On Sept. 3, 2015, VW admitted to U.S. and California regulators that it had not only been selling high-polluting cars but that it had deliberately outfitted them with “defeat devices” that sensed when an official emissions test was under way and temporarily trapped the worst of the exhaust—chemicals that contribute to smog and acid rain.
“Device,” actually, is something of a misnomer. The cheat is merely several lines of software code in the computer that controls a Volkswagen’s engine and exhaust systems. According to the U.S. Environmental Protection Agency, when the car detects a test—certain steering patterns; speed; barometric pressure; only two wheels spinning instead of four—it switches into a cleaner mode called “dyno calibration,” after the testing machines. The cars can run cleaner, but they can’t run cleaner without sacrificing fuel efficiency or some of the engine’s power.
See: How Could Volkswagen’s top engineers not have known? for more on how the fraud was uncovered. Here is a direct video link.
It is worthy to note that the Volkswagen Finance arm (vehicle loans and leases equaled 40% of VW’s asset base) played a critical role in enabling VW sales over the past few years. One might think then, that the company had a vested interest in making sure customers were able and willing to keep their vehicles and pay financing back over time. But that would be naive. Why worry about getting paid on loans and leases when broker/dealers can help you package them up and dump collection risk onto gullible investors and pensions:
Volkswagen AG said 2.6 billion euros ($3 billion) of loans or leases for vehicles built with engines using emissions-cheating software were packaged into asset-backed securities.
The loans were found in 15 securitizations, according to documents on the carmaker’s website. More than 61 percent of collateral backing a deal sold two years ago, known as Driver France One, were affected, as were more than 20 percent of loans packaged into a deal currently being marketed, the documents show. See: Volkswagen scandal impacts $3 billion of securitized car loans.
The subprime mortgage model is still alive and well across many industries today.