AutoTidbits

VW CEO Matthias Müller’s Non-Apology

The worldwide press has hammered Volkswagen for months due to its emissions cheating scandal. The company initially blamed a small group of engineers and tried to assure consumers, governments and shareholders that VW’s management was unaware of any wrongdoing by the company. That approach wore thin rather quickly and VW’s board ousted CEO Martin Winterkorn in the hopes that such a major management shakeup would stop the bleeding and perhaps even provide a PR win.

Courtesy: DPA

After all, this scandal has tarnished the image of VW and created a potential liability so large that it might reach $48 billion in the US alone.

In an effort to bring this fiasco to a close, the company has been focusing on two issues. First, it’s attempting to satisfy customers via financial incentives and second, it’s been working on a “fix” that would bring their vehicles into compliance.

From the beginning it has been clear that VW hoped to put this episode behind them as quickly and cheaply as possible. The company initially claimed it had no knowledge of the issue, then later admitted it had indeed known for at least one year prior to the scandal becoming public. Similarly, the company has been slow to reveal the extent of the fraud, by claiming only one set of engines was affected. It’s had to revise those statements and expand the list of engines and years affected.

Crisis management specialists generally suggest that the best way to minimize the damage is to apologize, to commit to a transparent investigation and to take the required steps to solve the problem and implement processes to ensure something similar won’t happen again. By most accounts, VW has not embraced this approach.

Much has been made of VW’s insular culture. The company’s complex ownership structure, which is dominated by one family and the German state of Lower Saxony, coupled with a special law aimed solely to keep VW from a takeover, have resulted in a company that is not responsive to outside forces, including shareholders and governments. This makes it less surprising that VW has handled this scandal so poorly.

At this week’s North American International Auto Show, VW CEO Matthias Müller was confident he could make progress on the issue. During his first trip to the US since becoming CEO, he planned to personally apologize to the global press and meet with the Environmental Protection Agency (E.P.A.) and California Air Resources Board (C.A.R.B.) in order to gain approval for VW’s proposed software fix.

VW’s tone-deaf approach was on display by its CEO, who, while officially apologizing, managed to not apologize at all. On one hand, he said, “… we let down customers, authorities, regulators and the general public…and I would like to apologize [for that]”. Shortly thereafter, in an interview with NPR, Mr. Müller claimed that VW did not lie, but that it did not understand the EPA’s diesel emissions rules. That does not sound like an apology or a company that is fully embracing its culpability in a major fraud.

VW’s second setback of the week came when the E.P.A and C.A.R.B. declared that VW’s attempted fix would not be acceptable because it does not provide information how it would impact fuel economy or emissions. It appears that VW had hoped to placate regulators with an ill-defined plan to do something that would make this matter disappear.

Similarly, the company is attempting to minimize its exposure from class action lawsuits by offering a “Goodwill Package” to owners of affected vehicles. These incentives consist free roadside assistance for three years, a $500 Visa card and a $500 debit card that can only be used at VW dealers. While VW owners who take advantage of the offer might limit their ability to claim damages in court, the approach should please dealers who will be able to take advantage of additional foot traffic and cash payments by VW.

Instead of embracing transparency, letting an outside party investigate the causes and doing everything in its power to regain the public’s trust, VW’s approach has been to deny, delay and discount.

A Regulator's Nirvana

What could be better than exploring the global confluence of car regulations by a serious and quirky business news reporting organization?  The answer, of course, is very little. You can imagine my delight when my podcast feed showed the latest episode of NPR's Planet Money podcast, which was adeptly titled Why Cars From Europe and the US Just Can't Get Along.

The timely backdrop of the show is the 2014 New York Auto Show and the show’s hosts question manufacturer representatives about the regulatory requirements which result in completely reengineered vehicles in the US and Europe.  Long time readers will note this blog’s continuing coverage of conflicting automotive regulations across the globe.

