Dirty Money (2018) s01e01 Episode Script
Hard Nox
[VEHICLE APPROACHING.]
[INDISTINCT CHATTER ON RADIO.]
[ALEX GIBNEY.]
I thought I had found the perfect car.
The VW Diesel Jetta Wagon.
The ad sucked me in.
[ANNOUNCER 1.]
Volkswagen has more diesel cars on the road in the US than every other brand combined.
[ANNOUNCER 2.]
Boasting a two-liter TDI turbo-charged clean diesel engine, not only does it provide excellent fuel economy, but you'll love the performance, too.
[GIBNEY.]
It was the only car that seemed to have it all.
Drove like a sports car Can the Green Car of the Year be fast? [GIBNEY.]
Wasn't too expensive, got great mileage, and unlike diesels of the past, it was clean.
[MAN 1.]
Volkswagen Jetta TDI Clean Diesel.
[MAN 2.]
TDI Clean Diesel.
[WOMAN 1.]
TDI Clean Diesel.
[GIBNEY.]
I was beaming with pride as I drove around the suburbs or commuted to New York City.
What I didn't know was that I was driving a killing machine.
[MAN 3.]
What has VW been up to? [MAN 4.]
We may be looking at the largest systematic corporate fraud in the history of the global corporation.
[MAN 5.]
Volkswagen has admitted that their clean diesel cars have been systematically, proactively engineered to deceive emissions testing.
[MAN 6.]
It's called a defeat device.
It's designed to defeat the test.
[WOMAN 2.]
The Volkswagen scandal is widening.
[MAN 7.]
The news just keeps getting worse.
[MAN 8.]
VW share price down 31%.
[MAN 3.]
If you're a VW shareholder or employee today, the letters stand for Very Worried.
[SALLY YATES.]
Volkswagen turned over half a million American drivers into unwitting accomplices in an unprecedented assault on our country's environment.
Our criminal investigation is active and ongoing.
[BRAKES SCREECHING.]
[THEME MUSIC PLAYING.]
[YATES.]
We can't undo the damage that Volkswagen caused to our air quality.
But what we can do is offset that damage by reducing pollution from future sources.
Now, with respect to the agreement, more specifically, Volkswagen must offer to buy back any car that's on the road.
That's nearly 500,000 two-liter diesel vehicles that are model years 2009 through 2015.
As part of the buyback, Volkswagen [GIBNEY.]
When I first heard about the scandal, I was furious.
VW had lied to me.
They had pitched me a vision of my dream car, but sold me my worst nightmare.
A car that was polluting 50 times more than advertised.
[ZOE CHACE.]
It's not enough for VW to just apologize.
They gotta use their folly to actively make the world better.
Even before that, Kirk suggests [GIBNEY.]
Weirdly, I was listening to NPR when my own name came up in an interview with a PR expert, on how VW could make things right.
[KIRK SOUDER.]
an investigative documentarian group, like a Frontline or an Alex Gibney, who can come in with the charge of discovering what happens in a company that actually leads to this type of gross infraction.
[CHACE.]
Kirk went ahead and made a promo for this imaginary documentary.
[ANNOUNCER.]
A new series from Alex Gibney, the director of The Smartest Guys in the Room, Coming Clean: Inside Volkswagen.
Fuck Volkswagen.
[ANNOUNCER.]
With unprecedented and unlimited access from Volkswagen [GIBNEY.]
There was no way VW was gonna give me access to look at the scandal, but the promo did get me worked up.
Angry as I was, it didn't begin to describe the fury my wife felt.
She stopped driving the car entirely.
Though she had pasted "namaste" on our bumper sticker, a yoga term for "bowing to the divine in others," she had visions of marching in to the local VW dealership with a chainsaw.
- [MAN.]
And the number.
- [ANNE GIBNEY.]
Yes.
[MAN.]
These two documents - [ANNE.]
Okay, so I sign right - [MAN.]
Seller signature.
Yep.
There we go.
We're going to give you back the car.
I feel so badly because I love the car [MAN.]
Yeah.
[ANNE.]
Um, but when you feel you've been lied to, it's really hard to feel okay about the company, in general.
Sort of like, shame on you, Volkswagen.
- Yeah.
- Right? [GIBNEY.]
Exactly.
[GIBNEY.]
Okay, my wife is way too nice to think about killing the local dealers.
But she wanted the car out of our lives.
The question she was asking, and I was, too, was, "How could this have happened? How could a company have lied to its customers on such a massive scale?" I decided to look into the scandal.
What I would discover was much darker and more vast than anything I had imagined.
[IN GERMAN.]
I am pleased that at the skilled hands of a brilliant design engineer and his staff, preliminary designs for a German Volkswagen have been completed, and the first models will finally be tested by the middle of the year.
Then you will understand why I was utterly determined to lay the groundwork for the invention of the German Volkswagen and its ultimate conclusion, and by that, dear gentlemen, I mean a successful conclusion! a cheap shot to bring up Hitler, but when it came to VW, he's the man that jump-started the company back in the 1930s.
[JACK EWING.]
In the 1930s, cars were still a rarity in Germany, or relatively rare.
It wasn't something that most people had.
And in the United States, a lot of people think Henry Ford invented the car but he didn't, actually.
What he did invent was how to build cars cheaply that everybody could afford.
So in the United States, there was far more middle-class people who had automobiles than in Germany.
And that really bothered the Germans and the Nazis, in particular, because they were supposed to be superior.
So Hitler hooked up with Ferdinand Porsche.
Porsche already had some designs in his drawer.
This idea of a volkswagen, a people's car, had been kicking around for quite a while.
And then he started developing the car with Nazi money.
Porsche, himself, went to Ford and looked around on several occasions.
He hired Germans who were working at Ford, émigrés.
He brought them back to Germany to help build the Volkswagen factory.
And it was very consciously modeled on Ford, but it was supposed to be even bigger.
They wanted it to be the biggest factory in the world, which it eventually became.
[REPORTER.]
There was a celebration in Germany, to mark the one millionth people's car since the war.
Over 150,000 people were present to take part in the jollification.
This included a [EWING.]
The city of Wolfsburg, it just doesn't get any more "company town" than that.
There was nothing there until they built the Volkswagen factory.
Everything that you see in Wolfsburg today has really grown up around that original factory.
[WALTER GROTH.]
Okay, so, here, that's the main street in Wolfsburg.
[GIBNEY.]
So there was nothing here? [GROTH.]
Wolfsburg, as a city, didn't exist.
[GIBNEY.]
It's a massive factory.
[GROTH.]
It's a massive factory.
Nowadays, they are still employing 60,000 people.
- [GIBNEY.]
Really? - [GROTH.]
And the chimneys you see over there, - that's actually the paint shop.
- [GIBNEY.]
Uh-huh.
So, this is all employee housing in here? Yeah.
Basically everyone works, uh, either directly or at least indirectly for Volkswagen here.
How does it rank in terms of the largest factories in the world? - It's the largest one.
- It is.
There's no other factory, uh Right now, they are producing by day, - round about between 3,000 to 3,500 cars.
- Wow.
[GIBNEY.]
VW declined to give us a tour of Wolfsburg.
So, I sought out the help of Walter Groth, a consultant on corporate culture, who'd worked for 20 years as an executive for Volkswagen.
You'd been at Volkswagen for a long time.
Twenty-four years.
[GIBNEY.]
When the news broke about the cheating scandal, what was your reaction? My reaction, uh I was angry, actually.
I was angry.
[STAMMERING.]
I took that very personal because, uh, I was thinking about all the people working for the brand and really doing the hard work.
And when you imagine that this is a company with more than 600,000 people working for Volkswagen worldwide, and more than a hundred factories, and you have to run this operation And all these people, when you look at the production lines, at manufacturing, what they do When you look at the people developing a car, starting with the designers, for example, they all want to come up with the best product possible.
[GIBNEY.]
For VW, the road to global dominance had always led through America.
In the '60s, sales hit new highs, when VW flew the freak flag for the counterculture.
The Bug was a real people's car, mechanically simple and down-to-earth.
You could be high on mescaline and still shift gears or repair the engine.
And the Bus was a crash pad on wheels.
[EWING.]
It was an amazing case of rebranding because this car was basically designed for Hitler.
[CHUCKLES.]
Then after the war, it becomes the symbol of the counterculture.
[ALL LAUGHING.]
[GIBNEY.]
But VW didn't keep up with the times.
As the counterculture gave way to the Reagan era, VW didn't innovate and its sales dropped as fast as the quality of its cars.
[GROTH.]
During all these years, sales went down, losses were mounting.
Volkswagen was close to being insolvent.
I was asked to join the newly-formed, uh, North American region because we needed to do a turnaround of the Volkswagen of America.
In 1993, Volkswagen sold roughly 38,000 cars a year in the United States.
That's a market with 16-17 million cars.
So 38,000 is, uh, ridiculous.
[CHUCKLES.]
When Volkswagen in the United States, with the Beetle, sold almost half a million cars.
[GIBNEY.]
The savior for VW was Ferdinand Piëch.
The grandson of Ferdinand Porsche, Piëch was professionally and personally productive.
He sired 12 children with four different women.
He also infused VW with a new DNA.
[IN GERMAN.]
Whenever there is war, fewer remain in the end.
There are always winners and losers.
And I intend along with our VW partners around the world to emerge victorious.
Yeah, a little faster is more fun.
he was the head of Audi before.
He's a brilliant man.
[STAMMERS.]
It's brilliant, but it's dangerous, okay? Kind of.
I mean, Piëch was a tough guy and he knew what he was doing.
[IN GERMAN.]
I don't feel I can't communicate with others.
But there are individuals with whom I don't want to communicate.
And they complain about my lack of communication.
However, that's not unintentional.
started, Volkswagen was down and out.
They were just about bankrupt and their quality sucked.
It was a disaster.
Their value at the time was a disaster.
The average, uh, workshop visit of an average car was three to four times in the first year.
He had to turn the company around.
And it's tough.
[GROTH.]
Dr.
Piëch came just in time to make that happen.
Before him, Volkswagen was rather thinking small, and with Piëch, the big thinking really started.
Piëch, uh, he's the typical inventor.
He has the big product ideas.
He comes up with stuff that's just, uh Wow.
Where did he get that from? [SCHMITT.]
He has this idea of diesel.
[STAMMERS.]
At the time, diesels were something for tractors.
Maybe for, uh, big Mercedes.
And he said, "It's going to be diesel.
" He made the diesel smaller, invented TDI.
People, they loved it.
[GIBNEY.]
The new TDI.
It arrived with a hip new ad campaign.
A diesel that was fun to drive, powerful and clean.
[GROTH.]
Volkswagen had huge success with TDI engines.
In Europe, people started to love the diesel.
But there was always the problem that what comes out from the exhaust, um Not really healthy.
[GIBNEY.]
The basics of diesel and gas engines are the same.
A series of explosions move the pistons, which turn the drive shaft.
Diesel fuel is much more efficient than gas and produces much less carbon dioxide.
But diesel fuel exhaust disgorges much nastier stuff.
Particulate matter and nitrogen oxide, called NOx, that causes air pollution and damages human lungs.
This is personal for me.
When my family was living in the NOx-filled smog of Southern California, my daughter developed exercise-induced asthma.
When she was playing soccer in high school, she collapsed in front of me from lack of oxygen.
[GIBNEY.]
NOx is not good.
[STUTTERS.]
No.
NOx, nitrogen oxide, is very, uh, nasty stuff.
Elements of nitrogen oxides mix with ozone, and then chemically changes into what we call smog.
It's a factor in acid rain.
It's damaging for plant life.
It causes asthma in children, causes cardiac problems, cancer.
People will die prematurely.
[MOTOR WHIRRING.]
[GIBNEY.]
To keep the efficiency of diesel, but to cut down on NOx, manufacturers like VW tried to create NOx traps that caught and burned the stuff before it left the tailpipe.
But the special parts needed were expensive, and had to be replaced every few thousand miles.
Yet, they were the only way to meet the NOx pollution standards set in the US, which were much more strict than in Europe.
[GEORGE W.
BUSH.]
Today, I'm directing the EPA and the Department of Transportation, Energy and Agriculture to take the first steps towards regulations that would cut gasoline consumption and greenhouse gas emissions for motor vehicles.
We have set in motion a national policy aimed at both increasing gas mileage and decreasing greenhouse gas pollution for all new trucks and cars sold in the United States of America.
[GIBNEY.]
Solving that problem in the US was critical for the strategy of the man who would eventually be tapped to follow Piëch as the head of VW, Martin Winterkorn.
