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- [00:02]
David Brown
One Drift Spring 2013. A Volkswagen Jetta flies down a freeway in Northern California. A mess of pipes and hoses peek out of the trunk. One of the tubes is duct taped to the tailpipe. The other end feeds into a makeshift plywood box in the back of the car. And the box is hooked up to a portable generator that makes such a racket, the two young men piled into the Jetta can barely hear themselves think. Pull over. Pull over. What? Pull over. The wire came out again. Again. It's so hot in here, the Super Glue's probably melting. Where's the duct tape? It's in the thing behind the seat. God almighty. A police cruiser pulls up behind the car. An officer gets out, eyeing the equipment sticking out of the trunk with confusion. The young man in the driver's seat rolls down the window as the officer approaches. Are you gentlemen all right? Yes, sir. Just some equipment trouble. What's all this? It's a portable emissions measurement system. Who now? Sorry, we're researchers from West Virginia University. West Virginia? You guys are a long way from home. What are you doing all the way out here? In NorCal, the researchers explained their project. They've won a grant to study the real world emissions from diesel vehicles sold in the US they had to rig together their own equipment to make that possible. Typically, emissions are only tested in the lab, not on the road. And how's it working out? Well, it's supposed to be a simple project. The Clean Transportation group that gave them the grant assumes the cars will pass muster and the results will stand as proof that diesel will really can run clean. But when the data comes back, it's not what the researchers expected. The Volkswagen Jetta emits up to 35 times the legal limit of nitrous oxide. The Volkswagen Passat is almost as bad. The students assume they made a mistake. Their equipment is less than sturdy. The portable generator keeps breaking down. Wires keep coming detached as they drive. But they double check their procedures, test and retest. And they still can't get the Volkswagen's real world emissions to match the figures they see in the lab. They drive in city traffic at rush hour, on empty highways up and down Mount Baldy. For their final test, they drive the Passat all the way from LA to Seattle and back. But no matter what they do, the numbers still aren't adding up. Once the run in with a police officer is sorted, the researchers refocus on the task at hand. I don't understand. What are we doing wrong? Maybe we're not doing anything wrong. What do you mean? We're not having this issue with the BMW. So maybe it's not an US problem. Maybe it's a Volkswagen problem. Their emission system he doesn't dare finish his thought aloud. I'm going to say something that sounds like heresy here, but there are two kinds of truths. There's lab truth and then there's the real world. Customers don't drive in climate controlled rooms. They drive up mountains, sit in traffic, idle in the rain. When businesses test their products only in perfect lab conditions, they risk setting themselves up for disaster. Once those products hit the road here, there's no escaping it. In the real world, the Volkswagen emission system was built to fail. And that's the real truth. When Netflix pivoted from DVDs to streaming, or when Amazon expanded beyond books, those transformations came from leaders who kept questioning their own strategies. Hey, have you met Claude? If you're looking to challenge your own thinking about a business problem or discover new ideas, Claude can be your go to AI thinking partner. Instead of delivering quick answers, Claude works through complex decisions with you. Take market expansion planning. Beyond identifying new territories, Claude helps teams explore things like regulatory landscapes and competitive dynamics. It's the kind of deep analysis that reveals additional opportunities. Claude researches across hundreds of sources in just minutes to deliver accurate, comprehensive analyses for technical teams. Claude code automates complex coding work and through the Claude API, development teams can integrate Claude's reasoning capabilities directly into their existing systems and workflows. The companies featured on Business wars succeeded through continuous strategic questioning, not easy answers. Whether teams are analyzing supply chain vulnerabilities, exploring new business models, or debugging critical systems, Claude can become your AI collaborator in working through complexity until breakthrough insights emerge. Check out Claude for yourself for free at Claude aibusinesswars and see why the world's best problem solvers choose Claude as their thinking partner. It's your man, Nick Cannon, and I'm here to bring you my new podcast, Nick Cannon at Night. Every week I'm bringing out some of my celebrity friends and the best experts in the business to answer your most intimate relationship questions. So don't be shy, join the conversation and head over to YouTube to watch Nick Cannon at Night or subscribe on the Wondery app or wherever you get your podcast from. Wondery I'm David Brown and this is Business Wars. In the last episode, Volkswagen found a way to cut corners on regulations by using a defense feet device to mask their diesel engines emissions. For years it worked