The Planet Money piece did not break any new ground, but it did expose a larger audience to an otherwise little noticed failure of the free market to create basic efficiencies.  The industry’s only glimmer of hope rests with the nascent Transatlantic Trade and Investment Partnership (TTIP).  Theoretically, the proposed agreement could lead to the lifting of a whole host of non-tariff trade barriers, such as differing safety standards imposed on automakers.  Since these agreements tend to be far reaching, complex and controversial, it is likely that any agreement would start with a broad set of principles and create a mechanism for tackling industry-specific regulations by a joint decision making body.  This approach would help all governments involved by being able to support free trade and not have to take any difficult votes that could anger domestic industries.

As always, agriculture seems to be one of the main hurdles. Even if the negotiations touch the much less contentious automotive space, regulators on both sides will be pushing for their rules concerning emissions and safety.  In the interim, it’s business as usual, which in this case means spending millions of dollars and euros on reengineering anything from catalytic converters to windshield wipers.

Ford Partners with State Farm for Usage-Based Insurance

Ford Motor Company is partnering with State Farm insurance to provide driving data of Ford customers.  The goal is to verify which drivers are low-mileage customers and to reduce their insurance rates.   In this case, low-mileage translates into less than 1,000 miles driven per month. 

It is logical to assume that those who spend less time exposing themselves to the dangers of public roads will also have fewer insurance claims. In a sense, this is an even tradeoff. The insurance company verifies that the policy holder does not drive much and in return provides a discount. Ford’s financial stake in this arrangement has not been disclosed.

State Farm is not the first insurance company to tap into vehicle data to monitor policyholders. Progressive Insurance offers a similar service. Instead of tying themselves to a singular make, the company sends enrollees a device that plugs into the car’s OBD II sensor. The device, termed “Snapshot”, monitors driving habits for an initial 30-day period. This baseline assessment is used to adjust the driver’s insurance rate, which the company claims will not be increased due to poor driving habits. After six months, drivers send the device back to Progressive and stay at their current rate.  Information collected by Snapshot includes vehicle speed, time of day and distance drive. The company provides discounts to drivers who don’t drive at night, brake slowly and drive fewer miles.

According to Ford’s press release, State Farm will only collect the actual mileage driven by its members. One does wonder if there might be additional information that the insurance carrier could utilize to set insurance premiums. Location information, coupled with speed data, would make an excellent variable in setting rates. As would seat belt usage.  Presumably, the driving public would have to be informed of such data gathering practices. Then again, this appears to be a partnership between two corporate entities with the drivers as third-party beneficiaries.

This leads to an interesting question: “Who owns my driving data?”  Most automobiles for sale in the US already include Event Data Recorders (EDR). These devices collect all sorts of good data that can be used by police and insurance companies in analyzing car crashes.  Thus far, auto manufacturers have been quietly collecting the data without disclosing it to third parties. Read your car insurance contract closely, because according to the Insurance Institute for Highway Safety, only few states prevent insurance companies from requiring policy holders to provide access to this data.

White House Floats 56.2-MPG CAFE Plan for 2025 - AutoObserver

via www.autoobserver.com

Yes, you read correctly. If the Environmental Protection Agency (EPA) and the National Traffic Highway Administration (NHTSA) get their way, the "average" car in 2025 will get 56.2 mpg. That sounds pretty good, if somewhat unrealistic.

In the US, the federal government regulates the efficiency of the fleet of vehicles each auto maker sells. On average, a manufacturer's fleet must meet certain fuel efficiency standards. This is called the Corporate Average Fuel Economy (CAFE). The key term here is average. Certainly, not every vehicle will have to attain 56.2 mpg in 2025. Some will be much less efficient, such as trucks, sports cars, SUVs, etc. That also means that some will have to be more efficient to bring up the average.

Currently, the Toyota Prius gets the highest combined fuel rating in the US, returning 48 miles of travel per gallon of gasoline consumed. That means, that the Toyota Prius will have to increase its fuel efficiency by 16.7% until 2025 just to be average. This sounds like a tall order.

Here is where it gets tricky. To make things more interesting, the numbers the EPA uses to calculate CAFE differ from those found on the window sticker. (For a detailed explanation about what is on those stickers, see my prior post). Apparently, per an AutoObserver analysis, these CAFE numbers equate to about 41 mpg combined on the window sticker. That's better and less alarmist.

