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November 2008. Los Angeles, California journalist Ron Kogan stands in front of a wall of blue drapes at the LA Auto show. He's about to make a major announcement. And the winner for green Car of the year is the 2009 Volkswagen Jetta TDI. For the first time ever, the award is going to a diesel vehicle. Diesel, a notoriously dirty fuel known for its sky high nitrogen oxide emissions. But not anymore. Volkswagen's state of the art new technology cuts pollution so well. The 2009 Jetta TDI meets the most stringent emission standards in the world. The Jetta raises the bar in environmental performance. And at 41 miles per gallon, it rivals the fuel efficiency of a hybrid. Ladies and gentlemen, clean diesel has arrived. Stephan Jacoby, the CEO for Volkswagen North America, bounds onto the stage. This is a breakthrough for clean diesel as a real alternative to hybrids. It brings fuel consumption down, it's environmentally friendly, and most of all, it's fun to drive. This is Jacoby's victory lap. It's the Great Recession. Car sales are nosediving. Every other major automaker is in a tailspin. But Volkswagen is on the rise. In the three months since the new Jetta hit the market, 8,000 have already been sold in the U.S. an impressive debut, especially during such a tough year for the market. But the phenomenal success is all based on a lie. VW wasn't just selling a car, they were selling a story. Clean diesel. Great mileage, fun to drive. When customers buy the story, it boosts the brand. But if that story turns out to be fiction, trust crashes. And it's hard to tow that back. And something tells me the story of Dieselgate will go down as one of the ugliest crashes in corporate history. VW tried to develop a cheap, efficient system to cut emissions while keeping fuel efficiency. But their engineers couldn't do it, not on the timeline the top brass gave them. So they came up with a cheat for the Jetta and other so called green diesel cars in their fleet. It's called a defeat device. A secret piece of software that can detect when the car is going through an emissions test. The barometric pressure, the position of the steering wheel, how long the engine's been running. When all these indicators are just right, the software essentially flips a switch and activates a kind of testing mode. The exhaust system kicks into high gear, reducing pollution enough to meet the strict US limits. But when the car leaves the auto shop and actually gets on the road, it switches back to its regular mode, emitting up to 40 times as much nitrogen oxide. It seems foolproof. The clean diesel engine is hailed as a game changer. Millions of cars are driven off lots worldwide while everyone else sinks. VW soars, and for years, no one suspects a thing. But how long can they get away with it? And will the company survive if they get caught? 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Hey, football fans, Gillette's Best Shave has a new look this season. And it's looking smooth. Almost as smooth as my voice. We're talking about the new collection of Gillette Lab's official NFL licensed razors. Featuring the team colors and logos of 12 NFL franchises, these razors are a must have for fans that want to experience the confidence and pride of game day every day. With Gillette's Best Blades and Flex Disc technology, gillette Labs lasts 50% longer on average compared to Fusion 5, so get it while you can online or at a retailer near you. Gillette's Best Shave is now the best a fan can get. Gillette Labs also available in heated Gillette is a paid partner of the New Heights podcast From Wondering. I'm David Brown and this is Business Sports. Let's be honest. When pressed, most folks will confess to having cheated at one point in their lives. Sneaking notes into a math test? Perhaps peeking at another player's hand in a game of cards. Okay, nothing to be proud of. But when the pressure sets in and time's running out, it can sometimes seem there are only two options. Either you bend the rules or you fail. At Volkswagen, failure wasn't an option. By 2007, the German car company was the third highest selling manufacturer in the global market. But they were on a quest to top GM and Toyota to become the largest automaker in the world. It was an ambitious goal, to be sure. There was no way they'd get there without cutting a few corners. But that's a risk Volkswagen CEO Martin Winterkorn is willing to make. And if the engineers working below them wanted to keep their jobs, they wouldn't dare to say no. Now, if you're the average high schooler glancing at a crib sheet during midterms, odds are you won't get caught. Caught. And if you do, you'll probably survive the consequences. But if you're one of the world's leading car manufacturers cheating on hundreds of emission tests every day, well, you just might become a Podcast Episode in this season, we're taking a look under the hood at Dieselgate, the most expensive automotive scandal in history. This is episode one Truth or Dare January 2007. A chilly winter day at Volkswagen headquarters in Volksburg, Germany. The sprawling riverfront campus is home to the world's biggest car factory, a 73 million square foot plant where hundreds of thousands of vehicles are made every year. Next door to the Factory is a 13 story brick office building where Volkswagen's newly appointed CEO, Martin Winterkorn is addressing the company