like a charm. The car's even won awards for being environmentally friendly. Now the company's at its peak, and there's nowhere to go but down. And when the truth comes out, Volkswagen's survival is on the line. This is episode two running on fumes it's April 2014. Volkswagen's top US compliance officer, Oliver Schmidt, is looped into an email about a study from West Virginia University that's about to be published. Schmidt, who was born and raised in Germany, is in his mid-40s with a bald head and icy blue eyes. He was transferred to Michigan two years ago to run Volkswagen's emissions office. It's his job to make sure the company's cars meet US Regulations, and this study, which is coming out next month, suggests that they absolutely do not. The results show that Volkswagen's diesel cars emit up to 35 times more NOx on the road than they do during emissions tests. The EPA is sure to have some questions. It's Schmidt's job to figure out how they'll respond. Schmidt taps his pen against the desk. He knows how seriously the EPA takes its job. If the truth gets out, they won't get off with a slap on the wrist. Someone will be going to prison. And with his job title, it just might be him. He takes a deep breath and types out a reply all to the Volkswagen managers on the email thread. It must first be decided whether we are honest. If we are not honest, everything stays as it is. The West Virginia University study is published in May, and a week later Volkswagen's quality control exec, Bant Gottfeiss, AKA the Fireman, writes a memo about it directly to CEO Martin Vinterkorn. The memo says very carefully that Volkswagen can't give the EPA a thorough or convincing explanation for the discrepancy in emissions. And if they can't explain what's going on, Gottweiss assumes the regulators will look at the engines to see if there's a defeat device installed. He attaches the memo to a cover note by another Volkswagen executive, and it's delivered to Vinterkorn's office. If Ventricorn didn't already know about the defeat device, he certainly does now. Gottfeiss is right. Soon after the study is published, the EPA and California Air Resources Board, or carb, get in touch with Volkswagen. California is the largest auto market in the US So keeping CARB happy is do or die for Volkswagen. The regulators ask a series of increasingly specific questions about the diesel engine's emissions. The orders from Volkswagen management are clear. Do not, under any circumstances, tell the regulators about the defeat device. Instead, the engineers are supposed to Obfuscate the truth. While appearing to cooperate in a series of meetings with US Regulators, Volkswagen engineers do their best to discredit the results of the WVU study. They poke holes in the methodology, complaining about calibration problems and unexpected in use conditions. They hand over results from their own internal tests, which, surprise, surprise, show that nothing is amiss with the engine's emissions. But the EPA and CARB aren't buying it. They push back with more questions, and they run their own tests that contradict what Volkswagen is telling them. Finally, in December 2014, Volkswagen's engineers admit that, yes, there are issues with the engine software, but they insist it's a simple error with an easy fix to throw the regulators a bone. They even agree to voluntarily recall hundreds of thousands of affected cars so the software can be patched within a month or two. CARB's engineers test that software patch and find that it doesn't do anything to reduce emissions. There must still be another issue. And they're getting tired of hearing excuse after excuse from Volkswagen. While the problem goes unresolved, Volkswagen tries to stall them for as long as possible. Now more than ever, they can't afford any setbacks. In December 2014, a gaggle of reporters gathers in a top secret showroom at Volkswagen headquarters. Staff call the showroom Valhalla, after the majestic hall of Norse mythology, where the souls of slain warriors go after death. The Vikings believed there was nothing more glorious than dying in battle, and CEO Martin Vinterkorn, for one, is ready to participate in that tradition. He invited the reporters here for a buzzworthy press event, a sort of sleight of hand trick to distract them from the avalanche of issues Volkswagen is facing. The reporters crowd Venter Korn as he enters the showroom. One bold journalist shoves a recording device into his face. Mr. Venticorn, do you have anything to say about your slipping US sales? We are not slipping. We sold over 10 million vehicles this year globally. But I'm talking about the USA. 10% drop year over year. That's a heck of a slump. All manufacturers are at the mercy of their customers. Consumer tastes change. That's business. The key is to change with them. The reporters referring to the fact that as the US Economy rebounded from the Great Recession, consumer preferences veered back to gas guzzling SUVs. Volkswagen's lean green compact cars fell out of favor, and the company's once skyrocketing sales numbers began to fall. Expanding Volkswagen's SUV offerings could be the solution to that end. Ventricorn leads the reporters to A shiny new SUV prototype, a diesel hybrid called the Cross Blue. He leans across the hood. It's as wide as his entire wingspan. The Americans like things