a holding company performs as its own distinct business, though it ultimately is under the umbrella of the parent holding company. The holding company holds assets and equity, but doesn't get involved in the day to day operations of the business it holds, so you can think of it as the business owners but not the business operators. At

least that's how it usually goes. So let's lay out the arrangement here. So Anton Psh and Ferdinand Porsche first founded the company that would evolve into portscha Se way back in the nineteen thirties, and this is that holding company that oversees assets. Essentially, this company holds the assets of the Porsche and Psh families. It it funnels all of the shares that all the different members of these

families have and represents their ownership of Porsche um. Different members of the family, oh own different numbers of shares, so like one person in Porsche family might own twice as many shares as most of the other members of the families. So just imagine a really big family of people who don't really get along all that well with one another, and they all own some part of this

holding company. Okay, so Porsche SE in turn owns the family interest in another holding company called Porsche Vision Holding. I oh, you Germans Vision Holding essentially means intermediate holding company, which I mean that tracks right like it's a holding company that's owned by a different holding company. Now, to be fair, it's a little more complicated than even that. This is starting to turn into like a Russian nesting doll situation here. But the Porsche pH families own fifty

point one percent of this intermediary holding company. So you can think of Porsche SE as the organization that holds the assets that in turn represent controlling interest in another holding company. But it's this intermediary holding company that owns one hundred percent of Porsche Automobile Group that that's the actual car manufacturing company that's responsible for building and selling

Porsche vehicles. So you know, Porsche se which represents the family Porsche pH interest in Porsche's Vision Holding and that in turn owns Porsche Automobile Group, got it because I don't now Porsche had as in the car company had a long history of being involved with Volkswagen's operations since the very beginning, and the holding company had a five percent stake in Volkswagen up until two thousand five, So the Porsche Holding Company also owned some ownership in Volkswagen,

a small amount five percent, But in two thousand five Porsche acquired more shares in Volkswagen and increased the ownership to twenty percent. So now the Porsche Holding Company owns one fifth of Volkswagen. For a while, it looked like that was all that they could do, because is the German government had actually passed a law specifically for Volkswagen that prevented any single shareholder from acquiring more than of

the ownership of the company. And this was in large part because Lower Saxony, the government region of Lower Saxony, was an owner of Volkswagen. If you listen to my first episode you remember I mentioned that that the trade unions still to this day have a powerful voice within the operations of Volkswagen, and technically Lower Saxony had a

little more than ownership of Volkswagen. So by passing this law, Germany was preventing anyone else from getting more power in the company than Lower Saxony had, So this government group would have the most powerful say in the company as long as everyone else was limited to ownership or less.

But then the European Union come challenged this law in two thousand seven and things started to change, and perhaps emboldened by that challenge, the Porsche Holding Company increased its steak in Volkswagen to nearly of the shares, so now it owned more of Volkswagen than Lower Saxony did. Little by little Porsche would add more shares of Volkswagen to

its steak, and the process was incredibly expensive. So by two thousand nine, when Porsche held more than fifty percent ownership so it had controlling interest in Volkswagen, it became clear that it was not going to be sustainable. Porsche of the company was in debt up to its corporate eyeballs. So then in a move that I still find perplexing. Volkswagen goes and acquires forty nine point nine percent ownership in Porsche Automobile Group as in the actual automobile company.

All right, now, follow me here. Porsche the holding company takes majority ownership of Volkswagen Group. Volks Wagon Group has nearly fifty percent ownership of the Porsche Car Company. Say