leadership. After 26 years with the Volkswagen Group, it's truly an honor to step into the role of CEO. The 59 year old former physicist likes to be referred to as Professor Winterkorn, even though the only professorships he's held were honorary. He's stocky, physically imposing, yet temperamental, and has a reputation for being very demanding. Everyone in this conference room is terrified of him. As we begin this new chapter of our company's history, I want to be very clear. The road ahead will not be easy. Times are changing, tides are shifting, and to keep up, we need to move boldly. Vintercorn casts his gaze out the window. Right across the river is Ottostadt, a billion dollar tourist attraction that opened seven years earlier. Nestled among the rolling hills and lagoons are pavilions showcasing Volkswagen's impressive family of brands. Audi, Lamborghini, Bentley and Bugatti, to name a few. Since Its founding in 1937, the Volkswagen Group has slowly grown to become the largest car manufacturer in Europe. But it's the 21st century. We're living in a global economy now. It isn't enough to be the best in Europe. We need to be the most profitable, fascinating, sustainable automaker in the world. And by 2018, we will be. He lays out his vision for Strategy 2018, a 10 year plan to blow past Toyota and General Motors and become the world's Top automaker. To get there, they'll have to boost annual sales from 6.2 million vehicles to 10 million, all while raising profit margins from 6% to 8%. The two executives share a concerned glance. That's a big ask. Yes. Oh, he saw them. It's ambitious, that's all. That's good. Ambitious is good, yes. It's just that we're doing so well. We've already cornered the European market. The only way we could hit that target is if we, say, tripled our sales in the US. Yes. US sales will need to reach 1 million cars per year. Yes, of course, sir. And we'll meet that target without ever sacrificing quality. Only the automaker with the most satisfied customers can really call itself number one. Venturn's ambitious plan hinges on diesel. It's an area with plenty of opportunity for growth. Diesel cars are popular in Europe, but they only make up about 5% of the US market. There are a few reasons for that gap. Tax incentives, differing gas prices, and the fact that diesel engines have a bad reputation in the US. Back in the 70s, GM put out a line of diesel Oldsmobiles that were so loud and smoky, some believe they tarnished the name of the entire class of vehicles. After that, US automakers never really tried again. But another big factor is that diesel engines emit way more nitrogen oxide than regular petrol engines. Nitrogen oxide NOx for short, is a dangerous pollutant that causes asthma and other respiratory issues. And the US has stricter NOx limits than most European countries. And those limits are really hard for diesel cars to meet. To make matters worse, the EPA recently tightened its NOX limits even further. All this to say, strategy 2018 hinges on making diesel happen in the US. But if Volkswagen has any hope of success, they'll have to build an engine that can meet the EPA's strict rules, and fast. Luckily, Volkswagen has had a new diesel engine in development for years already. It has an emissions system they license from Mercedes called BlueTech, which uses a tank of liquid solution to convert the dangerous NOX into harmless nitrogen and water. The downside? The BlueTech equipment is expensive and it's too bulky for Volkswagen's smaller cars like the Jetta and the Golf. Plus, it was designed by their competitor Mercedes, which is a bit of an ego hit for all those reasons. Vintner Korn has been opposed to using Bluetech from the beginning, and now that he's in charge, he's changing course. Soon after Venturn takes over as CEO, he calls in the heads of Volkswagen's engine development departments Jens Hadler and Richard Dorenkamp. He tells them he's canceled the licensing deal for BlueTech. When Volkswagen rolls out its new EA189 diesel engine next year, it's going to use the company's proprietary Lean Nox Trap system. They had that system in development before, but then it was backburnered for BlueTech. Now the engineers only have a few months to switch gears and get the Nox Trap ready for production. It's a curveball, but if Hadler and Dorenkamp have any reservations about the timeline, they're smart enough not to express them. Everyone knows Winterkorn hates to be told no. We don't need to get too deep into the technical details of how the Lean Nox Trap works. Bottom line is, it doesn't work, at least not well enough to meet emission standards. The engineers have to supplement it with another piece of tech called an exhaust gas recirculation system. But the recirculation system puts too much stress on the particle filter and makes it wear out too quickly, which will be a problem for consumers as well as regulators. Basically, the engineers are straining against the limits of physics. They can't solve one problem without creating another. And the clock is ticking. The EA189 engine is scheduled to be used in millions of cars for model year 2009. There's no way they'll be able to slap something together in the next few months that can get regulatory approval and keep customers satisfied. Well, there is one way they can cheat. This episode is brought to you by Prize Picks. You and I make decisions every day, but on Prize Picks being right can get you paid. Don't miss any of the excitement this season on Prize Picks where it's good to be right. Look, I'm a hardcore Longhorns fan, and no matter the team, it's fun to be a fan and play Prize Picks. See, Prize Picks is a daily fantasy sports platform where you can predict whether an athlete, say, I don't know, a certain quarterback perhaps, will perform more or less than their projected statistical total. But it's different from a lot of fantasy sports games in that you're playing against the house. Plus, there's no salary cap for choosing players week one. I'll admit I didn't do so well. 