big. When the Cross Blue launches in 2016, it will run on our tried and true clean diesel engine. The same model already beloved by hundreds of thousands of our loyal customers. He's playing it cool, but there's a good chance the Cross Blue will never make it to production. This moment highlights a timeless business principle. Meet the market where it is, not where you wish it were. This is especially true in the auto industry, where long term planning and forward thinking aren't just valued, they're essential. Volkswagen wanted Americans to fall in love with small, clean diesels, but US buyers wanted big SUVs. Companies that ignore consumer behavior usually learn the hard way. No amount of corporate vision can override what people actually put their money toward. Car consumers tend to be driven by passion, and the auto industry is one of the most heavily regulated in the world. By the next summer, US Regulators are tired of getting the runaround. They go into nuclear mode. The EPA threatens to withhold authorization for all of Volkswagen's 2016 diesel cars until they get a straight answer about what's going on with the emissions. And this setback could bring the entire company to its knees. When planning for your future, you want someone with a history of keeping their word year after year. For nearly 160 years, Pacific Life has been a trusted name in the industry. But that isn't just a number. It's experience that matters. It's 160 years of promises held, helping generations retire with confidence, protect their loved ones, and plan for whatever comes next. Whether you're looking for life insurance, employee benefits or retirement income solutions, when your future is on the line, you want history on your side. And believe me, Pacific Life has been there, always there through changing times, always focused on your needs, ready to secure your tomorrow. Ask a financial professional how Pacific Life can help you feel prepared for what's next. Pacific Life Insurance Co. Omaha, Nebraska and in New York, Pacific Life & Annuity, Phoenix, Arizona. Because with Pacific Life, you're not just planning for the future. You're partnering with trusted experience. You hear it all the time on business wars. The battles between brands, the bold moves, the breakthroughs. But behind every winning business, there's something less talked about. Great IT. That's where ManageEngine comes in. ManageEngine offers a comprehensive suite of AI powered IT management solutions that give you complete control over your IT operations. Your employees can collaborate securely. Your IT admins can easily monitor and manage devices and you get full visibility of your data hygiene. ManageEngine also integrates well with most popular IT software programs out there. So if you're a growing business or an organization looking for enterprise grade IT management and cybersecurity solutions, visit manageengine.com to take control of of your IT. That's www.m anage.com It's 2015 and Volkswagen has reached its ambitious goal of becoming the world's top automaker several years ahead of schedule. Volkswagen has overtaken Toyota and car delivery sales for the first half, making it.
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Narrator/Interviewer
The world's largest automaker.
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David Brown
The Magic barrier of 10 million car deliveries has already been broken four years earlier than anticipated. Volkswagen's CEO released a statement Sunday saying the feat is an impressive confirmation that we are vigorously implementing our strategy. 2018 despite challenging market conditions, the company blows past Toyota and GM in global sales in the first half of the year. One in every four cars sold in Europe is now from Volkswagen's family of brands, and Martin Winterkorn is the highest paid CEO in Germany. It seems like there's nothing that could slow them down. Here's something that may be familiar to longtime business wars it's so very tempting to think short term wins justify bending the rules. Volkswagen hit its 10 million car goal years ahead of schedule, but those numbers? They were inflated by deception. History seems to bear this out. Leaders often forget that success built on sand collapses quickly. Growth at all costs can feel intoxicating, but if integrity isn't machined into the frame, the wheels are bound to come off. Maybe not today or tomorrow, but almost inevitably and sooner than anyone's expecting. It's July 27, 2015. Oliver Schmidt presents a slideshow to a room full of Volkswagen executives at the company's Wolfsburg headquarters. Schmidt had run Volkswagen's emissions compliance office in the US Until a few months ago, when he transferred to a new role in Wolfsburg. An American named Stuart Johnson took over his old role in Michigan. But in a week, Schmidt will be flying back to Michigan to help Johnson through a high stakes meeting with a top regulator at carb, the California Air Resources Board. Their goal is to quash any suspicions that they're cheating on emissions tests and convince the regulators to approve Volkswagen's 2016 diesel cars. But first, he has a meeting with his fellow VW executives. Schmidt flips slowly through the slides in his PowerPoint. The slides lay out exactly what's been disclosed to KARB so far. What's still being kept secret, namely the entire