[MARTIN WINTERKORN IN GERMAN.]
Dr.
Piëch and I have been working together for almost 30 years.
And as you know, Dr.
Piëch has always regarded innovation as the top priority.
So, we agreed that he would focus on innovation and I would safeguard it.
and they did this strategy called Strategy 2018.
[IN GERMAN.]
We wanted to have the most satisfied customers.
We wanted to have the most satisfied employees.
We wanted to achieve good results in order to invest in the future.
And we wanted to make the best cars.
The upshot of which will be that by 2018 we are going to be the preeminent car manufacturer in the world.
[SCHMITT.]
Volkswagen never was great in America.
The Volkswagen Bug was kind of a fluke.
But America's a very important market.
At the time, it was the world's largest.
So, those Americans, they have to buy our diesel cars.
That's what he wanted for the United States, diesel, which is incredibly hard to do in the United States.
Everyone knew this.
[STUTTERS.]
And that's how it all started.
The pressure on everybody to increase sales became unbearable.
[GROTH.]
Under pressure and when people feel fear, they might do things you don't want them actually to do.
[GIBNEY.]
Determined to conquer the American market, VW built a new green factory in Chattanooga, Tennessee.
To comply with American pollution standards, VW retooled its product line and introduced a new clean diesel, TDI.
Its pitch to Americans was captivating.
Cars that were low-cost, low-pollution, got good mileage and were fun to drive.
Perfect.
With its new green profile, VW's CEO boasted about its new-found commitment to social responsibility.
And Chattanooga stands for the Volkswagen way of life.
Sustainable, reliable and successful.
Now, more than ever, Volkswagen has everything it takes to win the hearts and minds of American customers.
[GIBNEY.]
I was one those people who stood up and cheered.
I was proud to own a VW.
Auto experts were cheering too.
Somehow, VW seemed to have solved a problem no one else could: how to clean up dirty diesel engines in small, low-priced cars.
I was completely surprised when I suddenly saw the clean diesel thing in the United States.
[STUTTERS.]
And first thought was, "Great.
That's great.
They solved the problem.
Wow.
I'm really deeply impressed.
" Then I looked at the price of the cars and, hmm, well, it's actually right in the market.
But I was asking myself, "How did they do it?" And I'm not an engine developer, I'm not an engineer, so There might be a way nobody else has ever seen.
Uh, great, they did it.
[GIBNEY.]
VW's solution to the diesel problem caught the attention of a group focused on clean transportation.
They studied VW diesels not to see if they were bad, but why they were so good.
And whether the US cars could serve as a model for other companies.
The man in charge of the group was an American named John German.
[JOHN GERMAN.]
I describe myself as a pragmatic environmentalist.
I spent about a decade each with Chrysler, then EPA, then Honda before I wound up at this non-profit, International Council on Clean Transportation.
The goal's always the environment.
We focus on working with regulators worldwide, not with legislatures.
So we're trying to help the regulators do their job better.
The whole VW scandal started in Europe.
In 2011-2012, there's a report from an organization called JRC.
It actually showed some anecdotal evidence of high diesel emissions in Europe.
But the report was basically ignored.
We had this brainstorm that there was a missing piece of data, which is what's happening in the US.
And so, in 2013, we decided to test some diesels in the US.
Primarily because we expected them to be clean.
And then we would take that data back to Europe and say, "Look, they're clean in the US.
How come you can't do it in Europe?" [ENGINE STARTS.]
[GIBNEY.]
German needed to find someone to test what was coming out of the tailpipes of the cars, first in the lab and then on the road.
The contract went to a group at the University of West Virginia.
Car geeks who wanted to see if clean diesel was for real in any kind of car.
[ARVIND THIRUVENGADAM.]
This is a portable emissions measurement system that we use to measure emissions from vehicles on a real-time basis.
It's a miniaturized version of a laboratory-grade measurement system where it's kind of in a shoebox-size, uh, equipment, where you can put it in the vehicle.
This is used for a very specific purpose, which is in-use measurement.
So we tap into the tailpipe and it measures two things.
It measures the exhaust flow rate, how much exhaust is coming out, and then what the constituents of the exhaust are.
So it's just a simple math, flow rate times the concentration, which is going to give you the, uh, the amount of, uh, pollutants that are coming out of the tailpipe.
So that's [GIBNEY.]
Arvind Thiruvengadam was part of the team that did the diesel pollution test for John German.
They focused on European diesels being sold in the US.
[THIRUVENGADAM.]
Whenever we do real-world testing, we do expect certain deviations from the certification number.
Conditions such as ambient temperature, road grade, traffic and such, which you always cannot expect the manufacturer to be at the lowest possible emissions.
But there is an acceptable level of deviation.
Usually, five to six times deviation is part of real-world activity.
But the kind of deviations we were observing from the VW passenger cars were significantly higher.
[GIBNEY.]
During the road test, the VW TDI was sending up to 40 times more NOx into the air than the VW lab test numbers.
West Virginia University, then they came to us.
Once they said, you know, "We have these high emissions and we can't explain it.
" And my first reaction was, "There must be something wrong with the vehicle.
" Literally, a malfunction.
It wasn't operating properly.
But we tested these vehicles at the California emission laboratory and they passed the standards, which meant there was nothing wrong with the vehicle.
And at that stage, I was pretty darn sure this was a defeat device.
There's a long history of defeat devices and I worked at EPA during some of these defeat device investigations.
The most recent major one was a 1998 case for heavy-duty engine manufacturers, in which almost every manufacturer of heavy-duty engines was calibrating them to increase emissions when they ran down the highway.
That scandal cost them about $1 billion in total fines and remedies.
And now with the VW case, I knew I was sitting on a time bomb.
But the words "defeat device" never would cross my lips, 'cause you just don't say that about a multi-billion dollar company when you're a little, uh, NGO with 30 employees.
It was just too dangerous.
[STAMMERING.]
We'd have been potentially sued out of existence if it had even been implied we were accusing VW of having a defeat device.
[GIBNEY.]
To avoid retaliation by VW, German first revealed his findings in 2014 in San Diego, in a small academic conference.
[PEOPLE APPLAUDING.]
[GIBNEY.]
In the audience were a handful of VW executives.
They must've realized for the first time that investigators were on their trail.
But German was careful not to call out VW when it came to publishing results.
[GERMAN.]
The compromise that we came up with is that we did post the report publicly on our website, but it refers to vehicles A, B and C.
We did not identify them.
Now, two days before we put the report online, I sent a courtesy e-mail to VW, saying, "This report's coming out.
Here it is.
By the way, vehicles A and B are yours.
" [WOMAN.]
Raise your hand, sir.
Do you swear or affirm that the testimony you're going to give in these proceedings depicts the whole truth under penalty of perjury? - I do.
- [WOMAN.]
Thank you.
[MICHAEL MELKERSEN.]
You are Stuart Johnson? I am.
[MELKERSEN.]
Are you currently employed - at Volkswagen Group of America, Inc.
? - Yes, I am.
- How long have you been employed there? - Uh All together, I've worked at Volkswagen 33 years.
In this e-mail, uh, it's true isn't it, that you're talking about the West Virginia University study.
True? Yes.
Second-to-last sentence: "Some presenters indicated they suspected cheating.
" You see that? Yes, I do.
- That's something you wrote, right? - That's correct.
So you were aware, at least as of April 8, 2014, that cheating was one of the possible explanations - for what was going on.
True? - Yes.
You state, quote, "We will have to be careful with this going forward.
" - That's correct.
- Why did you say that? Because I didn't like hearing that, out in a public forum, Volkswagen was being accused of cheating.
Well, what was it specifically that you all would need to be careful about? I didn't like the fact that there was a That that would, um, lead to some kind of suspicion against our company.
But how could you be careful in order to alleviate suspicions? You have no control over suspicions third parties have, right? Yes.
So what was it specifically that you needed to be careful about? My reason for writing that was that I wanted to try to manage the message and part of managing that message is engaging with the agencies.
[GIBNEY.]
The agencies Johnson tried to manage were the EPA and California regulators.
Following the San Diego presentation, California did its own tests.
They confirmed the West Virginia results.
Inside the lab, the pollution emitted by the cars was well within government limits.
But on the road, NOx levels were dangerously high.
That caught the attention of Alberto Ayala at the California Air Resources Board, known as CARB.
What was different about this is, how far off they were, the magnitude.
We're not talking about just a little bit above the standard.
Forty times the limit was the average.
If you look at some data points that we have, um, [CHUCKLES.]
in some cases, it was 80 times the limit.
And now you have two data points.
We have two studies on our hands, saying this just doesn't make sense.
At that point, that's when we went from research to, "Now we need to turn this into a regulatory action.
" What followed was 60 months of intense interaction with the company, back and forth, because it just escalated.
We would do some testing, generate questions, send them to the company.
They'd be expected to bring us answers.
They would bring answers, we would go back to the lab and try them and then generate more questions.
[GIBNEY.]
CARB was asking tough questions, and back in Wolfsburg, executives were terrified that honest answers would reveal a long trail of deceit.
CEO Martin Winterkorn received an urgent e-mail from VW's head of quality management, Frank Tuch.
"A thorough explanation of the dramatic increase in NOx emissions cannot be given to the authorities.
It can be assumed that the authorities will then investigate whether Volkswagen implemented a so-called defeat device.
" Rather than come clean, VW thought its only alternative was to stall for time.
[AUDIENCE APPLAUDING.]
[WINTERKORN IN GERMAN.]
Technological leadership is not just defined anymore by horsepower and torque.
The joy of economical and emissions-free driving, ladies and gentlemen, will be the currency in coming years.
The company was, uh, unfortunately, uh, dismissive.
It's like, oh, you know, "Maybe your instruments are not well calibrated," or, you know, "Oh, you have academics, graduate students running around, maybe they did it wrong and, uh, you guys gotta go check in because you gotta use experts to make sure that " And we would do all of that, right? 'Cause, again, all along, we're thinking, "This is not a defeat device.
This is just a technical problem.
" [MELKERSEN.]
It's true, isn't it, that these various reasons were given in attempt to mislead the agency into believing there were technical explanations for the high NOx level as opposed to an explanation that involved cheating? True? In retrospect, yes, that's true.
Mr.
Johnson, I've handed you what's been marked as Exhibit 25 [AYALA.]
The two company representatives that we interacted with the most were Stuart Johnson and Oliver Schmidt, who at the time was actually based here.
So he represented the company when it came to certification issues.
[OLIVER SCHMIDT.]
Let's first have a look at Volkswagen's history of diesel in the US.
With this technology, we won, in 2009, the Green Car of the Year.
Unfortunately, we got new emission regulations in the US.
So, we had to comply with, um, with Bin 5 or ULEV standard all over the US [MELKERSEN.]
In May of 2014, was Oliver Schmidt your boss? Yes, he was.
When the West Virginia University report came out, did Oliver Schmidt express to you that one of the possibilities for the explanation of this report - is that we were cheating? - No.
We were able to increase fuel economy by a lot, and we reduced the NOx raw emission of the engine by 40% in order to comply with future emission regulations [GIBNEY.]
Oliver Schmidt was not sharing what he knew with many of the US team, including Stuart Johnson.
But the cheating and how to handle it was an open secret among many executives in Germany.
Schmidt wrote an e-mail posing a fundamental question about strategy.
"It should first be decided whether we are honest.
If we are not honest, everything stays as it is.
" Translation: Keep cheating and conceal the defeat device in a storm of obfuscating e-mails, misleading technical reports and endless diversionary meetings.
[AYALA.]
For every meeting that Oliver and I had, our technical teams probably had another five, ten meetings.
There was so much going on and it just got really convoluted.
That was a challenge here.
It didn't feel like we were making progress.
We were negotiating, holding meetings with them, talking about [GIBNEY.]
As CARB turned up the heat on VW, Stuart Johnson was suddenly promoted and Oliver Schmidt was quickly transferred back to Germany.
[MELKERSEN.]
Do you believe that Oliver Schmidt was transferred back to Germany and you moved into that position to allow plausible deniability? [CLICKS TONGUE.]
No, I don't believe that.
Did you have a reputation at your company for honesty? Yes.
- Being forthright? - Yes.
Did Oliver Schmidt share that reputation that you had? No.
[GIBNEY.]
Back in Wolfsburg, Schmidt and the other German execs came up with a plan.
VW would announce a recall and pledge to fix the problem.
For the moment, CARB and the EPA seemed satisfied that VW was finally ready to do the right thing.
They told us, "Oh, while we do this recall, we will put a fix to this issue on the NOx.