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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 data. 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 AI BusinessWars and see why the world's best problem solvers choose Claude as their thinking partner. Let's take a moment to talk about how Volkswagen first came up with that emissions cheat. Volkswagen's engineers didn't totally start from scratch on their diesel motor. They're adapting some of the software from an engine designed in 1999 by Audi, which is one of Volkswagen's subsidiaries. While rooting around in the control software, one of the engineers notices a piece of code labeled as the noise function. When it's flipped on, the engine is deafening, like those rackety Oldsmobiles that gave diesel such a bad name in America. When it's turned off, the engine is nice and quiet. But that's not all that's happening under the hood. Audi apparently made some tweaks to the engine that made it run more quietly, but in exchange, it produced significantly more pollution. So to get around that problem, they worked up a cheat code that would sense when the car was going through emissions testing and secretly disable the noise reduction mode, keeping emissions low enough to meet regulations. Once Volkswagen's engineers become aware of the noise function, someone whose identity is still a mystery pitches the idea of borrowing it for their new EA 189 diesel engine. According to US investigators Dorencamp and Hadler, the executives who run Volkswagen's engine development departments, are in on the scheme from the beginning. In technical terms, it's called a defeat device, a piece of software that interferes with emissions controls to fool regulators. Internally, Volkswagen refers to it with coded names like pre con recognition and emissions type mode. But it's safe to assume everyone directly involved in the engine's design would understand what it is and that it's illegal. Naturally, not everyone is on board with the defeat device. It's risky, not to mention unethical. In an October 2007 meeting between Hadler, Dorenkamp and a team of engineers, those tensions begin to boil over. On a technical level, the emissions type mode works. But what happens if it's discovered? Dorinkamp shuts him down quickly. I already met with the epa. They saw no issues with the design. Maybe the regulations are barely enforced here in Europe, but things are much different in the U. S. The fines could be in the billions. And do you know how much money we'll lose if we don't deliver? This engine is set to be used in millions of cars. The marketing team has been pushing clean diesel for months. The entire future of the US Market depends on this. I'm not going to prison so we can meet a Q1 sales target. Then you're welcome to quit. The door is over there. Enough. Adler bangs his fist on the table. The room falls silent. Dorinkamp is right. The emissions type mode is a stopgap. All that matters right now is getting the EA189 into production. You're really letting this move forward. You can come up with a real fix for next year's model. Or maybe you can't. If you could, we wouldn't be in this mess in the first place. The engineer clenches his jaw. He knows there's no use in fighting. The defeat device is going into production whether he agrees with it or not. He might as well shut his mouth and keep his job. Well, you couldn't have missed the dynamics in that meeting. The moment fear enters the room, honesty leaves it. Look, if your team is afraid to push back, or we're still afraid to tell you the truth, you've got a problem bigger than you probably know this. This is how bad ideas survive and metastasize. I know a lot of managers think of corporate culture as a feel good phrase, but think of it this way. It very well could be your first line of defense against disaster. And at this point, VWs headed straight for it. A week later, Hadler sits down at his desk and checks his email. There's a message from Dorencamp. Attached is a draft of a PowerPoint Hadler is supposed to present to the senior executives to brief them on the engine's progress, Hadler examines it closely. The main body of the presentation doesn't mention the defeat device at all, but there are a few backup slides included in the document that make references to the pre con recognition and emissions type mode. Hatler's mouse hovers over the slides. His pulse rises. He clicks delete. He sends the revised PowerPoint back to DorothyMP and writes regarding the backup slides, we shall please never present this anywhere and will also not distribute it A month later, Hadler flies to the annual Los Angeles Auto Show. California Governor Arnold Schwarzenegger is at the event to spotlight the upcoming green vehicles. As you all know, that California has taken the leadership role in fighting global warming and cleaning