Still, it's worth noting that hybrids currently only comprise about 5% of US auto sales. (It's also worth noting that the Toyota Prius accounts for 50% of those sales.)  That will have to change if these CAFE numbers are enacted. Will this usher in the golden era for diesel in the US? Probably not, but it won't be long before enthusiasts will try to make their case, mostly to each other. If the market demanded them, they would be for sale. Years of trying to educate the US market by  German manufacturers have shown little result.

On a personal level, the idea of legislating fuel efficiency strikes me as counter-productive. Why force manufacturers to build expensive and highly efficient vehicles that most consumers don't want. Instead, let's do the sensible thing and increase the price of fuel. High fuel costs will spur market demand for more efficient vehicles. It would also raise more tax money for public roads and reduce the regulatory burden on auto manufacturers.

Measuring Fuel Cost & Efficiency

Based on the gas guzzler tax, this should be a fun ride.

The old miles-per-gallon (mpg) measurement is losing its effectiveness. For one, environmental concerns are gaining in importance, and they key metric measuring environmental impact is not mpg but the amount of carbon emissions per distance travelled. In the US, that means CO₂g/mile. The common European measurement is CO₂ g/km. For another, the emergence of electric vehicles (EVs), plug-in hybrid electric vehicles (PHEVs), hydrogen fuel cell vehicles (FCVs), and compressed natural gas vehicles (CNGs) makes comparing the cost of operating such a vehicle, and associated efficiency very difficult.

To provide consumers an easy way to make an informed buying decision, the EPA and DOT have created new fuel economy and environmental impact labels. The new labels will be mandatory staring with the 2013 model year. The most obvious change here is the addition of "environmental impact" as part of the sticker. The other major change is that there are now ten different types of labels.

• Gasoline Label
• Gasoline Vehicle with Gas Guzzler Tax
• Flexible Fuel Vehicle: Gasoline-Ethanol (E85) Without Driving Range
• Flexible Fuel Vehicle: Gasoline-Ethanol (E85) with Optional Driving Range
• Diesel Vehicle
• CNG
• PHEV (Series)
• PHEV (Blended)
• EV
• FCV

That should clear things up nicely.

All kidding aside, these new labels do provide much more granular information. Just as not all auto buyers are AutoTidbits readers, not all auto buyers understand or want to understand the technicalities underlying their new vehicles. To make things easier, the new labels provide two savings numbers that should help, an annual fuel cost estimate and an estimate of how much the vehicles consumers (in USD) compared to the average vehicle over a five-year span.

Perhaps more in spirit with the new labels, this car will have low operating costs.

 

Demand Based Pricing All the Rage

Demand based pricing has been the Holy Grail for marketers for some time. The idea is fairly simple. It's not new either. The concept aims to more accurately take the actual, local supply and demand atmosphere into account when pricing goods and services. This pricing scheme results in variable pricing for goods based on current demand. Put another way, things that used to cost a certain amount for all customers at all times would cost more or less, depending on the customer and the time of the transaction.

Much of this has existed for millennia and on the whole, we as a society accept this. For example, gas prices rise in the summer due to supply factors (summer formulations) and demand factors (holiday travelers). This is not new.

A new facet of this would be to add timing to the price mix. Perhaps gas is priced differently throughout the day and the week. As it stands currently, gas tends to be cheaper early in the week and during non-peak demand times. Frequent intra-day price changes tend to be used only by stations with electronic price boards.

We could add another pricing variable into the mix - buyer's urgency. This is the Holy Grail I mentioned earlier. Imagine a gas pump that could automatically analyze its customers and decide that it is vacation time, your car is fully loaded, you have an out-of-state license plate and that your tank is almost empty. How badly do you really want the gas?

Those aren't all achievable right now, but we could get there. The seller just needs more information. I was first introduced to the concept in college. A marketing article applied this concept to soda machines.  It would be quite simple to install a computer in the drink dispenser that would read the ambient temperature and adjust pricing accordingly. Somewhat more futuristic, but still not beyond the realm of possibility, would be the machine's ability to "guess" the potential purchaser's level of interest. This could be accomplished by infra-red heat monitoring and perhaps the sweat level of the buyer's fingers as he selects his drink.

Price gouging you say? Yes indeed. That is the basic purpose of demand based pricing. That and “aligning scarce resources and reducing inefficiency in the market.”  Sometimes we're ok with it and other times we are not. Increasing gas prices after a natural disaster could be perfectly legitimate or blatant profiteering.