" Right? Uh, in the hope that I would come back and tell my team, "We're done.
" [GIBNEY.]
They'd convince you with their data so you wouldn't bother to keep testing the car.
Correct, and of course that's not how we do business here, right? They did the recall and we got some test vehicles.
We went back into the lab, and it wasn't giving us in-use emissions that match the in-certification test.
[MELKERSEN.]
Would it be a fair statement that at the time that Volkswagen Group of America was telling CARB that it would update its software to more closely attempt compliance with regulatory limits, in fact, it was updating the software to further its cheat? [LAWYER.]
Objection to the form of the question.
[MELKERSEN.]
True? I would say, yes, that's true, knowing what I know today.
[GIBNEY.]
VW did not fix the problem.
Just the opposite.
The company fixed the defeat device to make it even better at cheating.
Through VW's own test, engineers discovered that sometimes the pollution controls would actually work as advertised on the road.
But that caused wear and tear on the exhaust system.
So to protect the cars, VW engineers changed the software, so pollution controls were shut off as soon as the driver moved the steering wheel.
[GERMAN.]
You strap a vehicle onto a dynamometer and the front wheels never turn.
So they looked for movement of the front steering wheel and deactivated emission controls if they found that movement.
How could they possibly believe that they could go out and just change from one egregious strategy to a different egregious strategy and get away with it? I still don't understand that.
That was without doubt the stupidest thing VW did.
The time that we wasted giving them the benefit of the doubt, that's really what what, um, what got me, that I was, um I was naïve thinking that the company was operating, uh, in good faith and trying to find a solution, because it was all wasted.
They could've come clean from day one and saved us a lot of trouble.
Very systematically, we were checking We thought it's this.
It's not, it's not.
You go down and eliminate all other options.
The only thing remaining is it's gotta be a defeat device.
I always thought that there was a good explanation for what was happening and that it wasn't cheating.
And the first time that I really had the feeling that something was wrong and cheating was very possibly happening was when we met with the Air Resources Board on July 8th, 2015.
In my opinion, I would characterize it as, uh, a pretty rough meeting.
Lots of strong talk from the agencies.
They said, "We think you're recognizing the FTP.
We don't know how you're doing it, but we're convinced you're doing it.
" [MELKERSEN.]
Who above you, as far as management's concerned, did you discuss it with? [CLICKS TONGUE.]
Well, I've discussed it a lot with the management in Germany.
Uh, Oliver Schmidt almost called me immediately after the meeting, within a day or so, saying, "What went on at the meeting? How did it go?" I said, "It didn't go very well.
" He said, "Yes, I heard that.
" I'm gonna stop you there.
Did you ask anybody whether or not you were cheating? - No, I didn't.
- Why not? To me, the people I was in contact with were the people that were deceiving me.
[GIBNEY.]
When it was clear VW's fog machine wasn't working, VW agreed to a series of meetings with CARB in August 2015.
[JOHNSON.]
Oliver Schmidt told me that he was authorized to come to the US, he was authorized to meet with Alberto Ayala, and he was authorized to make an admission.
The reason VW finally came clean is actually fairly simple.
EPA told them that if they didn't come clean, they would not certify any 2016 vehicles, including their gasoline vehicles.
That means VW can't sell cars.
No sales of new cars.
There were comments made at the meeting that this was a financial decision.
[MELKERSEN.]
There was an intentional premeditated cost-benefit analysis to cheat.
That's what was stated in the meeting.
So, it sounded like a pretty strong confession to me at the time.
Stuart did approach me and we went aside and had a conversation, and that's when he admitted to me that it was a defeat device.
That was the first time.
We told Mr.
Ayala the vehicle recognizes the dyno, it recognizes the test cycle and that this was a software gimmick.
That some software had been developed by somebody who thought they were smarter than you.
I was very upset.
I mean, I was probably very, um not very polite, and I think that Stuart probably took most of the brunt of it simply because he was the company at the time.
But I was very upset.
[MELKERSEN.]
Read for me, if you would, into the record, what the quotes were that you're quoting Dr.
Ayala saying to your conversation, if you would.
So, his quotes are, "You played us.
You tried to put a pillow over our head.
You wasted a lot of our time and money.
We will come after you hard on this.
This has taken too much time and raised expectations.
Now it's just going to confirm what NGOs have been saying all along.
We will write a nasty press release.
I don't believe your company anymore.
This is going to be a lot of money and you better not fight it.
And don't give me any shit on the midterm review when I ask for more stringency.
" [MELKERSEN.]
Thank you.
There was tremendous pressure that the company was putting on itself to really get to that point where they wanted to be number one, and they basically wanted to get there at whatever cost, and now, here we are.
[MAN.]
Ladies and gentlemen, please welcome president and CEO of Volkswagen Group of America, Michael Horn.
[AUDIENCE APPLAUDING.]
So, let's be clear about this.
Our company was dishonest with the EPA and the California Air Resources Board, and with all of you.
And in my German words, we've totally screwed up.
[IN GERMAN.]
The irregularities found in our diesel engines are the antithesis of everything Volkswagen stands for.
Even I, at this point, don't have answers to all the questions.
But we are working diligently to find out exactly what happened.
[GIBNEY.]
Is it conceivable that Winterkorn didn't know about the cheating devices? Is that conceivable? If you believe in the tooth fairy, then it's conceivable.
[IN GERMAN.]
To our employees, I'd like to say, I know with how much dedication, honesty and integrity you pursue your work day after day.
I am well aware that much of it has been thrown into question.
But it would be wrong to cast general suspicion on the hard and honest work of 600,000 people because of the terrible mistake made by the few.
this happened under your watch.
You own it.
Don't tell me that some engineers at some place did something wrong.
Don't tell me that.
[IN GERMAN.]
You have my word, we will do all of this with the greatest possible openness and transparency.
[GIBNEY.]
Winterkorn denied any knowledge of the defeat device or the cheating scandal, but he was forced to resign the day after giving the statement.
The US Congress began to investigate, with one question in mind: how high did the deception go? [JOE BARTON.]
Raise your right hand and I'll swear you in.
[GIBNEY.]
Michael Horn was the CEO of Volkswagen Group of America.
[BARTON.]
Do you swear the testimony you're about to give [GIBNEY.]
One of the company's best salesmen, he'd worked at VW for 25 years.
I'm told that this was a decision made in Germany at the corporate level.
Is that correct? Two answers to this.
Um, first of all, the investigations are ongoing, but this was not a corporate decision.
From my point of view, to my best knowledge today, the corporation in no board meeting or no supervisory board meeting has authorized this.
[GIBNEY.]
But Michael Horn knew about the defeat device.
A year and a half before his testimony to Congress, Horn had received an e-mail from Oliver Schmidt.
Schmidt told Horn about the defeat device and the likely consequences.
"Intentional conduct equals penalties.
" [JOHNSON.]
In a conversation I had with Michael Horn, he had mentioned that he had received a report from Oliver in May of 2014.
[MELKERSEN.]
Did he tell you what it was about? Not in detail.
No.
- Or did he tell you in summary? - He just said that it, uh raised the possibility of cheating at that point in time.
At that point of time, I had no understanding what a defeat device was and I had no indication whatsoever that a defeat device could have been in our cars.
This was a couple of software engineers who put this in for whatever reasons, and I would also like to find out That story of a small group of engineers at Volkswagen doing something on their own is unbelievable, okay? It's unbelievable, okay? At Volkswagen, if you want a pen, you need three signatures.
[GIBNEY.]
New York state took up the fight and launched a civil suit, proclaiming fraud by VW.
Today's suit and the nine-month investigation that led to it are designed to hold Volkswagen accountable for their actions and to make sure that no car company again ever considers this type of widespread deception.
The individuals who purchase cars are victims.
Those who suffer from this extra pollution are victims.
So is every other company that followed the rules and was trying to produce a car complying with the law to meet these emission standards.
To have these folks cheating and programming their cars to commit fraud, in a way, their competitors are also victims.
We're trying to establish a level playing field, that everyone has to follow the rules, no one is above the law and no level of corporate cover-up can excuse this.
[GIBNEY.]
Did you come up with evidence that indicated that Winterkorn knew what was going on? Yeah.
Going back to, I think, 2006, it's clear that things at least came to his attention.
We've reviewed millions of pages of documents, thousands of internal e-mails.
It is clear that there had been a very frantic effort to cover this up.
They had phony recalls, they looked at other penalties against carmakers and said, "We can survive this sort of a penalty.
" There were signals sent, "We may be putting a document holdout," which sends a signal, maybe you wanna destroy some documents.
Hundreds of very high-level executives and engineers knew about this.
We didn't find one e-mail from anyone saying, "We shouldn't do this," or, "This is against the law," or trying to put the brakes on this system.
So this was a corporate culture permeated by fraud.
Now, all of these cars are out of the legal compliance, clearly.
[JOHNSON.]
I had a phone conversation with Michael Horn after I'd heard from Oliver Schmidt, that he's authorized to make an admission.
Things were looking bad, you know, dire outcome.
So, um Michael Horn called me.
I told Mr.
Horn, "It looks like we've been cheating and we've been caught.
" [MELKERSEN.]
And did Mr.
Horn then immediately issue a stop-sale order, to stop selling these cars that Volkswagen had been cheating to sell? Not that I'm aware of, no.
Would it be fair to say that Michael Horn's primary focus is increasing sales? [LAWYER.]
Objection.
Calls for speculation.
[MELKERSEN.]
In respect to his position at Volkswagen Group of America? [LAWYER.]
Calls for speculation.
I would say yes.
You know what's really great about the all-new 2012 Volkswagen Passat TDI Clean Diesel? Not only does it provide excellent fuel economy, but you'll love the performance, too.
Delivers turbo-charged performance and great mileage.
[MAN.]
Passat TDI Clean Diesel with up to 814 highway miles per tank.
Just one reason Volkswagen is the number-one selling diesel car brand in America.
If you want a look into the psyche, into the thinking of a company, you should look at the advertising campaign.
The old wives' tale is funny.
How do you like my new car? Isn't diesel dirty? Oh, say it's beautiful, for Christ's sake.
I think it's beautiful, but aren't diesels dirty? Yeah, that's true.
Oh, that used to be dirty.
This is 2015.
No, no, no.
Listen to me, Terry.
- Diesel in Latin means dirty.
- I'll prove it to ya.
[WOMAN.]
You're gonna ruin your scarf.
Oh, look what she's doing.
See how clean it is? [WOMAN.]
It's not dirty, but you still have a dirty mind.
The audience is like, "It's very funny.
That's the way it is.
" But it was a lie.
Every time one of those ads ran, the executives of these companies knew that they were telling a lie, and they'd sold, uh, ultimately about 11 million of these cars around the world.
That's a lot of cars, a lot of excess pollution.
They seemed to have a culture in the company, a feeling as though they were above the law.
[GIBNEY.]
Between state and federal sanctions, VW was forced to pay over $25 billion in fines, and to buy back over 550,000 vehicles from angry owners.
Through lawsuits and investigations by government regulators, more details would be revealed about VW's vast cheating campaign in the US.
And across the ocean, a journalist named Hans Koberstein uncovered a much more pervasive problem in Europe.
Our main question was is Volkswagen the only one? What about all the other diesel car manufacturers in Germany? World leaders in diesel technology.
Do they use illegal defeat devices, too? My colleagues and I decided to do a test to measure the emissions on the road of German cars.
BMW, Mercedes and a Volkswagen with a defeat device.
[MAN IN GERMAN.]
Do they poison the air more than allowed? When we tried to get the portable emission measurement system to do the testings, in this time there were just four companies that offer this service in Germany.
We called all of them and they all of them told us, "Mmm.
[CLICKS TONGUE.]
Mmm, we don't want to do it with you.
" Or they had no time, or they said, "Oh, you can't do this testing.
" "Why not?" "You can't do this testing.
" [CHUCKLES.]
They just didn't want to do it with us.
Those service agencies that offer the mobile measurements depend on the car industry, so they didn't want to harm their clients.
And so, we had to go to Switzerland to do this testing.
[MAN IN GERMAN.]
We did the same test on the street that we did in the lab.
[KOBERSTEIN.]
We compared how is the car acting in the lab and how is the same car acting on the road.
And it was amazing to see that it is dirty.
Not just a little bit.
It is extremely dirty.
The Volkswagen with an illegal defeat device and the BMW and the Mercedes emitted up to 400-500% higher than during the laboratory test.
That shows clearly that those cars have a defeat device.
[GIBNEY.]
When Hans asked the car companies for comment, they responded by threatening to sue for hundreds of millions of dollars to prevent the broadcast.