our environment. Schwarzenegger is both an environmental advocate and a car guy. He praises automakers for stepping up and embracing new technology to meet the state's strict new emission standards. Every industry has to participate in this in order to keep our environment clean or to clean our environment and to keep our future generations protected. And this is why we also challenge the car manufacturers to to come in and to do their part. He introduces the Tesla Roadster, an all electric sports car the BMW Hydrogen 7, which can run on hydrogen instead of gasoline the Mercedes E320, a diesel car that uses good old blue tech to cut emissions. And of course, Volkswagen's Jetta TDI Clean Diesel, which is allegedly the carmaker's cleanest diesel car yet. Its EA189 engine uses an innovative system to reduce emissions by up to 90%, and it gets 30% more fuel economy than a gasoline model. Hadler smiles for a photo with Schwarzenegger and fires it off to Dorinkamp. On stage, it's all applause and handshakes. Offstage, the green revolution the Governor is selling is nothing more than than a gleaming lie. As a small business owner, you know that change is the name of the game Operational costs, Labor markets tariffs. Wouldn't it be nice if something stayed the same? How about your business Internet rate? Get reliable secure 5G business Internet from T Mobile for business for $40 a month with a 5 year price guarantee when paired with a voice line. That's stability you need from the partners you can depend on. Switch now@t mobile.com BI/ taxes and fees guarantee exclusions like taxes and fees apply to exclusions and details@tmobile.com you open the fridge, there's nothing there. So what's it going to be? Greasy pizza? Sad drive thru burgers Dish by Blue Apron is for nights like that. These are the pre made meals of your dreams. At least 20 grams of protein. No artificial flavors or colors. No chopping, no cleanup, no guilt. Keep the flavor. Ditch the subscription. Get 20% off your first two orders with code APRON20. Terms and conditions apply. Visit blueapron.com terms for more Congratulations Jetta TDI Clean Diesel 2009 Green Car of the Year Roll the clip. You're not only green, you're efficient and powerful too. The Volkswagen Jetta TDI Clean Diesel launches in August 2008 and takes the United States by storm. It's marketed as being as green as a hybrid, but even more fuel efficient and more fun to drive. A TDI set a Guinness World Record 58 miles per gallon. 58 miles per gallon. But this baby hauls it's what's your hybrid sound like? The centerpiece of the marketing campaign is an interactive website called TDI Truth and Error. Launched nine months after the car first hits the market. It's dedicated to dispelling so called myths about diesel. People think diesels have a hard time starting in the extreme cold. Can the green car of the year be fast? Is clean Diesel really clean? The site features videos comparing clean diesel Volkswagens to competitors like the Toyota Prius, one of the most popular hybrids in the world, which hit 1 million global sales the previous May. The message to consumers is that clean diesel is the future. It can save them a fortune on fuel costs while also saving the planet. Diesel. It's no longer a dirty word. The message works. As soon as they launch, thousands of Jettas fly off lots across the US with top tier fuel efficiency and prices starting at an affordable $22,000, the Jetta is the perfect car to meet the moment. It's the beginning of the Great Recession. I think this is the most significant financial crisis in the post war period. There are fears the sell off will continue on Wall Street. Soaring gas prices, falling home prices and rising unemployment. As gas prices skyrocket and pocketbooks tighten, America's big three automakers, gm, Ford and Chrysler are seeing sales of their gas guzzling SUVs and pickups slide. Chrysler's bankruptcy is routinely called surgical. The hope being the operation will be successful and swift. But auto analysts worry it's not just Chrysler's future riding on this surgery, but GMs as well. And there's no guarantee the operation will come off without a hitch. In the spring of 2009, Chrysler and GM are forced into bankruptcy. They have to be bailed out by the US government. But Volkswagen fares better, thanks in part to its fleet of cheap, fuel efficient diesel cars. Halfway through 2009, the automaker's profits are down 80%. But they're still in the black compared to competitors who are posting billions in losses. Any net profit is a huge success. Volkswagen rides out 2009 and bounces back to see a record $9.4 billion profit in 2010. In the spring of 2011, the company opens an assembly plan plant in Chattanooga, Tennessee, its first factory in the States since 1987 when its short lived Pennsylvania plant closed. The future's never looked brighter for Volkswagen, except for the tiny setback that will bring the company to its knees. In July 2012, a team of Volkswagen engineers meet with a supervisor in quality management ban Gottfais. Within the company, Gotweis is known as the fireman. He's in charge of putting out product quality fires before they turn into five alarm blazes. And these engineers have something to report that could burn the whole company down. One engineer delivers the bad news. A small number of customers in the U. S are experiencing hardware failures with the EA189 engine. We think it's because the cars are