existence of the defeat device and what the consequences would be if their cheating is discovered. A flowchart outlines two possible outcomes. If the meeting goes well, they'll get approval for model year 2016. If it goes poorly, an arrow points to another possibility. Indictment. Vinterkorn's hand curls into a tight fist around his pen. Indictment is not, in fact, a possibility. Not one he's willing to consider. The meeting ends with Vinter, Korn, and the other senior execs agreeing on a course of action. Keep lying through their teeth. Schmidt will offer partial disclosures about the problem, essentially admitting that there are issues with the engine's emissions without revealing anything about the defeat device. A week later, on August 5, 2015, Schmidt flies out to Michigan with a thick binder full of technical details and test results. He's arranged an informal meeting with Alberto Ayala, a senior CARB official who's in town for an industry conference. Schmidt waits in the lobby of the hotel where the conference is being held. When he sees Johnson enter, he beckons him over for a quick pre meeting. I have some talking points we drafted in Wolfsburg. I'll do the heavy lifting if you can just keep my mouth shut. Johnson hasn't been fully briefed on the plan. In fact, until now he's been kept entirely in the dark about the defeat device. But he has his suspicions. I would just like to know point blank what's going on here. Are we cheating? I deserve to know what I'm getting into. Schmidt clenches his jaw. He grabs a cocktail napkin and draws a diagram of the emission system, explaining the exact details of how it actually works. Johnson quickly puts together the pieces. So there is. Yes, there is a defeat device installed, and we are not at liberty to disclose this today. I decide what we do and do not disclose. Understood? You will sit there and smile and nod. Is that clear? Johnson nods, but Schmidt can tell it doesn't sit well with him, lying to regulators. He can only hope his colleague is able to push down his ethical qualms. For the next half hour, the two men head down the hall to a meeting room where Ayala is already waiting for them. It's showtime. Schmidt sits down and slides the binder across the table. You're right. Our Gen 2 diesel engines are programmed to behave differently during testing than they do on the road. That's where the truth ends. Schmidt claims that the intention wasn't to cheat during testing, that they were just trying to lower the dose of fluid the emission system uses so it won't have to be refilled as often. They didn't realize that doing this would have so much of an effect on the NOX emissions. But we've done more testing and found that if we improve the dosing, we we can cut emissions drastically, both on road and in the lab. Right, Stu? He nudges Johnson with his elbow. Right. We've already found the fix. Right here. He points to a diagram. Ayala studies it carefully. Schmidt sits on the edge of his seat, unsure if Ayala will buy it. After a long moment, Ayala nods and closes the binder. Thank you. I'll share this with my staff. We should start working on a press release to announce this. Everyone will be very glad to hear we have a solution. They shake hands. Ayala takes the binder with him as he leaves. Once they're alone in the room, Schmidt turns to Johnson and exhales. See, that was easy. When Schmidt gets back to Germany, he calls another Volkswagen exec and discusses leaving Johnson out of future meetings with karb. It will be better for everyone if he doesn't have to actively lie. Meanwhile, Ayala flies back to California. After the conference, he has his staff at KARB look over the documents Schmidt gave him just to make sure everything checks out. Their explanation looks credible enough to him, but he's not an engineer. His technical knowledge is limited. But when his engineers get a look at the binder, they inform him that it's a load of crap. From a technical standpoint, this explanation doesn't make any sense. Volkswagen must be hiding something. And after more than a year of shoddy excuses and failed fixes, the CARB engineers fear there's only one possibility left. Volkswagen has to be using a defeat device. In the following days, CAR barrages Volkswagen with even more questions and still no approval for their 2016 diesel models. Even worse, they inform Volkswagen that they've gotten their hands on one of those 2016 models from the shipping dock, and they'll be thoroughly testing it themselves to make sure everything's on the up and up. Volkswagen executives go into panic mode. They schedule one more last ditch meeting with the regulators. The execs approve a script for the employees to follow, telling them exactly how to answer the questions they're likely to be asked. The main directive once again, is to hide the existence of the defeat device at all costs. But Johnson can see the writing on the wall. Time is up. It's only a matter of weeks, maybe days, until regulators find out the truth. More lying won't be enough to save Volkswagen, but coming clean could at least save his own skill. Less than two weeks Later, a Green Transportation conference is held at Asalamar, a sandy resort on the coast of Pacific Grove, California. EPA director Christopher Grundler waits in the hallway outside a conference room, thumbing through a stack