But Hans pushed forward and exposed not only the cheating but the way the German government enabled it.
Every manufacturer in Europe is using calibration strategies that, in the US, would be considered defeat devices.
Every one of them.
And what's really interesting here is that if you read the language for what a defeat device is, in Europe and the US, they're almost identical.
Almost word for word.
So, what's going on here? What it really comes down to is that there are three exceptions for cases in which calibration changes are allowed.
And one of them is for safety and protection of the engine.
In Europe, the manufacturers just claim, "Oh, I need this for protection of the engine.
" Or, "I need this for protection of the after-treatment system.
" And those claims go unchallenged.
[KOBERSTEIN.]
The understanding of the German government is defeat devices are generally allowed because there's an exemption to protect the engines.
Any engine must be protected, so all the defeat devices we know in diesel cars are allowed.
That's the interpretation of the German government and it is absurd.
[GIBNEY.]
It seems crazy that the German government cares more about protecting engines than human beings.
- Is it this way throughout Europe? - Well, the primary issue in Europe isn't so much their requirements which, for the most part, are world-class.
But Europe does tend to have a problem with enforcement.
The standards are set at the European level for all the countries.
But enforcement is done at the individual country level.
Further, every country agrees to accept enforcement in every other country.
So this leads to a situation which the manufacturers go shopping.
Which country is going to do the least enforcement? [GIBNEY.]
In Europe, it's a game of musical chairs.
If enforcement is too strict in France or Finland, try Luxembourg or Malta.
They may need the money or factories that might be built, so they're willing to look the other way when companies cheat.
Companies often claim they can't improve safety or pollution controls or they'd go out of business.
For VW, the situation is even more prone to corruption.
The German province of Lower Saxony actually owns 20% of VW's voting stock.
Given that fact, is it likely that Lower Saxony will conduct a thorough investigation of its biggest profit center? [SCHMITT.]
The government covered the car companies.
Why? Because of its jobs.
They're very worried if people are out of a job because then they're lining up outside of the agencies and collect money and they vote them out of power.
Any national government in Europe has the problem if it has a national car industry.
"Oh, how are we going to deal with this problem?" They all think, "Mmm, better not to harm our national car industry," because they can only enforce the law for their own car industry, not for the German or French one, just for the British one.
And so, any national government is thinking, "Should I harm my national car industry if others won't? No, I will not do this.
I am not stupid.
" And they are still selling dirty cars.
[GIBNEY.]
To this day, despite the VW scandal, car manufacturers are selling dirty cars throughout Europe and the world.
It always sounds good to say, "We need the jobs.
" But what if you were offered a job at an assembly line to make products that killed people? Would you take that job? [TRAIN HORN BLOWING.]
[GERMAN.]
What's going on in Europe? They have these plans for how they're going to reduce air pollution, and they've had these for 10, 20 years.
They made projections about what's gonna happen in the future.
They have not been meeting their projections for ambient air quality.
The pollutants in the air are higher than they've always projected, and now we finally know why.
The one thing that the governments in Europe did after the VW scandals, they did a lot of testing.
So we have in-use tests on over 150 vehicles in Europe now, and it's clear.
The diesels in Europe are six or seven times dirtier than the standards allow.
So the ambient air quality in every city in Europe is worse than it should've been, and this is having health impacts and premature deaths.
In Germany, it's more than 10,000 premature deaths per year only due to nitrogen dioxide.
That's much more than we have in losses and deaths due to traffic accidents.
I am living in Berlin for almost 20 years now, and I am living in a zone where it's green.
Lot of trees, parks.
There's a lake, there's little traffic.
We did measurements on the road where I live and those measurements showed that the levels of nitrogen dioxide are much higher than the average annual limit that is legally allowed.
I wouldn't have ever expected that.
That's really a huge problem.
We think we have an air pollution problem wherever we see many cars and wherever many cars are driving at the moment.
But the problem of nitrogen dioxide is that's even there where you do not expect it to be in the cities.
We did measurements in a kindergarten that's very close to where I'm living.
The levels within the kindergarten were above the legal limits.
[GIBNEY.]
The German car companies didn't want their customers to know how harmful were their diesel cars.
VW, in particular, wanted to fight back.
To show the benefits of clean diesel cars, VW embarked on a plan to do their own tests on human beings.
Step 1: Establish a phony research company called EUGT, funded by VW, Mercedes and BMW, to study the effects of diesel exhaust.
This secret plan to fool the public was uncovered by a lawyer representing angry American consumers.
[MELKERSEN.]
So, EUGT, the fake nonprofit, pays approximately $730,000 to a company called Lovelace Respiratory Research Institute, LRRI, to conduct a study.
The purpose of the study, purportedly, was to attempt to show that the new diesel technology represented by these Volkswagen TDI Clean Diesel vehicles was much more environmentally friendly than the old diesel technology.
It would not result in the type of health problems that diesel exhausts from old diesel technology would create.
And the person that was in charge of that study was a guy by the name of Dr.
Jake McDonald, whose deposition I just recently took.
Did you ever have any information that any of the monies that you all received to do the study came from Volkswagen? I presumed that because Volkswagen was a contributing member of EUG that they contributed money to the study.
But I didn't know I had no details in terms of who contributed what amount.
All I knew was the contract was with EUGT.
So, the setup happens in Lovelace's laboratory in Albuquerque, New Mexico.
They procure a dyno to run these cars on.
That dyno was selected by none other than Stuart Johnson, and personally delivered there to the LRRI facilities.
You had involvement in assisting with this study.
True? Limited involvement.
[GIBNEY.]
Stuart Johnson wasn't the only VW executive involved.
James Liang, a German engineer who helped with the development of the defeat device, also helped shape the study.
[MELKERSEN.]
James Liang personally delivered a TDI 2013 red Beetle for purposes of doing this testing.
Volkswagen USA insisted that James Liang be given real-time access to LRRI's data.
Is it unusual for a manufacturer to require real-time monitoring of what is happening in your study? [LAWYER.]
Objection.
Vague.
Calls for speculation.
Um It's the first time that I've experienced that.
In your entire career, this has never happened previously? Correct.
That was necessary to ensure that these so-called clean diesel vehicles would run in test mode and produce the fraudulent emissions for purposes of this fake scientific research.
What they're doing at the same time is they're attempting to compare their so-called new technology with old technology.
So they are running a 2004 Ford F-250 on the dyno also.
In the original draft, the original proposal, the study, they were actually going to have a human sitting on an exercise bike.
There's actually a diagram of this in the proposal where a human participant would sit riding an exercise bike.
They would then be exposed to gas directly from the diesel vehicles.
And then, they would poke and prod that person later to determine, uh, what type of health effects they would see from this person being gassed.
Were you involved in discussions about doing this study on humans? - Yes.
- In retrospect, does that seem ridiculous? [LAWYER.]
Objection.
Calls for speculation.
In retrospect, the optics aren't very good.
Obviously, one cannot help to think back throughout history of another series of events involving individuals being gassed by a person who was actually at the opening of the very first Volkswagen factory and gave a speech there in connection with that opening.
Did you recommend against doing this study on humans? [CLICKS TONGUE.]
Um I don't recall.
I know that, um, David Geanacopoulos was involved in the discussion, and he didn't like the idea.
[GIBNEY.]
But VW did not abandon the idea of the experiment.
Someone suggested that the test be performed on NHPs.
Non-human primates.
[ANIMAL SCREECHING.]
[CHITTERING.]
[MELKERSEN.]
They set up tubing from the back of the tailpipe up through the ceiling.
The gas would then come down into the chamber.
These monkeys have been trained to watch TV, and so what they would do is they would actually play for them cartoons and have them watch cartoons.
[MELKERSEN.]
After they would've been exposed to the TDI Clean Diesel gases, they're then subsequently exposing them to the Ford F-250 gases.
[ENGINE STARTS.]
The nitrogen oxide and other particles of exhaust that would be coming out of this F-250 are very, very dirty, and very noxious, very harmful.
[MUSIC PLAYING ON TV.]
[VOICE ON TV.]
Wake up! Where's everybody going? [MELKERSEN.]
The monkey would be exposed to that gas for a three- or four-hour period of time, after which time they would take the monkey back to a separate facility and test it, taking blood samples.
They would stick a tube down the monkey's throat, in order to scrub samples from inside of the monkey's lungs.
[WHIMPERING.]
[MANIACAL LAUGHTER ON TV.]
[MELKERSEN.]
Do you know what happened to the monkeys after the testing was completed? We didn't ship them to Volkswagen, if that's what you're asking.
[CHUCKLES.]
[STAMMERING.]
They We I don't recall.
My We It was a non-terminal study, so the animals were not euthanized to be able to look at any sort of more invasive responses.
So [MELKERSEN.]
When Dr.
McDonald realized that these emissions that he tested were, in fact, fraudulent, and that he had been duped and set up to be used by Volkswagen as a pawn, he said that this report cannot be published.
You know, there is a concern, obviously, amongst Volkswagen that, if a jury were to ever hear about any of this stuff, that could really impact the verdict in this case, and, in fact, Volkswagen has filed a motion with the court, specifically asking the court to exclude any mention of any of this.
[MONKEY SCREECHING.]
[LORETTA LYNCH.]
Today, the Department of Justice, the Environmental Protection Agency and the US Customs and Border Protection have reached a global resolution with Volkswagen that carries both criminal and civil penalties.
As part of this resolution, Volkswagen is pleading guilty to three felonies.
Conspiracy to defraud the United States, to commit wire fraud, and to violate the Clean Air Act, obstruction of justice, and importation of goods by false statements.
[GIBNEY.]
In January 2017, James Liang pled guilty to fraud and was sentenced to 40 months in prison.
Oliver Schmidt was arrested in Miami after a Caribbean vacation, just as he was about to board a flight to Germany.
In August of 2017, he pled guilty to conspiracy to defraud the government.
He was one of six VW executives indicted by the US.
[MELKERSEN.]
Did anybody ever instruct you during this timeframe to basically keep your mouth shut? [CLICKS TONGUE.]
I don't recall that.
He said that's not a "no.
" I don't remember.
[MELKERSEN.]
You're aware that Oliver Schmidt recently pled guilty to a felony in federal court in Michigan, are you not? I'm aware of that.
[GIBNEY.]
As of September 2017, Stuart Johnson has not been charged with a crime.
There are indications that he may be a cooperating witness for the ongoing federal investigation.
Michael Horn resigned from VW in 2016 and returned to Germany.
Martin Winterkorn remains untouched by the criminal investigation.
Outside of Germany, other carmakers, including GM and Fiat Chrysler, have been accused of using defeat devices.
But even after all the fines, the criminal charges and the scandals, VW realized its dream of becoming the world's largest carmaker.
[CROWD APPLAUDING.]
At the same time, with the election of President Trump, the federal government declared that corporate profits would now be more important than protecting the environment.
In order to fulfill my solemn duty to protect America and its citizens, the United States will withdraw from the Paris Climate Accord.
[APPLAUSE CONTINUES.]
[CHEERING AND APPLAUSE.]
Thank you.
[GIBNEY.]
This announcement made the US, Syria and Nicaragua the only three nations on Earth to abandon the effort to prevent global warming.
The Trump administration has also threatened to undermine CARB in California, because of CARB's strict air-pollution controls.
[AYALA.]
When you look at a state like California, we have goals for 2030 and 2050.
You know, long-term goals.
We need to start thinking now and laying out ideas for how we're gonna get there.
[SCHNEIDERMAN.]
It's hard for people to remember now, New York, when the smog problem, caused by NOx It's exactly the stuff that was being emitted from these cars.
It was really bad back in the '60s and '70s.
It was a city where people would get sick, people would die from the smog.
So, this is something we spent decades in the United States trying to clean up.
We've had great success.
The American people don't want to undo the regulations.
State environmental laws are a very important backstop.
The federalist system was designed so that states can fill in if the federal government does not.
That's why we're pushing so hard on some of these policies, because this is really about impacting on people's lives.
[GIBNEY.]
When my wife turned in our car, it was sent to an asphalt graveyard for VW's dirty diesels in the shadow of the old Detroit Lions stadium.
From here, according to the company, they will either be fixed, recycled or destroyed.
Every car in the lot represents the sum of an economic calculation made by the company between risk and reward.
In that way, VW is not so different from other companies.
They see themselves as financial abstractions, pressured by competition to build models on profit, loss and market share.
But when many of us think of the lungs of our children, scarred by NOx fumes that could have been contained, we wonder if the equation is missing an important variable.