I told you this was confusing. Now, at this point, the Volkswagen and Porsche companies were in talks of actually merging together, but that didn't happen as the EU Commission seemed ready to oppose the move and there were some legal risks, but that would all get settled by two thousand twelve because then Volkswagen would go ahead and purchase the remaining interest in the Porsche Automotive Company, not the

holding company, but the actual car company. In addition, managers in Volkswagen were to become managers in Porsche s C, which would ensure that Volkswagen would remain the dominant party at the table. Now, another part of the reason why this all gets so messy is that the families involved were feuding. On the Porsche side, you had Wolfgang Porsche, who was widely regarded as the head of that family, so you can think of Wolfgang as the godfather of

the Porsche's. On the pH side, you had Ferdinand pH, the former Volkswagen CEO and then the chairman of Volkswagen's Supervisory Board. The two were trying to outmaneuver each other throughout this entire process, and pH had clear contempt for his cousin. There are lots of stories about pH insulting the Porsche side of the family, with one report claiming that pH likened the Porsche's two pigs and then likened

himself to a bore. And what he was saying, well, he was alluding to the fact that he Psh had grown up going to a tough boarding school, and he had put in the work to grow Volkswagen over the years. He was an engineer, he actually did the work, whereas the Porsche side, all of them went to fancy prep schools, they had no interest in engineering, and most of them were lawyers, so it was clear he didn't have a very high opinion. This would continue to boil over over

the following years. I'll explain more in just a moment, but first let's take another quick break. Okay, So that whole corporate mess. I just covered kind of boils down to Volfgang Porsche and Ferdinand pH facing off against each other, with pH ultimately winning at least a little bit. And if it weren't for that darn diesel Gate scandal, this would likely be the most crazy part of the Volkswagen story. But then we do have the diesel Gate scandals. Let's

talk about what that was and what it means. So back in the mid two thousand's, Volkswagen began to make a serious marketing push, designing diesel based vehicles for the United States and other markets and instead of gasoline powered vehicles. So diesel engines were invented by a guy named Diesel, and he built a combustion engine that he intended to run off of stuff like peanut oil. And in fact, you can run diesel engines off of some plant based oils.

Sometimes you want to do a little bit of processing before you do that, but you can do it. Diesel engines can't run at a much higher efficiency than gasoline engines, so you can run a diesel engine for longer with a comparable amount of fuel than a gasoline engine. Now I could do a full episode to lay out the differences between diesel and gasoline engines, but really for the consumer, a big differentiating factor is just how far you can

travel per given amount of fuel. Diesel cars get more miles to the gallon than gasoline based cars, and there are a lot of other factors that determine whether or not it makes financial sense to go with diesel over gasoline. That includes the cost of the fuel, because if diesel is significantly more expensive the gasoline, you have to factor that in as well as the purchase price of the vehicle.

Of diesel vehicles are more expensive than you may not see a financial benefit to going with diesel as opposed to gasoline, but that's neither here nor there for the scandal. Now, one of the things car companies must do is they have to meet emissions standards with their vehicles in order to be able to do business within certain countries like the United States. And this is all related to environmental impact.

So your cars have to perform at a certain standard, you know, beneath a threshold, or the United States government doesn't allow you to sell those cars in the US market. So back in the mid two thousand's, some engineers at Volkswagen we're trying to figure out how to make a diesel engine that would operate within the restrictions on emissions that the United States government had established. But they also were working with very tight restrictions within Volkswagen itself. So

the culture within Volkswagen was success at any cost. I mean, pH had had proven that he was willing to spend tons of money to succeed at various engineering tasks, but at the same time, the restrictions were so tight on

this department, they didn't have very many options. So they realized that rather than actually changing the engine, which was going to be very expensive and beyond the budget they were given and beyond their capabilities, they could instead make a few tweaks to some software algorithms to make the engines operate at or below emissions thresholds, and that would allow them to stay within budget for the development of the cars. There's only one problem. The tweaks meant that

Volkswagen was going to essentially be cheating on emissions tests. Now, this didn't get discovered right away. It wasn't until two thousand fourteen when some West Virginia University researchers found that two cars that they were testing a Volkswagen Jetta and a Volkswagen Pasat emitted much higher emissions levels than what

they should be doing based upon emissions testing. Now. Volkswagen's official response initially anyway, was that there must have been some sort of unexpected technical issue and unusual test conditions that led to this. Engineers at Volkswagen sent a memo to CEO Martin winter Corn at the time or vinter Corn, but it's not known if vinter Corn actually saw that particular memo because it was bundled with a whole bunch

of other memos at the time. Um there are a lot of people who suggest that perhaps he knew about this early on, and others who say that maybe he didn't. Well, Volkswagen would issue a recall on diesel vehicles. They recalled all of them. I guess it's recall, not a recall behind the current guys. I've had two hours sleep, So anyway, the California Air Resources Board or CARB would then find some irregularities on supposedly fixed vehicles in two thousand fifteen.