of note cards. In a few moments, he's supposed to go in and deliver a speech to open the morning session. Someone taps him on the shoulder. He turns to see a harried man with sweat staining the collar of his well pressed shirt. Mr. Grundler? Sorry if this is a bad time. My name is Stuart Johnson. I. I run Volkswagen's U.S. engineering and environmental office. Grundler raises an eyebrow. Obviously this is a bad time. I. I'll make it fast. I just thought this news would be best delivered in person. Right then and there, Johnson tells him that Volkswagen has been using a defeat device to knowingly cheat on emissions tests. It's a bombshell admission. Grundler barely has time to process it before his assistant peeks her head out of the conference room door. It's time. She ushers him inside for his speech, leaving Johnson alone to process what he's just done. There's no turning back now. That same morning, Johnson tracks down Alberto Ayala, the CARB official who's also at the conference. He tells him exactly what he told Grundler. Ayala is furious to learn that Johnson and Schmidt lied to his face just a couple of weeks earlier. This whole ordeal has been time consuming and expensive for carb, and he promises to make sure it hurts even with worse for Volkswagen. Let's pause here for just a moment. Put yourself in Johnson's shoes. Maybe you've experienced something like this in your own work. For employees, the line between loyalty and liability can be razor thin. Stuart Johnson had a choice to make. Stay loyal to his bosses and risk prison, or break rank and protect himself. From the inside, whistleblowing often looks like betrayal, but from a business perspective, it's self preservation. Leaders should remember. When you put your own people in impossible ethical positions, don't be surprised when survival instincts kick in. Back in Volksburg, Volkswagen headquarters is thrown into a pain panic. Executives start deleting documents. The head of engine development tells an assistant to get rid of a hard drive full of emails. Coded instructions go out to employees. If you happen to have any documentation related to emissions tests, it'd be better if you didn't. For Vintor Korn, everything is about to come crashing down. Not just the company. He's grown into a global market topper, and not just the career he spent decades building. If it comes out that he knew about the defeat device and did nothing to stop it. He could be going to prison. The entire course of his life depends on his next move. It's too late to hide the truth about the cheating. All he can do now is control the fallout after telling hundreds of stories about business battles throughout history, I've learned one constant truth. Having the right support systems in place can make or break a new venture. Trust me, it was a battle even I faced on my business journey. That's why AT and T Business makes so much sense for entrepreneurs today. When you're building something from scratch, or even just at the point where you're ready to grow, you need a provider that makes things easy. With AT&T business, you can have reliable, protected Internet connection you can count on so you do not miss a beat. Building your dream might take time and a lot of work, but that doesn't mean it can't be a little easier. Wake up to the power of ATT Business and turn your vision into reality. Business.att.com hey, let's talk about something we've all experienced the stress of job hunting and hiring. Whether you're looking to hire or get hired, timing is everything. And that's where Indeed comes in. When it comes to hiring, Indeed is all you need. Their Sponsored Jobs feature is fantastic. It helps job posts stand out by jumping to the top of the page, getting them in front of the right candidates faster. And you know what? The numbers don't lie. According to Indeed data, sponsored jobs posted directly on indeed have 45% more applications than non sponsored jobs. And there are no monthly subscriptions or long term contracts either. You only pay for results. Want to know something else? Amazing in the minute I've been Talking to you, 23 hires were made on Indeed, according to Indeed Data worldwide. That's how efficient their platform is. Look, there's no need to wait any longer. Speed up your hiring right now with Indeed and listeners of Business wars will get a $75 sponsored job credit to get your jobs more visibility@indoubtedly.com BW just go to indeed.com BW right now and support our show by saying you heard about Indeed on this podcast. That's indeed.combw terms and conditions apply. Hiring Indeed is all you need. Today, Volkswagen admitted that it rigged 11 million cars to defraud pollution tests. The U.S. justice Department is looking into criminal charges. On September 18, 2015, the EPA serves Volkswagen with a notice of violation for installing defeat devices on hundreds of thousands of vehicles sold since 2009. The fallout is Swift.
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Narrator/Interviewer
Volkswagen is in crisis mode as more.
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David Brown
Details emerge that the carmaker cheated on U.S. emissions tests. The German automaker is halting American sales.
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Narrator/Interviewer
Of popular diesel powered cars and issuing an apology.