How to balance the cost of a car with the value of a human life? [MUSIC PLAYING.]
[INDISTINCT CHATTER ON RADIO.]
[ALEX GIBNEY.]
I thought I had found the perfect car.
The VW Diesel Jetta Wagon.
The ad sucked me in.
[ANNOUNCER 1.]
Volkswagen has more diesel cars on the road in the US than every other brand combined.
[ANNOUNCER 2.]
Boasting a two-liter TDI turbo-charged clean diesel engine, not only does it provide excellent fuel economy, but you'll love the performance, too.
[GIBNEY.]
It was the only car that seemed to have it all.
Drove like a sports car Can the Green Car of the Year be fast? [GIBNEY.]
Wasn't too expensive, got great mileage, and unlike diesels of the past, it was clean.
[MAN 1.]
Volkswagen Jetta TDI Clean Diesel.
[MAN 2.]
TDI Clean Diesel.
[WOMAN 1.]
TDI Clean Diesel.
[GIBNEY.]
I was beaming with pride as I drove around the suburbs or commuted to New York City.
What I didn't know was that I was driving a killing machine.
[MAN 3.]
What has VW been up to? [MAN 4.]
We may be looking at the largest systematic corporate fraud in the history of the global corporation.
[MAN 5.]
Volkswagen has admitted that their clean diesel cars have been systematically, proactively engineered to deceive emissions testing.
[MAN 6.]
It's called a defeat device.
It's designed to defeat the test.
[WOMAN 2.]
The Volkswagen scandal is widening.
[MAN 7.]
The news just keeps getting worse.
[MAN 8.]
VW share price down 31%.
[MAN 3.]
If you're a VW shareholder or employee today, the letters stand for Very Worried.
[SALLY YATES.]
Volkswagen turned over half a million American drivers into unwitting accomplices in an unprecedented assault on our country's environment.
Our criminal investigation is active and ongoing.
[BRAKES SCREECHING.]
[THEME MUSIC PLAYING.]
[YATES.]
We can't undo the damage that Volkswagen caused to our air quality.
But what we can do is offset that damage by reducing pollution from future sources.
Now, with respect to the agreement, more specifically, Volkswagen must offer to buy back any car that's on the road.
That's nearly 500,000 two-liter diesel vehicles that are model years 2009 through 2015.
As part of the buyback, Volkswagen [GIBNEY.]
When I first heard about the scandal, I was furious.
VW had lied to me.
They had pitched me a vision of my dream car, but sold me my worst nightmare.
A car that was polluting 50 times more than advertised.
[ZOE CHACE.]
It's not enough for VW to just apologize.
They gotta use their folly to actively make the world better.
Even before that, Kirk suggests [GIBNEY.]
Weirdly, I was listening to NPR when my own name came up in an interview with a PR expert, on how VW could make things right.
[KIRK SOUDER.]
an investigative documentarian group, like a Frontline or an Alex Gibney, who can come in with the charge of discovering what happens in a company that actually leads to this type of gross infraction.
[CHACE.]
Kirk went ahead and made a promo for this imaginary documentary.
[ANNOUNCER.]
A new series from Alex Gibney, the director of The Smartest Guys in the Room, Coming Clean: Inside Volkswagen.
Fuck Volkswagen.
[ANNOUNCER.]
With unprecedented and unlimited access from Volkswagen [GIBNEY.]
There was no way VW was gonna give me access to look at the scandal, but the promo did get me worked up.
Angry as I was, it didn't begin to describe the fury my wife felt.
She stopped driving the car entirely.
Though she had pasted "namaste" on our bumper sticker, a yoga term for "bowing to the divine in others," she had visions of marching in to the local VW dealership with a chainsaw.
- [MAN.]
And the number.
- [ANNE GIBNEY.]
Yes.
[MAN.]
These two documents - [ANNE.]
Okay, so I sign right - [MAN.]
Seller signature.
Yep.
There we go.
We're going to give you back the car.
I feel so badly because I love the car [MAN.]
Yeah.
[ANNE.]
Um, but when you feel you've been lied to, it's really hard to feel okay about the company, in general.
Sort of like, shame on you, Volkswagen.
- Yeah.
- Right? [GIBNEY.]
Exactly.
[GIBNEY.]
Okay, my wife is way too nice to think about killing the local dealers.
But she wanted the car out of our lives.
The question she was asking, and I was, too, was, "How could this have happened? How could a company have lied to its customers on such a massive scale?" I decided to look into the scandal.
What I would discover was much darker and more vast than anything I had imagined.
[IN GERMAN.]
I am pleased that at the skilled hands of a brilliant design engineer and his staff, preliminary designs for a German Volkswagen have been completed, and the first models will finally be tested by the middle of the year.
Then you will understand why I was utterly determined to lay the groundwork for the invention of the German Volkswagen and its ultimate conclusion, and by that, dear gentlemen, I mean a successful conclusion! a cheap shot to bring up Hitler, but when it came to VW, he's the man that jump-started the company back in the 1930s.
[JACK EWING.]
In the 1930s, cars were still a rarity in Germany, or relatively rare.
It wasn't something that most people had.
And in the United States, a lot of people think Henry Ford invented the car but he didn't, actually.
What he did invent was how to build cars cheaply that everybody could afford.
So in the United States, there was far more middle-class people who had automobiles than in Germany.
And that really bothered the Germans and the Nazis, in particular, because they were supposed to be superior.
So Hitler hooked up with Ferdinand Porsche.
Porsche already had some designs in his drawer.
This idea of a volkswagen, a people's car, had been kicking around for quite a while.
And then he started developing the car with Nazi money.
Porsche, himself, went to Ford and looked around on several occasions.
He hired Germans who were working at Ford, émigrés.
He brought them back to Germany to help build the Volkswagen factory.
And it was very consciously modeled on Ford, but it was supposed to be even bigger.
They wanted it to be the biggest factory in the world, which it eventually became.
[REPORTER.]
There was a celebration in Germany, to mark the one millionth people's car since the war.
Over 150,000 people were present to take part in the jollification.
This included a [EWING.]
The city of Wolfsburg, it just doesn't get any more "company town" than that.
There was nothing there until they built the Volkswagen factory.
Everything that you see in Wolfsburg today has really grown up around that original factory.
[WALTER GROTH.]
Okay, so, here, that's the main street in Wolfsburg.
[GIBNEY.]
So there was nothing here? [GROTH.]
Wolfsburg, as a city, didn't exist.
[GIBNEY.]
It's a massive factory.
[GROTH.]
It's a massive factory.
Nowadays, they are still employing 60,000 people.
- [GIBNEY.]
Really? - [GROTH.]
And the chimneys you see over there, - that's actually the paint shop.
- [GIBNEY.]
Uh-huh.
So, this is all employee housing in here? Yeah.
Basically everyone works, uh, either directly or at least indirectly for Volkswagen here.
How does it rank in terms of the largest factories in the world? - It's the largest one.
- It is.
There's no other factory, uh Right now, they are producing by day, - round about between 3,000 to 3,500 cars.
- Wow.
[GIBNEY.]
VW declined to give us a tour of Wolfsburg.
So, I sought out the help of Walter Groth, a consultant on corporate culture, who'd worked for 20 years as an executive for Volkswagen.
You'd been at Volkswagen for a long time.
Twenty-four years.
[GIBNEY.]
When the news broke about the cheating scandal, what was your reaction? My reaction, uh I was angry, actually.
I was angry.
[STAMMERING.]
I took that very personal because, uh, I was thinking about all the people working for the brand and really doing the hard work.
And when you imagine that this is a company with more than 600,000 people working for Volkswagen worldwide, and more than a hundred factories, and you have to run this operation And all these people, when you look at the production lines, at manufacturing, what they do When you look at the people developing a car, starting with the designers, for example, they all want to come up with the best product possible.
[GIBNEY.]
For VW, the road to global dominance had always led through America.
In the '60s, sales hit new highs, when VW flew the freak flag for the counterculture.
The Bug was a real people's car, mechanically simple and down-to-earth.
You could be high on mescaline and still shift gears or repair the engine.
And the Bus was a crash pad on wheels.
[EWING.]
It was an amazing case of rebranding because this car was basically designed for Hitler.
[CHUCKLES.]
Then after the war, it becomes the symbol of the counterculture.
[ALL LAUGHING.]
[GIBNEY.]
But VW didn't keep up with the times.
As the counterculture gave way to the Reagan era, VW didn't innovate and its sales dropped as fast as the quality of its cars.
[GROTH.]
During all these years, sales went down, losses were mounting.
Volkswagen was close to being insolvent.
I was asked to join the newly-formed, uh, North American region because we needed to do a turnaround of the Volkswagen of America.
In 1993, Volkswagen sold roughly 38,000 cars a year in the United States.
That's a market with 16-17 million cars.
So 38,000 is, uh, ridiculous.
[CHUCKLES.]
When Volkswagen in the United States, with the Beetle, sold almost half a million cars.
[GIBNEY.]
The savior for VW was Ferdinand Piëch.
The grandson of Ferdinand Porsche, Piëch was professionally and personally productive.
He sired 12 children with four different women.
He also infused VW with a new DNA.
[IN GERMAN.]
Whenever there is war, fewer remain in the end.
There are always winners and losers.
And I intend along with our VW partners around the world to emerge victorious.
Yeah, a little faster is more fun.
he was the head of Audi before.
He's a brilliant man.
[STAMMERS.]
It's brilliant, but it's dangerous, okay? Kind of.
I mean, Piëch was a tough guy and he knew what he was doing.
[IN GERMAN.]
I don't feel I can't communicate with others.
But there are individuals with whom I don't want to communicate.
And they complain about my lack of communication.
However, that's not unintentional.
started, Volkswagen was down and out.
They were just about bankrupt and their quality sucked.
It was a disaster.
Their value at the time was a disaster.
The average, uh, workshop visit of an average car was three to four times in the first year.
He had to turn the company around.
And it's tough.
[GROTH.]
Dr.
Piëch came just in time to make that happen.
Before him, Volkswagen was rather thinking small, and with Piëch, the big thinking really started.
Piëch, uh, he's the typical inventor.
He has the big product ideas.
He comes up with stuff that's just, uh Wow.
Where did he get that from? [SCHMITT.]
He has this idea of diesel.
[STAMMERS.]
At the time, diesels were something for tractors.
Maybe for, uh, big Mercedes.
And he said, "It's going to be diesel.
" He made the diesel smaller, invented TDI.
People, they loved it.
[GIBNEY.]
The new TDI.
It arrived with a hip new ad campaign.
A diesel that was fun to drive, powerful and clean.
[GROTH.]
Volkswagen had huge success with TDI engines.
In Europe, people started to love the diesel.
But there was always the problem that what comes out from the exhaust, um Not really healthy.
[GIBNEY.]
The basics of diesel and gas engines are the same.
A series of explosions move the pistons, which turn the drive shaft.
Diesel fuel is much more efficient than gas and produces much less carbon dioxide.
But diesel fuel exhaust disgorges much nastier stuff.
Particulate matter and nitrogen oxide, called NOx, that causes air pollution and damages human lungs.
This is personal for me.
When my family was living in the NOx-filled smog of Southern California, my daughter developed exercise-induced asthma.
When she was playing soccer in high school, she collapsed in front of me from lack of oxygen.
[GIBNEY.]
NOx is not good.
[STUTTERS.]
No.
NOx, nitrogen oxide, is very, uh, nasty stuff.
Elements of nitrogen oxides mix with ozone, and then chemically changes into what we call smog.
It's a factor in acid rain.
It's damaging for plant life.
It causes asthma in children, causes cardiac problems, cancer.
People will die prematurely.
[MOTOR WHIRRING.]
[GIBNEY.]
To keep the efficiency of diesel, but to cut down on NOx, manufacturers like VW tried to create NOx traps that caught and burned the stuff before it left the tailpipe.
But the special parts needed were expensive, and had to be replaced every few thousand miles.
Yet, they were the only way to meet the NOx pollution standards set in the US, which were much more strict than in Europe.
[GEORGE W.
BUSH.]
Today, I'm directing the EPA and the Department of Transportation, Energy and Agriculture to take the first steps towards regulations that would cut gasoline consumption and greenhouse gas emissions for motor vehicles.
We have set in motion a national policy aimed at both increasing gas mileage and decreasing greenhouse gas pollution for all new trucks and cars sold in the United States of America.
[GIBNEY.]
Solving that problem in the US was critical for the strategy of the man who would eventually be tapped to follow Piëch as the head of VW, Martin Winterkorn.
[MARTIN WINTERKORN IN GERMAN.]