getting stuck in emissions type mode. What's that? Here the engineer slides a folder across Scott Vys desk. Inside are diagrams that illustrate the problem. The defeat device is staying activated even when cars are being driven on the road. Keeping the exhaust system in high powered testing mode. The system wasn't built to withstand the stress of actually driving in emissions type mode. We think the added pressure on the engine stop. I've heard enough. He closes the folder and slides it back to the engineer. Well, what should we do? First of all, destroy those documents. No one else sees them. And second, fix it. Patch the software so the cars don't get stuck. That's all. What else? We can't afford a recall. And look, do it quiet. We don't want anyone looking too closely at this problem. So when development starts on version 2.0 of the EA189 diesel engine, the task isn't to build an emissions system that actually does its job without having a meltdown that would be too time consuming. Instead, the engineers are focused on building a defeat device that's better at cheating. Here's the fix. They land on adding a feature to recognize whether the steering wheel is moving or staying stationary. That makes it more likely the software will be able to tell when it's being driven on the road rather than being tested. There's one big question that's difficult to answer, though. At this point. How high does the deception go? According to investigators, several execs in engine development already know about the defeat device. Gottweiss knows. But what about Volkswagen's man in charge, Martin Venterkorn? Publicly, Venterkorn later denies knowing anything about the defeat device at the time it was rolled out, claiming he wasn't told about it until years later. But he's a very hands on CEO who pays close attention to detail. He carries a micrometer so he can double check the measurements of car parts himself. Before the redesigned Passat SUV launches, he flies to the Chattanooga plant seven times to inspect it. And at the 2011 Frankfurt Motor show, he's caught on camera chewing out his staff after realizing a competitor has designed a steering column that's quieter than Volkswagens. In the video, Venter Korn gets into a test model of a Hyundai i30. He adjusts the steering wheel and shouts, bischoff. Nothing's rattling here. Why can they do it? BMW can't do it. We can't do it. Klaus Bischoff, Volkswagen's head of design, replies, we had a solution, but it was too expensive. Vintnerkorn clearly keeps his eye on every detail of every car his company makes. How could he not know about something as existentially threatening as the defeat device? Is he lying about his involvement? Or is this massive oversight the biggest misstep of his career? Early 2013, a management meeting at Volkswagen headquarters. It's been six years since Winterkorn took over as CEO, and there are still five years left to hit. His targets for strategy? 2018. They're right on track. But a lot can happen in five years. Winterkorn dims the lights and pulls up a video from the first frame. Everyone in the room knows what it is. Germany's game against Sweden at the recent World cup qualifier. It's the beginning of the second half. Germany is up 4 0. With such an impressive lead, the team lets its guard down, the goalkeeper falls asleep at the wheel. Winterkorn forces the entire C suite to sit there and watch the next brutal 28 minutes of the match. Sweden scores again. And again and again. By the time the whistle blows, the final score is an even 4 4. Vinderkorn brings up the lights and stands at the head of the polished wood table. It's halftime. He looks around at his team, meeting each of their eyes. We've had a strong few years, but pressure is growing. Our rivals are at our heels. One wrong move could cost us everything. We have to stay on the attack and keep our defenses tight. That's the only way to ensure we're still ahead when the final whistle blows. Well, what do you make of that halftime pep talk? Catchy. Dramatic, huh? But here's a simple truth. Metaphors don't fix engines and bumper sticker. Business philosophy can't patch up systemic rot. And for vw, it's really starting to stink. But you better hold your nose because it's gonna get worse. A lot worse. On the next episode, a team of student researchers uncovered Volkswagen's deception. The EPA steps in and company management goes into overdrive to hide the truth from Wondery. This is episode one of Dieselgate for Business Wars. We've used many sources for this season, including reporting from Forbes and the book Faster, Higher, Farther 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. Our lead sound designer is Kyle Randall. Fact checking by Gabrielle Drollet. Our producer is Tristan Donovan of Yellowant. Our managing producer is Desi Blalock. Our senior producer is Emily Frost. Karen Lowe is our producer. Americus. Our executive producers are Jenny Lauer Beckman and Marshall Louie. For wondering Shopify's point of sale system helps you sell at every stage of your business. Need a fast and secure way to take payments in person? We've got you covered. How about card readers you can rely on anywhere you sell. Thanks. Have a good one. Yep, that too. Want one place to manage all your online and in person sales? That's kind of our thing wherever you sell. Businesses that grow grow with Shopify. Sign up for your $1 a month trial@shopify.com listen shopify.com listen.