Recent automotive related instances of demand based pricing include "congestion pricing". This is the plan in Dallas, where I-635 is being rebuilt. The system would include toll and non-toll lanes. According to the Texas Department of Transportation (TxDOT), the pricing on toll lanes "could vary with the level of congestion, time of day, occupancy or vehicle type."

Another recent demand based pricing scheme that caught citizens off guard affects those parking their vehicles in San Francisco. The San Francisco Municipal Transportation Agency will institute what it calls "demand-responsive pricing" in a two-year study. Sensors will feed data to apps and signs that guide drivers to open spots. The sensors also determine which parking spots areas are most appealing and increase the prices for those spots. The hourly parking fee can range from $.25 to $6.00 per hour.

Existing pricing and taxing schemes will likely change as more transaction related information becomes available. After all, we already have car insurance companies that install electronic readers in their customer’s vehicles to determine their insurance rate based on actual driving patterns. Stay tuned for more.

Germany's Tough Rules for Motorists

German drivers were abuzz recently as that country's lawmakers clarified traffic rules relating to winter tires. Instead of mandating winter tire use during certain months, German drivers are required to utilize winter tires only during wintry weather conditions. Considering that snow and ice are quite common in all of Germany, drivers are quasi required to drive with seasonal tires.

Few would argue that this type of rule increases road safety, although some might well argue about the associated costs. What might seem like a simple rule on the surface quickly becomes more complicated when peeling away the layers.  Germans like rules and they especially like rules that are detailed and expansive. Just requiring owners of passenger vehicles to drive with winter tires in wintry conditions is too simplistic. The devil is in the details and below are some of them.

Vehicles affected:

• Passenger vehicles
• Trucks
• Buses
• Motorcycles

 Yes, apparently there are winter tires for motorcycles. I did not know that.

 In order to cover the gamut, the German regulators also made sure to include rental cars. Under the new regulations, renters, not rental agencies, are responsible for ensuring they adhere to the new rules.  I can honestly say that I have never given the tires on my rental cars a thought.  

 Of course, this is just one instance of Germany’s many rules of the road. The country recently updated its traffic rules and associated fine structure. That’s 224 pages of densely packed German legalese. Let’s also not forgot that country’s very thorough auto safety licensing system that checks the roadworthiness of automobiles.  With these rules in place, half the vehicles on US roads would be banned.

 I suppose the phrase “freedom isn’t free” could be utilized here. We may not be free to drive without speed limits, but we are free to slide around on public roads and create havoc.

NYTimes.com - How a European Fiat Had to Change Before It Could Immigrate

Courtesy of Chrysler, LLC

The absurdity of divergent auto regulations between the US and EU have not escaped everyone's scrutiny, as evidenced by an excellent article in The New York Times. This blog has tackled auto regulations in the past.

The Fiat 500 is a good example of a European model adapted for the US market.  Due to financial considerations and the many required changes in design due to the aforementioned regulations, Chrysler is building the Fiat 500 in Mexico, as opposed to shipping it here from Europe.  Adapting a car for another market means more than adhering to different regulations.  Consumer tastes and preferences play an important role as well.  For the Fiat 500, market-driven changes include the following:

• Cup holders
• Cruise Control
• Additional Insulation
• Different Tires
• Stronger A/C
• Different Rear Axle

Changes implemented due to regulatory requirements include:

• Front & Rear Facias
• Air Bags
• Fuel Filler
• Rearview Mirrors
• Windshield Wipers
• Tail lamps
• Headlights
• Rear Body Structure

The one thing not mentioned, but likely affected as well, are engine tuning and emissions equipment.  Considering the above-mentioned changes, we are left with a car that looks very similar, but doesn't share many parts with its Italian cousin. 

Some of the US-mandated changes are good.  We have more stringent crash-test requirements, which necessitated changing the rear body structure and fuel system.  Other requirements strike me as less useful.  Can't we at least agree on common windshield wipers?