Dr.
Piëch and I have been working together for almost 30 years.
And as you know, Dr.
Piëch has always regarded innovation as the top priority.
So, we agreed that he would focus on innovation and I would safeguard it.
and they did this strategy called Strategy 2018.
[IN GERMAN.]
We wanted to have the most satisfied customers.
We wanted to have the most satisfied employees.
We wanted to achieve good results in order to invest in the future.
And we wanted to make the best cars.
The upshot of which will be that by 2018 we are going to be the preeminent car manufacturer in the world.
[SCHMITT.]
Volkswagen never was great in America.
The Volkswagen Bug was kind of a fluke.
But America's a very important market.
At the time, it was the world's largest.
So, those Americans, they have to buy our diesel cars.
That's what he wanted for the United States, diesel, which is incredibly hard to do in the United States.
Everyone knew this.
[STUTTERS.]
And that's how it all started.
The pressure on everybody to increase sales became unbearable.
[GROTH.]
Under pressure and when people feel fear, they might do things you don't want them actually to do.
[GIBNEY.]
Determined to conquer the American market, VW built a new green factory in Chattanooga, Tennessee.
To comply with American pollution standards, VW retooled its product line and introduced a new clean diesel, TDI.
Its pitch to Americans was captivating.
Cars that were low-cost, low-pollution, got good mileage and were fun to drive.
Perfect.
With its new green profile, VW's CEO boasted about its new-found commitment to social responsibility.
And Chattanooga stands for the Volkswagen way of life.
Sustainable, reliable and successful.
Now, more than ever, Volkswagen has everything it takes to win the hearts and minds of American customers.
[GIBNEY.]
I was one those people who stood up and cheered.
I was proud to own a VW.
Auto experts were cheering too.
Somehow, VW seemed to have solved a problem no one else could: how to clean up dirty diesel engines in small, low-priced cars.
I was completely surprised when I suddenly saw the clean diesel thing in the United States.
[STUTTERS.]
And first thought was, "Great.
That's great.
They solved the problem.
Wow.
I'm really deeply impressed.
" Then I looked at the price of the cars and, hmm, well, it's actually right in the market.
But I was asking myself, "How did they do it?" And I'm not an engine developer, I'm not an engineer, so There might be a way nobody else has ever seen.
Uh, great, they did it.
[GIBNEY.]
VW's solution to the diesel problem caught the attention of a group focused on clean transportation.
They studied VW diesels not to see if they were bad, but why they were so good.
And whether the US cars could serve as a model for other companies.
The man in charge of the group was an American named John German.
[JOHN GERMAN.]
I describe myself as a pragmatic environmentalist.
I spent about a decade each with Chrysler, then EPA, then Honda before I wound up at this non-profit, International Council on Clean Transportation.
The goal's always the environment.
We focus on working with regulators worldwide, not with legislatures.
So we're trying to help the regulators do their job better.
The whole VW scandal started in Europe.
In 2011-2012, there's a report from an organization called JRC.
It actually showed some anecdotal evidence of high diesel emissions in Europe.
But the report was basically ignored.
We had this brainstorm that there was a missing piece of data, which is what's happening in the US.
And so, in 2013, we decided to test some diesels in the US.
Primarily because we expected them to be clean.
And then we would take that data back to Europe and say, "Look, they're clean in the US.
How come you can't do it in Europe?" [ENGINE STARTS.]
[GIBNEY.]
German needed to find someone to test what was coming out of the tailpipes of the cars, first in the lab and then on the road.
The contract went to a group at the University of West Virginia.
Car geeks who wanted to see if clean diesel was for real in any kind of car.
[ARVIND THIRUVENGADAM.]
This is a portable emissions measurement system that we use to measure emissions from vehicles on a real-time basis.
It's a miniaturized version of a laboratory-grade measurement system where it's kind of in a shoebox-size, uh, equipment, where you can put it in the vehicle.
This is used for a very specific purpose, which is in-use measurement.
So we tap into the tailpipe and it measures two things.
It measures the exhaust flow rate, how much exhaust is coming out, and then what the constituents of the exhaust are.
So it's just a simple math, flow rate times the concentration, which is going to give you the, uh, the amount of, uh, pollutants that are coming out of the tailpipe.
So that's [GIBNEY.]
Arvind Thiruvengadam was part of the team that did the diesel pollution test for John German.
They focused on European diesels being sold in the US.
[THIRUVENGADAM.]
Whenever we do real-world testing, we do expect certain deviations from the certification number.
Conditions such as ambient temperature, road grade, traffic and such, which you always cannot expect the manufacturer to be at the lowest possible emissions.
But there is an acceptable level of deviation.
Usually, five to six times deviation is part of real-world activity.
But the kind of deviations we were observing from the VW passenger cars were significantly higher.
[GIBNEY.]
During the road test, the VW TDI was sending up to 40 times more NOx into the air than the VW lab test numbers.
West Virginia University, then they came to us.
Once they said, you know, "We have these high emissions and we can't explain it.
" And my first reaction was, "There must be something wrong with the vehicle.
" Literally, a malfunction.
It wasn't operating properly.
But we tested these vehicles at the California emission laboratory and they passed the standards, which meant there was nothing wrong with the vehicle.
And at that stage, I was pretty darn sure this was a defeat device.
There's a long history of defeat devices and I worked at EPA during some of these defeat device investigations.
The most recent major one was a 1998 case for heavy-duty engine manufacturers, in which almost every manufacturer of heavy-duty engines was calibrating them to increase emissions when they ran down the highway.
That scandal cost them about $1 billion in total fines and remedies.
And now with the VW case, I knew I was sitting on a time bomb.
But the words "defeat device" never would cross my lips, 'cause you just don't say that about a multi-billion dollar company when you're a little, uh, NGO with 30 employees.
It was just too dangerous.
[STAMMERING.]
We'd have been potentially sued out of existence if it had even been implied we were accusing VW of having a defeat device.
[GIBNEY.]
To avoid retaliation by VW, German first revealed his findings in 2014 in San Diego, in a small academic conference.
[PEOPLE APPLAUDING.]
[GIBNEY.]
In the audience were a handful of VW executives.
They must've realized for the first time that investigators were on their trail.
But German was careful not to call out VW when it came to publishing results.
[GERMAN.]
The compromise that we came up with is that we did post the report publicly on our website, but it refers to vehicles A, B and C.
We did not identify them.
Now, two days before we put the report online, I sent a courtesy e-mail to VW, saying, "This report's coming out.
Here it is.
By the way, vehicles A and B are yours.
" [WOMAN.]
Raise your hand, sir.
Do you swear or affirm that the testimony you're going to give in these proceedings depicts the whole truth under penalty of perjury? - I do.
- [WOMAN.]
Thank you.
[MICHAEL MELKERSEN.]
You are Stuart Johnson? I am.
[MELKERSEN.]
Are you currently employed - at Volkswagen Group of America, Inc.
? - Yes, I am.
- How long have you been employed there? - Uh All together, I've worked at Volkswagen 33 years.
In this e-mail, uh, it's true isn't it, that you're talking about the West Virginia University study.
True? Yes.
Second-to-last sentence: "Some presenters indicated they suspected cheating.
" You see that? Yes, I do.
- That's something you wrote, right? - That's correct.
So you were aware, at least as of April 8, 2014, that cheating was one of the possible explanations - for what was going on.
True? - Yes.
You state, quote, "We will have to be careful with this going forward.
" - That's correct.
- Why did you say that? Because I didn't like hearing that, out in a public forum, Volkswagen was being accused of cheating.
Well, what was it specifically that you all would need to be careful about? I didn't like the fact that there was a That that would, um, lead to some kind of suspicion against our company.
But how could you be careful in order to alleviate suspicions? You have no control over suspicions third parties have, right? Yes.
So what was it specifically that you needed to be careful about? My reason for writing that was that I wanted to try to manage the message and part of managing that message is engaging with the agencies.
[GIBNEY.]
The agencies Johnson tried to manage were the EPA and California regulators.
Following the San Diego presentation, California did its own tests.
They confirmed the West Virginia results.
Inside the lab, the pollution emitted by the cars was well within government limits.
But on the road, NOx levels were dangerously high.
That caught the attention of Alberto Ayala at the California Air Resources Board, known as CARB.
What was different about this is, how far off they were, the magnitude.
We're not talking about just a little bit above the standard.
Forty times the limit was the average.
If you look at some data points that we have, um, [CHUCKLES.]
in some cases, it was 80 times the limit.
And now you have two data points.
We have two studies on our hands, saying this just doesn't make sense.
At that point, that's when we went from research to, "Now we need to turn this into a regulatory action.
" What followed was 60 months of intense interaction with the company, back and forth, because it just escalated.
We would do some testing, generate questions, send them to the company.
They'd be expected to bring us answers.
They would bring answers, we would go back to the lab and try them and then generate more questions.
[GIBNEY.]
CARB was asking tough questions, and back in Wolfsburg, executives were terrified that honest answers would reveal a long trail of deceit.
CEO Martin Winterkorn received an urgent e-mail from VW's head of quality management, Frank Tuch.
"A thorough explanation of the dramatic increase in NOx emissions cannot be given to the authorities.
It can be assumed that the authorities will then investigate whether Volkswagen implemented a so-called defeat device.
" Rather than come clean, VW thought its only alternative was to stall for time.
[AUDIENCE APPLAUDING.]
[WINTERKORN IN GERMAN.]
Technological leadership is not just defined anymore by horsepower and torque.
The joy of economical and emissions-free driving, ladies and gentlemen, will be the currency in coming years.
The company was, uh, unfortunately, uh, dismissive.
It's like, oh, you know, "Maybe your instruments are not well calibrated," or, you know, "Oh, you have academics, graduate students running around, maybe they did it wrong and, uh, you guys gotta go check in because you gotta use experts to make sure that " And we would do all of that, right? 'Cause, again, all along, we're thinking, "This is not a defeat device.
This is just a technical problem.
" [MELKERSEN.]
It's true, isn't it, that these various reasons were given in attempt to mislead the agency into believing there were technical explanations for the high NOx level as opposed to an explanation that involved cheating? True? In retrospect, yes, that's true.
Mr.
Johnson, I've handed you what's been marked as Exhibit 25 [AYALA.]
The two company representatives that we interacted with the most were Stuart Johnson and Oliver Schmidt, who at the time was actually based here.
So he represented the company when it came to certification issues.
[OLIVER SCHMIDT.]
Let's first have a look at Volkswagen's history of diesel in the US.
With this technology, we won, in 2009, the Green Car of the Year.
Unfortunately, we got new emission regulations in the US.
So, we had to comply with, um, with Bin 5 or ULEV standard all over the US [MELKERSEN.]
In May of 2014, was Oliver Schmidt your boss? Yes, he was.
When the West Virginia University report came out, did Oliver Schmidt express to you that one of the possibilities for the explanation of this report - is that we were cheating? - No.
We were able to increase fuel economy by a lot, and we reduced the NOx raw emission of the engine by 40% in order to comply with future emission regulations [GIBNEY.]
Oliver Schmidt was not sharing what he knew with many of the US team, including Stuart Johnson.
But the cheating and how to handle it was an open secret among many executives in Germany.
Schmidt wrote an e-mail posing a fundamental question about strategy.
"It should first be decided whether we are honest.
If we are not honest, everything stays as it is.
" Translation: Keep cheating and conceal the defeat device in a storm of obfuscating e-mails, misleading technical reports and endless diversionary meetings.
[AYALA.]
For every meeting that Oliver and I had, our technical teams probably had another five, ten meetings.
There was so much going on and it just got really convoluted.
That was a challenge here.
It didn't feel like we were making progress.
We were negotiating, holding meetings with them, talking about [GIBNEY.]
As CARB turned up the heat on VW, Stuart Johnson was suddenly promoted and Oliver Schmidt was quickly transferred back to Germany.
[MELKERSEN.]
Do you believe that Oliver Schmidt was transferred back to Germany and you moved into that position to allow plausible deniability? [CLICKS TONGUE.]
No, I don't believe that.
Did you have a reputation at your company for honesty? Yes.
- Being forthright? - Yes.
Did Oliver Schmidt share that reputation that you had? No.
[GIBNEY.]
Back in Wolfsburg, Schmidt and the other German execs came up with a plan.
VW would announce a recall and pledge to fix the problem.
For the moment, CARB and the EPA seemed satisfied that VW was finally ready to do the right thing.
They told us, "Oh, while we do this recall, we will put a fix to this issue on the NOx.
" Right? Uh, in the hope that I would come back and tell my team, "We're done.