These are vehicles that Volkswagen had supposedly recalled and then fixed and then put back into the market. But the CARB was finding that there were still these irregularities. Then the engineers at CARB we're finding that Volkswagen's explanations for why those irregularities were happening didn't seem to actually match up what they were seeing. Then the Environmental Protection Agency goes and tells Volkswagen, Hey, you know, we're not gonna let you sell any of your twenty six d SILD

vehicles in the United States. And it was at that point the Volkswagen said, oh, um, are bad. Actually, we just found out there's some software regularities, and then they explained what was going on, and that leads us to the actual scandal. So essentially, when the vehicle's computer detected that it was going into emissions testing, that someone was connecting their testing equipment to the vehicle's computer, it would then engage systems that would limit emissions. They would also

decrease engine performance. Now, if the cars just operated in that mode all the time, we wouldn't be talking about a scandal. But Volkswagen probably wouldn't have seen as many sales because drivers would be disappointed. They would feel like the cars were not performing very well, they were underpowered, their performance just wouldn't meet expectations. So in order to meet expectations, they needed to have the engines have a higher output of power. But if they did the higher

outpuput of power, you have higher emissions. So if a Volkswagen diesel cars computer detected that it was connected to emissions testing, it would initiate this dampening system and you

would have lower emissions and lower output. But then once it was detected that it was no longer connected to an emissions testing machine, it would disengage those dampening systems and the car's performance would improve significantly, but it would also emit way more pollution, including stuff like nitrogen oxide, and it would be well beyond what was the emissions threshold. So in other words, the cars were cheating on tests.

When the teacher was looking, and in this case the teacher is someone performing an emissions test, then the vehicle would pull its punches and purposefully underperform, emitting fewer gases, and then once the teacher was looking somewhere else, it

was party time. Well. The e p A was not amused and concluded the Volkswagen had purposefully tried to circumvent the Clean Air Act in the United States, and further that the Department of Justice would have the authority to impose a total of thirty seven thousand, five hundred dollars of civil finds per vehicle that used this kind of

work around, like as in each individual vehicle. The defeat devices were in vehicles spanning model years from two thousand nine to two thousand sixteen, so if you added them all up, it would mean that Volkswagen could potentially face a maximum up to eighteen billion dollars in fines alone. Volkswagen then admitted that the same defeat system was in place in eleven million diesel cars around the world, and that Volkswagen had already set aside several billion dollars worth

to fix these affected cars. Then came criminal proceedings against engineers and executives at Volkswagen, both in the United States and in Germany, as well as a scramble to figure out how to buy back vehicles that didn't meet the emission standards. So in total it would cost Volkswagen around thirty billion dollars. That is a princely sum and an enormously expensive mistake. And mistake in judgment, I should say,

it's not like they accidentally did this. They the engineers that did this did this knowingly, and the costs went beyond the monetary Martin went vinder Korn, who was CEO when the scandal first broke, would end up accepting responsibility, but he also denied that he had had any personal wrongdoing involved in this. He said that he had no direct hand knowledge and he had no uh direct involvement in the decision to try and circumvent clean air laws.