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David Brown
Apology for violating Consumers Trust.
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Narrator/Interviewer
This is huge because they've been cheating for years.
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David Brown
This is bigger than Volkswagen. Francine. This is about the entire diesel technology. I would say it's probably, you could say Friday was the day you can mark on your calendar that the internal combustion engine may have died. Volkswagen is ordered to recall 482,000 vehicles. The company sets aside $7.3 billion for the recalls, about half their annual profits. They're also facing billions in potential fines and lawsuits.
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Narrator/Interviewer
So how is the stock market reacting to that today?
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David Brown
Shares are down more than 20% today. Analysts are saying this is a long term issue for the company, probably a multibillion dollar fine. Big issue for CEO Martin Winterkorn. It's never ending. It seems this could be going on for a while. Volkswagen stock plummets, losing more than a third of its value in a matter of days as they watch their portfolios tank. Several Volkswagen board members complained publicly that they knew nothing about the scandal until they saw it on the news. They blamed the company's top down management for keeping secrets and not allowing open discussions about issues like this. Five days after the scandal breaks, Martin Vinterkorn steps down as CEO. He puts out a resignation statement saying he is shocked by the events of the past few days. He insists he didn't commit any wrongdoing, blaming the cheating on terrible mistakes made by only a few. The upper leadership strategy is to deny any knowledge of the defeat device. Michael Horn, CEO of Volkswagen's U.S. army, repeats the same talking points when he's called to testify before Congress in October. 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. But this was a couple of software engineers who put this in. For whatever reasons, he insists that no one in senior management, including Ventricorn, knew about the defeat device until a month earlier. Members of Congress don't buy it. Do you really believe that senior level corporate managers, administrators, had no knowledge for years and years? I agree. It's very hard to believe. On the same day that Horne testifies, Volkswagen's Volksburg headquarters is raided by German police. Employees stand by as the investigators roam through executive offices, seizing whatever documents and digital records they can get their hands on. Their hope is to identify exactly who knew what about the defeat device. Surely it wasn't just a couple of rogue engineers. German Vice Chancellor Sigmar Gabriel is there in person to address the staff. Pushing back on the narrative the executives are spinning, he tells the workers, in the end, the employees must not pay the price for criminal behavior by managers. The financial toll for Volkswagen ends up being far worse than the $7.3 billion they initially set aside for the recalls. In a matter of weeks, they're hit with hundreds of separate class action lawsuits from customers. Analysts warned that the cost of the lawsuits, along with the damage to Volkswagen's credit rating, could eat through the company's cash buffer and force them to sell off assets. In June 2016, Volkswagen settled the various lawsuits for a staggering $15.3 billion, the largest auto related class action settlement in US history. US Deputy Attorney General Sally Yates called the proposed settlement the first step toward holding Volkswagen accountable and one of the.
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Narrator/Interviewer
Most flagrant violations of our country's consumer and environmental laws in our country's history.
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David Brown
The settlement includes buybacks and cash payments to customers, along with $2.7 billion for environmental mitigation efforts and another $2 billion to build clean emissions infrastructure.
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Narrator/Interviewer
By duping the regulators, Volkswagen turned over half a million American drivers into unwitting.