Tradition and Taste Preferences Stand in Way of Motorist Safety

It would be nice if policies could be created in a vacuum, based purely on science and sound reasoning, unencumbered by entrenched business interests and tradition.  If that were the case, gasoline (and diesel) would cost $7/gallon, trucks would be relegated to the right lane at reduced speed, graduated licensing would be the norm and annual safety inspections would ensure that every vehicle is road-worthy. 

Instead, reality is firmly entrenched in our law-creating and rule-making process.  Of course, anything that requires an actual law faces the brutal onslaught of 535 elected officials who are strongly influenced by their political donors.  The few issues that our professional regulatory bodies are allowed control are also exposed to outside influences, ether via public comments for proposed rules or regulatory oversight by Congress.  With so many chances to influence potential laws and rules, few ideas make it through the process in their original fashion. 

Some don’t seem to get anywhere at all.  This includes common sense measures such as adopting the metric system, which has been established by the US Congress multiple times, including with the aptly named Metric Conversion Act of 1975.  Another loser in the regulatory minefield seems to include mandating amber, rear turn signals.

Yes I’m a fan.  It just makes sense.  Too often, a driver’s turn signal can be misinterpreted for braking.  This is especially in heavy traffic or foggy conditions that can obstruct the view.  Some trucks and trailers are especially egregious, having only two rear indicators.  They are both red and function as brake lights, turn signals and running lights combined.  Amber blinkers in the back are mandated in other countries (EU, Japan, etc.) and I favor harmonizing these types of rules.  Color coding lights seems like a good idea. Ideally, each colored light should have one clear meaning, such as these:

• Amber - car changes direction
• White - car is coming towards you
• Red - car is braking

Instead, our current system is rather flexible.  By law, front turn signals must be amber.  The front-fender or rearview mirror mounted turn signals can be amber or red and the rear turn signals can be amber or red.  My favorite combination is amber in front, red at the sides and amber in the back.

Traditionally, American vehicles had red rear turn signals while Asian and European ones were amber.  Unfortunately, this has changed.  Many if not most, European vehicles now favor red.  I assume this must be for styling reasons.

Unfortunately, what makes intuitive sense to me is not necessarily backed up by science.  The National Highway Traffic Safety Administration (NHTSA) worked with the University of Michigan to conduct a study to study whether amber rear turn signals reduce traffic crashes.  The results seemed to indicate that there is a slight reduction in the number of accidents but that other factors, such as the candle power of the lights, color of the reflectors and separation of the turn signal from the other signals are all contributing factors. 

Following Federal Safety Regulations Not Enough to Shield Mazda from Lawsuit

As previously discussed, in the US, its NHTSA’s job to regulate vehicle safety.  To that end, NHTSA regulates many issues, such as vehicle lighting, air bags, safety belts, distracted driving amongst others. Any vehicle for sale in the US must adhere to NHTSA guidelines, which is one of the reasons the US market does not include many small, niche manufacturers who would have to modify their existing designs to adhere to US regulations.

The husband of a woman who died in a minivan accident sued the minivan’s manufacturer, Mazda.  More specifically, it is likely that the lap belt she wore caused her grievous injury.  If you recall, until 2007 cars had to be equipped with three-point harnesses (lap & shoulder) for any seat facing the outside of the vehicle, whereas seats that were not adjacent to the outside, such as a center seat, could have simple lap belts (such as those in airplanes). If your memory can take you even further back, you might remember that when seatbelts were first introduced they were all simple lap belts. For obvious reasons, lap and shoulder belts are much safer than lap belts. 

A state appeals court kept the suit from moving forward, reasoning that Mazda had followed federal rules and was therefore immune.  Mazda’s defense was that it adhered to federal regulations and that federal law preempts state law, therefore shielding it from state product liability lawsuits.

 Today, the U.S. Supreme Court ruled just the opposite.  It is allowing the lawsuit to move forward because regulators aimed to set only a minimum standard.

 This is a surprising and perplexing decision by a majority-conservative Supreme Court.  The obvious effect of this ruling is an expected increase in product liability lawsuits against car manufacturers.  Another possible outcome is the reduction in new and innovative technologies.  Already, we have seen U.S. Department of Transportation Secretary LaHood take a strong stance against distracted driving. I could imagine a lawsuit alleging that infotainment systems are too distracting and lead to accidents.