But he also said that as CEO, he has to be held responsible for this sort of thing happening under his watch. So he resigned his position and he was replaced by Matthias Mueller, who pledged to cooperate with investigators to get to the bottom of who was responsible, while also making amends to customers who were directly affected by the scheme. Now, Mueller was previously the CEO of Porsche, which also would end up getting pulled into this diesel

Gate scandal. It wasn't just Volkswagen vehicles. There are also some Porsche vehicles and Aldi vehicles that would be involved in this. So he would serve as Volkswagen CEO only until two thousand eighteen, and that was when the Board of Directors kicked him out, largely because the company as a whole had been perceived as moving too slowly to address the problems that arose due to Diesel Gate. So his replacement was Herbert die who was formerly the brand

chief over at Volkswagen. So this is becoming like a revolving door situation with these quick turnarounds and CEOs. Ferdinand Psh resigned from the supervisory board of Volkswagen in April two fifteen. This would be before Martin Vinterkorn was had to resign. Then pH would sell off his shares in Volkswagen in May of two thousand fifteen, essentially divorcing himself

from the company entirely. This predated Martin Vintercorne's resignation as well, So in fact Psh was attempting to have Vindercorn actually removed as CEO, and this is what led to pH to saying he was going to step away from the company. He voted to have Vindercorn removed, but he was the only member of the steering committee to do so. Uh, the others all voted against him, and Wolfgang Porsche, his rival, his cousin, was one of the parties who was, you know,

essentially campaigning against pH. So pH left the company, sold off his interest, and then he threw a whole bunch of executives under the bus as he left. He implied that a lot of people in senior levels of management, including all the way up to the executive level, knew about and had approved of, the illegal technology that allowed

Volkswagen's diesel engines to cheat on emissions tests. Now, whether his allegations were true or not was uncertain, But he dumped a ton of fuel on the fire, and I guess it must have been gasoline fuel, because diesel doesn't burn like gasolene does. Don't try that at home. Pish would end up passing away at age eighty two in two thousand nineteen. He left behind twelve or maybe thirteen children. The numbers aren't entirely clear. There are a lot. There's

a lot of actual disagreement. Um, he was married twice and he had a couple of kids outside of marriage. In fact, one a couple of them were with the estranged wife of his cousin, So he had an affair with his cousin's wife. Told you this was like game of Thrones, man, I was not kidding. So Volkswagen is

still managing the consequences of diesel Gate. To this day, CEO Herbert Diese is at the center of some criminal charges that state he and other Volkswagen executives were waiting too long to inform investors of the extent and nature of the diesel Gate scandal, and that as such they were essentially committing fraud. They were telling investors that the company was in much better shape than it actually was. Meanwhile,

Volkswagen is trying to move beyond this disaster. It has announced a plan that by t we're gonna see the company producing one and a half million electric cars, and that number actually keeps climbing, so it might be higher by the time you hear this episode in Volkswagen also produced the final Edition Volkswagen Beetle, which was an updated version of the new Beatle, and that that last one, the very last final edition Volkswagen Beetle, rolled off the

production line in July two th nineteen. So now the Volkswagen Beetle is retired again. But who knows, maybe the company is going to bring it back out of retirement one more time in an effort to climb out of this massive mess. It finds itself in and that's where Volkswagen is today. As I said, I found this story to be fascinating, not just from a technological standpoint, but

just from the political, social, corporate side. It's so complicated, and it's it's so so closely tied with family feuding. I had no idea about Volkswagen's involvement with the Porsche family, um largely because it's a European company, and my my

vision of Volkswagen has always been the Volkswagen Beetle. That's if you say the word Volkswagen to me, I think of the old VW Beetle and this sort of quirky, iconic vehicle that's associated with like the hippies and the the Summer of Love and that kind of stuff, and

and Disney movies. I don't think of a company that was founded, you know, and well or at least funded by Nazis and then run by various people who were having crazy feuds with each other in power struggles like None of that ever occurred to me, And I definitely didn't know that Volkswagen had purchased brands like Lamborghini and Bugatti, probably because those cars are just a hair outside of my price range. By a few hundred thousand dollars, but

it was an interesting thing to look into. If you guys have any suggestions for future topics of tech stuff, whether it's a company, a technology, maybe it's a trend in tech you would like me to talk about, let me know. Send me a message on Facebook or Twitter. The handle we use at both of those is tech Stuff HSW and I'll talk to you again really soon. Tex Stuff is a production of I Heart Radio's How

Stuff Works. For more podcasts from my heart Radio, visit the i heart Radio app, Apple Podcasts, or wherever you listen to your favorite shows.