" [GIBNEY.]
They'd convince you with their data so you wouldn't bother to keep testing the car.
Correct, and of course that's not how we do business here, right? They did the recall and we got some test vehicles.
We went back into the lab, and it wasn't giving us in-use emissions that match the in-certification test.
[MELKERSEN.]
Would it be a fair statement that at the time that Volkswagen Group of America was telling CARB that it would update its software to more closely attempt compliance with regulatory limits, in fact, it was updating the software to further its cheat? [LAWYER.]
Objection to the form of the question.
[MELKERSEN.]
True? I would say, yes, that's true, knowing what I know today.
[GIBNEY.]
VW did not fix the problem.
Just the opposite.
The company fixed the defeat device to make it even better at cheating.
Through VW's own test, engineers discovered that sometimes the pollution controls would actually work as advertised on the road.
But that caused wear and tear on the exhaust system.
So to protect the cars, VW engineers changed the software, so pollution controls were shut off as soon as the driver moved the steering wheel.
[GERMAN.]
You strap a vehicle onto a dynamometer and the front wheels never turn.
So they looked for movement of the front steering wheel and deactivated emission controls if they found that movement.
How could they possibly believe that they could go out and just change from one egregious strategy to a different egregious strategy and get away with it? I still don't understand that.
That was without doubt the stupidest thing VW did.
The time that we wasted giving them the benefit of the doubt, that's really what what, um, what got me, that I was, um I was naïve thinking that the company was operating, uh, in good faith and trying to find a solution, because it was all wasted.
They could've come clean from day one and saved us a lot of trouble.
Very systematically, we were checking We thought it's this.
It's not, it's not.
You go down and eliminate all other options.
The only thing remaining is it's gotta be a defeat device.
I always thought that there was a good explanation for what was happening and that it wasn't cheating.
And the first time that I really had the feeling that something was wrong and cheating was very possibly happening was when we met with the Air Resources Board on July 8th, 2015.
In my opinion, I would characterize it as, uh, a pretty rough meeting.
Lots of strong talk from the agencies.
They said, "We think you're recognizing the FTP.
We don't know how you're doing it, but we're convinced you're doing it.
" [MELKERSEN.]
Who above you, as far as management's concerned, did you discuss it with? [CLICKS TONGUE.]
Well, I've discussed it a lot with the management in Germany.
Uh, Oliver Schmidt almost called me immediately after the meeting, within a day or so, saying, "What went on at the meeting? How did it go?" I said, "It didn't go very well.
" He said, "Yes, I heard that.
" I'm gonna stop you there.
Did you ask anybody whether or not you were cheating? - No, I didn't.
- Why not? To me, the people I was in contact with were the people that were deceiving me.
[GIBNEY.]
When it was clear VW's fog machine wasn't working, VW agreed to a series of meetings with CARB in August 2015.
[JOHNSON.]
Oliver Schmidt told me that he was authorized to come to the US, he was authorized to meet with Alberto Ayala, and he was authorized to make an admission.
The reason VW finally came clean is actually fairly simple.
EPA told them that if they didn't come clean, they would not certify any 2016 vehicles, including their gasoline vehicles.
That means VW can't sell cars.
No sales of new cars.
There were comments made at the meeting that this was a financial decision.
[MELKERSEN.]
There was an intentional premeditated cost-benefit analysis to cheat.
That's what was stated in the meeting.
So, it sounded like a pretty strong confession to me at the time.
Stuart did approach me and we went aside and had a conversation, and that's when he admitted to me that it was a defeat device.
That was the first time.
We told Mr.
Ayala the vehicle recognizes the dyno, it recognizes the test cycle and that this was a software gimmick.
That some software had been developed by somebody who thought they were smarter than you.
I was very upset.
I mean, I was probably very, um not very polite, and I think that Stuart probably took most of the brunt of it simply because he was the company at the time.
But I was very upset.
[MELKERSEN.]
Read for me, if you would, into the record, what the quotes were that you're quoting Dr.
Ayala saying to your conversation, if you would.
So, his quotes are, "You played us.
You tried to put a pillow over our head.
You wasted a lot of our time and money.
We will come after you hard on this.
This has taken too much time and raised expectations.
Now it's just going to confirm what NGOs have been saying all along.
We will write a nasty press release.
I don't believe your company anymore.
This is going to be a lot of money and you better not fight it.
And don't give me any shit on the midterm review when I ask for more stringency.
" [MELKERSEN.]
Thank you.
There was tremendous pressure that the company was putting on itself to really get to that point where they wanted to be number one, and they basically wanted to get there at whatever cost, and now, here we are.
[MAN.]
Ladies and gentlemen, please welcome president and CEO of Volkswagen Group of America, Michael Horn.
[AUDIENCE APPLAUDING.]
So, let's be clear about this.
Our company was dishonest with the EPA and the California Air Resources Board, and with all of you.
And in my German words, we've totally screwed up.
[IN GERMAN.]
The irregularities found in our diesel engines are the antithesis of everything Volkswagen stands for.
Even I, at this point, don't have answers to all the questions.
But we are working diligently to find out exactly what happened.
[GIBNEY.]
Is it conceivable that Winterkorn didn't know about the cheating devices? Is that conceivable? If you believe in the tooth fairy, then it's conceivable.
[IN GERMAN.]
To our employees, I'd like to say, I know with how much dedication, honesty and integrity you pursue your work day after day.
I am well aware that much of it has been thrown into question.
But it would be wrong to cast general suspicion on the hard and honest work of 600,000 people because of the terrible mistake made by the few.
this happened under your watch.
You own it.
Don't tell me that some engineers at some place did something wrong.
Don't tell me that.
[IN GERMAN.]
You have my word, we will do all of this with the greatest possible openness and transparency.
[GIBNEY.]
Winterkorn denied any knowledge of the defeat device or the cheating scandal, but he was forced to resign the day after giving the statement.
The US Congress began to investigate, with one question in mind: how high did the deception go? [JOE BARTON.]
Raise your right hand and I'll swear you in.
[GIBNEY.]
Michael Horn was the CEO of Volkswagen Group of America.
[BARTON.]
Do you swear the testimony you're about to give [GIBNEY.]
One of the company's best salesmen, he'd worked at VW for 25 years.
I'm told that this was a decision made in Germany at the corporate level.
Is that correct? Two answers to this.
Um, first of all, the investigations are ongoing, but this was not a corporate decision.
From my point of view, to my best knowledge today, the corporation in no board meeting or no supervisory board meeting has authorized this.
[GIBNEY.]
But Michael Horn knew about the defeat device.
A year and a half before his testimony to Congress, Horn had received an e-mail from Oliver Schmidt.
Schmidt told Horn about the defeat device and the likely consequences.
"Intentional conduct equals penalties.
" [JOHNSON.]
In a conversation I had with Michael Horn, he had mentioned that he had received a report from Oliver in May of 2014.
[MELKERSEN.]
Did he tell you what it was about? Not in detail.
No.
- Or did he tell you in summary? - He just said that it, uh raised the possibility of cheating at that point in time.
At that point of time, I had no understanding what a defeat device was and I had no indication whatsoever that a defeat device could have been in our cars.
This was a couple of software engineers who put this in for whatever reasons, and I would also like to find out That story of a small group of engineers at Volkswagen doing something on their own is unbelievable, okay? It's unbelievable, okay? At Volkswagen, if you want a pen, you need three signatures.
[GIBNEY.]
New York state took up the fight and launched a civil suit, proclaiming fraud by VW.
Today's suit and the nine-month investigation that led to it are designed to hold Volkswagen accountable for their actions and to make sure that no car company again ever considers this type of widespread deception.
The individuals who purchase cars are victims.
Those who suffer from this extra pollution are victims.
So is every other company that followed the rules and was trying to produce a car complying with the law to meet these emission standards.
To have these folks cheating and programming their cars to commit fraud, in a way, their competitors are also victims.
We're trying to establish a level playing field, that everyone has to follow the rules, no one is above the law and no level of corporate cover-up can excuse this.
[GIBNEY.]
Did you come up with evidence that indicated that Winterkorn knew what was going on? Yeah.
Going back to, I think, 2006, it's clear that things at least came to his attention.
We've reviewed millions of pages of documents, thousands of internal e-mails.
It is clear that there had been a very frantic effort to cover this up.
They had phony recalls, they looked at other penalties against carmakers and said, "We can survive this sort of a penalty.
" There were signals sent, "We may be putting a document holdout," which sends a signal, maybe you wanna destroy some documents.
Hundreds of very high-level executives and engineers knew about this.
We didn't find one e-mail from anyone saying, "We shouldn't do this," or, "This is against the law," or trying to put the brakes on this system.
So this was a corporate culture permeated by fraud.
Now, all of these cars are out of the legal compliance, clearly.
[JOHNSON.]
I had a phone conversation with Michael Horn after I'd heard from Oliver Schmidt, that he's authorized to make an admission.
Things were looking bad, you know, dire outcome.
So, um Michael Horn called me.
I told Mr.
Horn, "It looks like we've been cheating and we've been caught.
" [MELKERSEN.]
And did Mr.
Horn then immediately issue a stop-sale order, to stop selling these cars that Volkswagen had been cheating to sell? Not that I'm aware of, no.
Would it be fair to say that Michael Horn's primary focus is increasing sales? [LAWYER.]
Objection.
Calls for speculation.
[MELKERSEN.]
In respect to his position at Volkswagen Group of America? [LAWYER.]
Calls for speculation.
I would say yes.
You know what's really great about the all-new 2012 Volkswagen Passat TDI Clean Diesel? Not only does it provide excellent fuel economy, but you'll love the performance, too.
Delivers turbo-charged performance and great mileage.
[MAN.]
Passat TDI Clean Diesel with up to 814 highway miles per tank.
Just one reason Volkswagen is the number-one selling diesel car brand in America.
If you want a look into the psyche, into the thinking of a company, you should look at the advertising campaign.
The old wives' tale is funny.
How do you like my new car? Isn't diesel dirty? Oh, say it's beautiful, for Christ's sake.
I think it's beautiful, but aren't diesels dirty? Yeah, that's true.
Oh, that used to be dirty.
This is 2015.
No, no, no.
Listen to me, Terry.
- Diesel in Latin means dirty.
- I'll prove it to ya.
[WOMAN.]
You're gonna ruin your scarf.
Oh, look what she's doing.
See how clean it is? [WOMAN.]
It's not dirty, but you still have a dirty mind.
The audience is like, "It's very funny.
That's the way it is.
" But it was a lie.
Every time one of those ads ran, the executives of these companies knew that they were telling a lie, and they'd sold, uh, ultimately about 11 million of these cars around the world.
That's a lot of cars, a lot of excess pollution.
They seemed to have a culture in the company, a feeling as though they were above the law.
[GIBNEY.]
Between state and federal sanctions, VW was forced to pay over $25 billion in fines, and to buy back over 550,000 vehicles from angry owners.
Through lawsuits and investigations by government regulators, more details would be revealed about VW's vast cheating campaign in the US.
And across the ocean, a journalist named Hans Koberstein uncovered a much more pervasive problem in Europe.
Our main question was is Volkswagen the only one? What about all the other diesel car manufacturers in Germany? World leaders in diesel technology.
Do they use illegal defeat devices, too? My colleagues and I decided to do a test to measure the emissions on the road of German cars.
BMW, Mercedes and a Volkswagen with a defeat device.
[MAN IN GERMAN.]
Do they poison the air more than allowed? When we tried to get the portable emission measurement system to do the testings, in this time there were just four companies that offer this service in Germany.
We called all of them and they all of them told us, "Mmm.
[CLICKS TONGUE.]
Mmm, we don't want to do it with you.
" Or they had no time, or they said, "Oh, you can't do this testing.
" "Why not?" "You can't do this testing.
" [CHUCKLES.]
They just didn't want to do it with us.
Those service agencies that offer the mobile measurements depend on the car industry, so they didn't want to harm their clients.
And so, we had to go to Switzerland to do this testing.
[MAN IN GERMAN.]
We did the same test on the street that we did in the lab.
[KOBERSTEIN.]
We compared how is the car acting in the lab and how is the same car acting on the road.
And it was amazing to see that it is dirty.
Not just a little bit.
It is extremely dirty.
The Volkswagen with an illegal defeat device and the BMW and the Mercedes emitted up to 400-500% higher than during the laboratory test.
That shows clearly that those cars have a defeat device.
[GIBNEY.]
When Hans asked the car companies for comment, they responded by threatening to sue for hundreds of millions of dollars to prevent the broadcast.