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David Brown
Accomplices in an unprecedented assault on our country's environment. The company also pleads guilty to defrauding the US Government and obstructing a federal investigation. They agree to pay a $2.8 billion fine and 1 1/2 billion dollars in civil penalties. In total, Volkswagen is on the hook for more than 30 billion DOL in penalties and settlements. And that's just the beginning of the criminal fallout. Think about that number. $30 billion. That's not the cost of emissions technology. That's the cost of silence. Volkswagen's culture of secrecy and fear turned a solvable engineering problem into a global scandal. The takeaway? Transparency may feel risky in the moment, but secrecy is almost always more expensive in the end. And we haven't even started to calculate the cost of something like Volkswagen's reputation. In January 2017, Oliver Schmidt rolls a suitcase through the terminal at the Miami International Airport. He's about to fly back to Germany after spending Christmas vacation in Florida with his wife. Some of his Volkswagen colleagues still refuse to step foot in the US Fearing they'll be arrested. But Schmidt assumes the heat has died down. He's been cooperating with the FBI. He's crossed into the country several times in the past year, including to meet with investigators. If they haven't indicted him yet, they're not going to do it. In the next 20 minutes, Schmidt and his wife reach the gate with a few spare minutes. Before boarding starts, Schmidt leaves his suitcase with his wife and heads to the men's room. When he exits the stall, several uniformed officers are waiting for him. That long feared indictment finally came down over the holidays. He's under arrest for conspiracy to defraud the United States. During his trial, Schmidt pleads guilty and admits to his role in covering up the defeat device. He's sentenced to seven years in US prison on top of a $400,000 fine. Over the ensuing months and years, a half dozen other Volkswagen executives, including Winterkorn, are charged with felonies for duping U.S. regulators. But unlike Schmidt, they are all savvy enough to stay in Germany, where they're unlikely to be extradited. As of this recording, they remain fugitives from the U.S. but four Volkswagen managers are eventually convicted of fraud in German courts. Winterkorn is also charged in Germany, but his trial has been repeatedly postponed due to the now 78 year old's poor health. If he ever is convicted, he could face up to 10 years in prison. The emissions scandal was a massive blow for Volkswagen, both financially and in terms of public image. If they were going to survive, it would take a massive overhaul of their entire strategy. Luckily, the new CEO, Matthias Muller, was up to the task. He promised to fix the company's culture of secrecy, top down management and tolerance for rule breaking. To win back trust from investors and customers, Volkswagen makes sweeping changes to its leadership structure, introduces a whistleblower hotline to report wrongdoing, and adds compliance officers to every division. And to salvage its reputation as a climate leader, Volkswagen appoints nine experts to a new sustainability council dedicated to environmental issues. Part of the strategy is to pivot away from diesel and focus on zero emission vehicles. After the Volkswagen scandal broke, more testing and research revealed that diesel emissions weren't just a Volkswagen problem. Several other major carmakers, including Jeep, Ram and Mercedes Benz, reached settlements over allegations they used defeat devices in their diesel cars. Toyota, Chevrolet and Ford were also accused of cheating. But the allegations have never been proven. A 2016 report by the French government found that of the 86 cars they tested from various makers, only a fifth actually complied with emissions laws. Turns out clean diesel wasn't the future after all. But by cleaning up its own act, Volkswagen bounced back. After tanking in the wake of the emissions scandal, the company's US sales rebounded in 2017. Ironically, it wasn't the new environmental initiatives that drove the turnaround. It was the two new SUVs Volkswagen introduced that year, the Atlas and the redesigned Tiguan. At the end of the day, the most Americans are willing to forgive the company's history of malfeasance in exchange for a little additional legroom. And despite all the fines and recalls in the U.S. the states were only a small part of Volkswagen's global business. To begin with, the carmaker got off without any major fines or class action settlements for the millions of diesel cars sold in Europe, where regulations and enforcement are weaker. Ten years later, Volkswagen is still going strong, although it has slipped behind Toyota to become the second largest automaker in the world. The emissions scandal stands as a cautionary tale about the cost of bad management. But the company's remarkable recovery suggests that with the right PR strategy, a global brand can weather just about any scandal. From Wondering this is Episode two of dieselgate for Business Wars. We've used many sources for this season, including reporting from Forbes and the book Faster, Higher the Volkswagen Scandal by Jack Ewing. A quick note about the recreations you've been hearing. In most cases, we can't know exactly what was said. Those scenes are dramatizations, but they're based on historical research. I'm your host David Brown. Our story was written by Kate Gallagher. Sound designed by Ryan Potesta. Fact checking by Gabrielle Drollet. Our producer is Tristan Donovan of Yellow End. Our managing producer is Desi Blaylock. Our senior producer is Emily Frost. Karen Lowe is our producer emeritus. Our executive producers are Jenny Lauer Beckman and Marshall Louie for wondering.
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Narrator/Interviewer
Look, it's okay to make some financial mistakes. We've all missed payments, signed up for cards we didn't need, or ignored our credit scores. You're not alone. That's why you need Experian, your big financial friend. The Experian app helps you check your FICO score, find ways to save, and get matched with credit card offers that fit your needs. Some cards are labeled no Ding Decline, which means if you're not approved, they won't hurt your credit scores. So yeah, it's okay if you haven't been the best with your finances. That's why you've got experience Experian on your side. Download the app for free today. Applying for no Ding Decline cards won't hurt your credit scores. If you aren't initially approved. Initial approval will result in a hard inquiry which may impact your credit scores.
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David Brown
Experience.