13 October 2015 15:13:36 IST

A management and technology professional with 17 years of experience at Big-4 business consulting firms, and seven years of experience in high-technology manufacturing, Rajkamal Rao is a results-driven strategy expert. A US citizen with OCI (Overseas Citizen of India) privileges that allow him to live and work in India, he divides his time between the two countries. Rao heads Rao Advisors, a firm that counsels students aspiring to study in the United States on ways to maximise their return on investment. He lives with his wife and son in Texas. Rao has been a columnist for from the year the website was launched, in 2015, and writes regularly for BusinessLine as well. Twitter: @rajkamalrao

Lessons from the Volkswagen debacle

Recalls lower customer trust in auto companies, thereby eroding brand loyalty

Cars are becoming more complex, consumers are becoming savvier and regulators are turning increasingly strict. Whatever may be the reason, the number of auto recalls has been steadily growing not only in India but around the globe.

Until a few decades ago (think Ambassadors, Standard Heralds and Premier Padminis), defective cars were largely a function of poor manufacturing and, downstream on the production line, weak quality control which didn’t catch faulty parts before they were shipped to an assembly plant. No one could blame automotive design because the design never changed, sometimes over decades.

Too much of everything

Toyota says that a modern car can have as many as 30,000 parts if you count things as minute as a screw or a fastener. Electrical, mechanical, hydraulic and electronic systems need to work in near-perfect unison in today’s automobile, a choreographed performance that has to repeat flawlessly each time one gets into a car to turn the ignition key on. Cars are expected to be safe and strong, but also light and aerodynamic so as to minimise fuel consumption. They have to look good while also being fun to drive. And new models need to come out regularly, sometimes as often as three years.

With so many constraints in place, the job of an automotive engineer is one of the most difficult. Under constant pressure, some engineers cut corners to meet schedules and budgets - both resulting in disastrous consequences to vehicle quality, life, limb and the environment.

Egg on face

The most egregious case of this was on display in the recent Volkswagen recall in the US. While no one has been physically harmed, the ethical practices of the No. 1 automaker in the world are in the media’s spotlight. The CEO just resigned in what may well go down as one of the largest cheating scandals the world has ever known.

Volkswagen has worn its diesel badge of honour for years. European automakers, who have embraced and perfected small diesel engine technology, have often mocked Americans at their backwardness in sticking to the petrol-guzzling monsters churned out by Detroit.

The US has been sceptical of diesels because their emissions are known to be more toxic to the environment than gasoline powered cars.

It turns out that Volkswagen used sophisticated sensors in its steering columns, struts and wheels to report information to a car’s central computer whether a vehicle was actually being emission-tested in a shop or was being driven on the road. If the vehicle was in the shop, for example in a stationary position as indicated by no steering wheel movement, the car’s computer would ask the engine to perform in an environmentally-compliant mode. This meant that any readings from emission-testing equipment would come out fine, earning the vehicle an emission sticker so that the car could be let out on to the streets.

Once on public roads, the sensors, recognising that the owner of the car was back in control, would report this status to the car’s computer, which would instruct the engine to relax its emission controls and emit more noxious fumes. The relaxed setting clearly created the vaunted driving experience of a European car that much of the world covets.

The US Environmental Protection Agency has said that this switch caused VW diesels to emit 10 to 40 times more pollutants than allowed by law. The EPA charges that this case is a result of a concerted, devious effort by the design, engineering and marketing teams to deliberately program computers to deceive the consumer and the American public.

The Justice Department is investigating if it can find VW criminally liable in a court of law. If the government wins, the judge can impose a maximum fine of $37,000 on each of its 480,000 cars on the road - a whopping $18 billion. Even for VW, this is a huge cost. However, no one expects that the penalty would be that steep.

In the meantime, VW has voluntarily stopped selling diesel models pending an investigation. It has also issued a recall to fix computers so that cars will perform on the roads just as in the emissions garage. Sales of VWs are dramatically down and the poor dealers, who are the public face of the company, are beginning to face huge losses for no fault of their own.

Complex supply chain

Other recalls are a lot more serious and have resulted in loss of life and limb. For nearly 12 years, GM insisted that there were no problems with its ignition switches. When individual cases were brought, GM quietly settled them out of court with strict clauses requiring plaintiffs to not reveal the terms of the settlement agreements. It was only when the US government investigated GM that the depth of the problem became apparent: 124 people dead in GM’s cars because the faulty ignition switches would turn the vehicle off when it was in motion cutting out electrical power to crucial systems like ABS and airbags that depend on it. When accidents occurred, deaths and injuries were commonplace. GM settled last month with the government for a miserly $900 million.

Given how complex the automobile supply chain is, auto companies are forced to recall their cars when their suppliers are at fault. Takeda, the big Japanese maker of airbags, had supplied its products to Honda and 10 other global carmakers. Tests showed that because of a design defect, airbags could potentially spray harmful metal pieces when deployed, some which could puncture the airbag, defeating its very purpose, or others that could injure passengers. Nearly 30 million cars have been impacted in one of the largest recalls in automotive history.

Learnings for India

The US is a huge automobile market and has expert infrastructure in place to monitor safety and hold automakers accountable. The Indian government should look to the US, learn from it and usher in dramatic improvements in automobile safety here. This is the least consumers can expect from one of the fastest growing auto markets in the world.