But Hans pushed forward and exposed not only the cheating but the way the German government enabled it.
Every manufacturer in Europe is using calibration strategies that, in the US, would be considered defeat devices.
Every one of them.
And what's really interesting here is that if you read the language for what a defeat device is, in Europe and the US, they're almost identical.
Almost word for word.
So, what's going on here? What it really comes down to is that there are three exceptions for cases in which calibration changes are allowed.
And one of them is for safety and protection of the engine.
In Europe, the manufacturers just claim, "Oh, I need this for protection of the engine.
" Or, "I need this for protection of the after-treatment system.
" And those claims go unchallenged.
[KOBERSTEIN.]
The understanding of the German government is defeat devices are generally allowed because there's an exemption to protect the engines.
Any engine must be protected, so all the defeat devices we know in diesel cars are allowed.
That's the interpretation of the German government and it is absurd.
[GIBNEY.]
It seems crazy that the German government cares more about protecting engines than human beings.
- Is it this way throughout Europe? - Well, the primary issue in Europe isn't so much their requirements which, for the most part, are world-class.
But Europe does tend to have a problem with enforcement.
The standards are set at the European level for all the countries.
But enforcement is done at the individual country level.
Further, every country agrees to accept enforcement in every other country.
So this leads to a situation which the manufacturers go shopping.
Which country is going to do the least enforcement? [GIBNEY.]
In Europe, it's a game of musical chairs.
If enforcement is too strict in France or Finland, try Luxembourg or Malta.
They may need the money or factories that might be built, so they're willing to look the other way when companies cheat.
Companies often claim they can't improve safety or pollution controls or they'd go out of business.
For VW, the situation is even more prone to corruption.
The German province of Lower Saxony actually owns 20% of VW's voting stock.
Given that fact, is it likely that Lower Saxony will conduct a thorough investigation of its biggest profit center? [SCHMITT.]
The government covered the car companies.
Why? Because of its jobs.
They're very worried if people are out of a job because then they're lining up outside of the agencies and collect money and they vote them out of power.
Any national government in Europe has the problem if it has a national car industry.
"Oh, how are we going to deal with this problem?" They all think, "Mmm, better not to harm our national car industry," because they can only enforce the law for their own car industry, not for the German or French one, just for the British one.
And so, any national government is thinking, "Should I harm my national car industry if others won't? No, I will not do this.
I am not stupid.
" And they are still selling dirty cars.
[GIBNEY.]
To this day, despite the VW scandal, car manufacturers are selling dirty cars throughout Europe and the world.
It always sounds good to say, "We need the jobs.
" But what if you were offered a job at an assembly line to make products that killed people? Would you take that job? [TRAIN HORN BLOWING.]
[GERMAN.]
What's going on in Europe? They have these plans for how they're going to reduce air pollution, and they've had these for 10, 20 years.
They made projections about what's gonna happen in the future.
They have not been meeting their projections for ambient air quality.
The pollutants in the air are higher than they've always projected, and now we finally know why.
The one thing that the governments in Europe did after the VW scandals, they did a lot of testing.
So we have in-use tests on over 150 vehicles in Europe now, and it's clear.
The diesels in Europe are six or seven times dirtier than the standards allow.
So the ambient air quality in every city in Europe is worse than it should've been, and this is having health impacts and premature deaths.
In Germany, it's more than 10,000 premature deaths per year only due to nitrogen dioxide.
That's much more than we have in losses and deaths due to traffic accidents.
I am living in Berlin for almost 20 years now, and I am living in a zone where it's green.
Lot of trees, parks.
There's a lake, there's little traffic.
We did measurements on the road where I live and those measurements showed that the levels of nitrogen dioxide are much higher than the average annual limit that is legally allowed.
I wouldn't have ever expected that.
That's really a huge problem.
We think we have an air pollution problem wherever we see many cars and wherever many cars are driving at the moment.
But the problem of nitrogen dioxide is that's even there where you do not expect it to be in the cities.
We did measurements in a kindergarten that's very close to where I'm living.
The levels within the kindergarten were above the legal limits.
[GIBNEY.]
The German car companies didn't want their customers to know how harmful were their diesel cars.
VW, in particular, wanted to fight back.
To show the benefits of clean diesel cars, VW embarked on a plan to do their own tests on human beings.
Step 1: Establish a phony research company called EUGT, funded by VW, Mercedes and BMW, to study the effects of diesel exhaust.
This secret plan to fool the public was uncovered by a lawyer representing angry American consumers.
[MELKERSEN.]
So, EUGT, the fake nonprofit, pays approximately $730,000 to a company called Lovelace Respiratory Research Institute, LRRI, to conduct a study.
The purpose of the study, purportedly, was to attempt to show that the new diesel technology represented by these Volkswagen TDI Clean Diesel vehicles was much more environmentally friendly than the old diesel technology.
It would not result in the type of health problems that diesel exhausts from old diesel technology would create.
And the person that was in charge of that study was a guy by the name of Dr.
Jake McDonald, whose deposition I just recently took.
Did you ever have any information that any of the monies that you all received to do the study came from Volkswagen? I presumed that because Volkswagen was a contributing member of EUG that they contributed money to the study.
But I didn't know I had no details in terms of who contributed what amount.
All I knew was the contract was with EUGT.
So, the setup happens in Lovelace's laboratory in Albuquerque, New Mexico.
They procure a dyno to run these cars on.
That dyno was selected by none other than Stuart Johnson, and personally delivered there to the LRRI facilities.
You had involvement in assisting with this study.
True? Limited involvement.
[GIBNEY.]
Stuart Johnson wasn't the only VW executive involved.
James Liang, a German engineer who helped with the development of the defeat device, also helped shape the study.
[MELKERSEN.]
James Liang personally delivered a TDI 2013 red Beetle for purposes of doing this testing.
Volkswagen USA insisted that James Liang be given real-time access to LRRI's data.
Is it unusual for a manufacturer to require real-time monitoring of what is happening in your study? [LAWYER.]
Objection.
Vague.
Calls for speculation.
Um It's the first time that I've experienced that.
In your entire career, this has never happened previously? Correct.
That was necessary to ensure that these so-called clean diesel vehicles would run in test mode and produce the fraudulent emissions for purposes of this fake scientific research.
What they're doing at the same time is they're attempting to compare their so-called new technology with old technology.
So they are running a 2004 Ford F-250 on the dyno also.
In the original draft, the original proposal, the study, they were actually going to have a human sitting on an exercise bike.
There's actually a diagram of this in the proposal where a human participant would sit riding an exercise bike.
They would then be exposed to gas directly from the diesel vehicles.
And then, they would poke and prod that person later to determine, uh, what type of health effects they would see from this person being gassed.
Were you involved in discussions about doing this study on humans? - Yes.
- In retrospect, does that seem ridiculous? [LAWYER.]
Objection.
Calls for speculation.
In retrospect, the optics aren't very good.
Obviously, one cannot help to think back throughout history of another series of events involving individuals being gassed by a person who was actually at the opening of the very first Volkswagen factory and gave a speech there in connection with that opening.
Did you recommend against doing this study on humans? [CLICKS TONGUE.]
Um I don't recall.
I know that, um, David Geanacopoulos was involved in the discussion, and he didn't like the idea.
[GIBNEY.]
But VW did not abandon the idea of the experiment.
Someone suggested that the test be performed on NHPs.
Non-human primates.
[ANIMAL SCREECHING.]
[CHITTERING.]
[MELKERSEN.]
They set up tubing from the back of the tailpipe up through the ceiling.
The gas would then come down into the chamber.
These monkeys have been trained to watch TV, and so what they would do is they would actually play for them cartoons and have them watch cartoons.
[MELKERSEN.]
After they would've been exposed to the TDI Clean Diesel gases, they're then subsequently exposing them to the Ford F-250 gases.
[ENGINE STARTS.]
The nitrogen oxide and other particles of exhaust that would be coming out of this F-250 are very, very dirty, and very noxious, very harmful.
[MUSIC PLAYING ON TV.]
[VOICE ON TV.]
Wake up! Where's everybody going? [MELKERSEN.]
The monkey would be exposed to that gas for a three- or four-hour period of time, after which time they would take the monkey back to a separate facility and test it, taking blood samples.
They would stick a tube down the monkey's throat, in order to scrub samples from inside of the monkey's lungs.
[WHIMPERING.]
[MANIACAL LAUGHTER ON TV.]
[MELKERSEN.]
Do you know what happened to the monkeys after the testing was completed? We didn't ship them to Volkswagen, if that's what you're asking.
[CHUCKLES.]
[STAMMERING.]
They We I don't recall.
My We It was a non-terminal study, so the animals were not euthanized to be able to look at any sort of more invasive responses.
So [MELKERSEN.]
When Dr.
McDonald realized that these emissions that he tested were, in fact, fraudulent, and that he had been duped and set up to be used by Volkswagen as a pawn, he said that this report cannot be published.
You know, there is a concern, obviously, amongst Volkswagen that, if a jury were to ever hear about any of this stuff, that could really impact the verdict in this case, and, in fact, Volkswagen has filed a motion with the court, specifically asking the court to exclude any mention of any of this.
[MONKEY SCREECHING.]
[LORETTA LYNCH.]
Today, the Department of Justice, the Environmental Protection Agency and the US Customs and Border Protection have reached a global resolution with Volkswagen that carries both criminal and civil penalties.
As part of this resolution, Volkswagen is pleading guilty to three felonies.
Conspiracy to defraud the United States, to commit wire fraud, and to violate the Clean Air Act, obstruction of justice, and importation of goods by false statements.
[GIBNEY.]
In January 2017, James Liang pled guilty to fraud and was sentenced to 40 months in prison.
Oliver Schmidt was arrested in Miami after a Caribbean vacation, just as he was about to board a flight to Germany.
In August of 2017, he pled guilty to conspiracy to defraud the government.
He was one of six VW executives indicted by the US.
[MELKERSEN.]
Did anybody ever instruct you during this timeframe to basically keep your mouth shut? [CLICKS TONGUE.]
I don't recall that.
He said that's not a "no.
" I don't remember.
[MELKERSEN.]
You're aware that Oliver Schmidt recently pled guilty to a felony in federal court in Michigan, are you not? I'm aware of that.
[GIBNEY.]
As of September 2017, Stuart Johnson has not been charged with a crime.
There are indications that he may be a cooperating witness for the ongoing federal investigation.
Michael Horn resigned from VW in 2016 and returned to Germany.
Martin Winterkorn remains untouched by the criminal investigation.
Outside of Germany, other carmakers, including GM and Fiat Chrysler, have been accused of using defeat devices.
But even after all the fines, the criminal charges and the scandals, VW realized its dream of becoming the world's largest carmaker.
[CROWD APPLAUDING.]
At the same time, with the election of President Trump, the federal government declared that corporate profits would now be more important than protecting the environment.
In order to fulfill my solemn duty to protect America and its citizens, the United States will withdraw from the Paris Climate Accord.
[APPLAUSE CONTINUES.]
[CHEERING AND APPLAUSE.]
Thank you.
[GIBNEY.]
This announcement made the US, Syria and Nicaragua the only three nations on Earth to abandon the effort to prevent global warming.
The Trump administration has also threatened to undermine CARB in California, because of CARB's strict air-pollution controls.
[AYALA.]
When you look at a state like California, we have goals for 2030 and 2050.
You know, long-term goals.
We need to start thinking now and laying out ideas for how we're gonna get there.
[SCHNEIDERMAN.]
It's hard for people to remember now, New York, when the smog problem, caused by NOx It's exactly the stuff that was being emitted from these cars.
It was really bad back in the '60s and '70s.
It was a city where people would get sick, people would die from the smog.
So, this is something we spent decades in the United States trying to clean up.
We've had great success.
The American people don't want to undo the regulations.
State environmental laws are a very important backstop.
The federalist system was designed so that states can fill in if the federal government does not.
That's why we're pushing so hard on some of these policies, because this is really about impacting on people's lives.
[GIBNEY.]
When my wife turned in our car, it was sent to an asphalt graveyard for VW's dirty diesels in the shadow of the old Detroit Lions stadium.
From here, according to the company, they will either be fixed, recycled or destroyed.
Every car in the lot represents the sum of an economic calculation made by the company between risk and reward.
In that way, VW is not so different from other companies.
They see themselves as financial abstractions, pressured by competition to build models on profit, loss and market share.
But when many of us think of the lungs of our children, scarred by NOx fumes that could have been contained, we wonder if the equation is missing an important variable.
How to balance the cost of a car with the value of a human life? [MUSIC PLAYING.]