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VW and Digital Deception: A Warning to All Smart Product Makers

Posted By Paul Tate, September 29, 2015 at 11:15 AM, in Category: Transformative Technologies


Martin Winterkorn’s plans for the next few months are going to be very different than he expected. The former CEO of Germany’s Volkswagen, the world’s largest carmaker in 2014 with sales of 10 million vehicles, resigned last week after his company admitted it had ‘cheated’ authorities by fitting millions of its diesel cars with ‘defeat device’ software that deliberately manipulated the results of air quality tests.

Using smart software algorithms and on-board sensors, the deception allowed VW cars to automatically recognise lab test conditions and run in full pollution control mode, so limiting the level of emissions. Driven on the road, this system turns off, resulting in actual levels of pollutants that can be 40 times higher than allowable U.S. limits.

The scientists who first spotted the problem were not a group of highly-funded, publicity-seeking, auto industry analysts. They worked at a small lab in West Virginia University. In 2012 the lab secured a commission from the non-profit International Council on Clean Transportation to test diesel cars on the road. It soon became clear there were significant discrepancies between the figures VW promoted, and real-life driving.  

Their findings have now become of global significance, not only resulting in a scandal at one of Germany’s most powerful auto firms - but also highlighting the urgent need for vigilance within every company creating smart new products. 

Worldwide, Volkswagen now believes that some 11 million cars have been fitted with the engines that hold the ‘defeat device’ system, including various VW, Audi, SEAT and Skoda brands, and including both passenger and commercial vehicles. In the U.S. alone the number is close to half a million. If the U.S. Environmental Protection Agency opts to fine VW the maximum amount for violating the Clean Air Act for each of these vehicles, it could cost the company $18 billion in U.S. penalties alone.

And that’s just the start. Since the scandal broke, VW’s stock price has crashed on world markets and the company is about to be dropped from the Dow Jones Sustainability Index. Ironically, VW was touted as the most sustainable automaker amongst its peers when the latest Index was announced only earlier this month. The cost of longer-term reputational damage, meanwhile, could be many times worse than any penalty fines.

Clearly, this is no accidental production oversight or quality issue, but appears to be a deliberate, digitally-driven strategy to deceive government authorities, and, ultimately, VW customers themselves. There is no way such software could have been fitted without the direct and complicit involvement of VW engineers, software designers, and significant layers of management giving their approval.

But it certainly seemed to take ex-CEO Winterkorn by surprise; "I am shocked by the events of the past few days," he said in a statement. "Above all, I am stunned that misconduct on such a scale was possible in the Volkswagen Group."

Winterkorn did the honorable thing, took responsibility, and quit his post. More heads are already starting to roll. R&D chiefs for VW, Audi and Porsche have also now been suspended. More are expected to follow as investigations, both internal and external, continue.

For the auto industry, this is yet another deeply embarrassing scandal in the wake of numerous recalls and quality problems over recent years stretching from Toyota to General Motors. At least there are no claims of directly-related deaths this time. However, while the previous recalls may be put down to unintended production and maintenance issues, or perhaps simply managerial incompetence, the VW case appears to be pre-meditated and deliberate, leveraging the embedded intelligence of a product to specifically falsify critical results.

That’s where the real warning lies for both smart product manufacturers and regulators in the future, and across every industrial sector, not just automobiles.

There are certainly a host of new vulnerability issues to face as Internet of Things technologies and embedded intelligence begin to permeate multiple manufactured products. External hackers can cause chaos if such smart products are not well protected, as the recent Jeep hack shows. But when a company, or at least some leading development executives, appear to be prepared to embed software or digital devices to falsify and manipulate regulatory results, the whole level of smart product protection needs to rise significantly.

First, every manufacturing company producing, developing, or planning new smart products must take direct responsibility for not only protecting their products against external interference, but also ensuring that every line of embedded software code and specific use of sensors do not compromise the company’s reputation or deliberately contravene regulatory procedures due to the actions and decisions of internal employees. End-to-end vigilance is essential to guarantee both product safety and integrity.

Second, the world’s regulatory agencies will need to get a lot smarter themselves if they hope to successfully enforce ever more complex regulations on ever smarter and more complex products in the future. Regulation as usual won’t work. This may require future embedded software to be more open to scrutiny or, at least, subject to forms of disclosure to regulatory agencies that do not compromise the originator’s IP or market competitiveness. 

If the world is going to take the smart products revolution seriously – whether it’s smart cars, smarter medical devices, or more autonomous domestic appliances – customers will need to trust their suppliers implicitly.

Digital deception is the last thing the journey to Manufacturing 4.0 needs right now. 

Written by Paul Tate

Paul Tate is Research Director and Executive Editor with Frost & Sullivan's Manufacturing Leadership Council. He also directs the Manufacturing Leadership Council's Board of Governors, the Council's annual Critical Issues Agenda, and the Manufacturing Leadership Research Panel. Follow us on Twitter: @MfgExecutive

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Posted on
This is a real blow (obviously) to VW's reputation. They had been working so hard (seemingly) to foster a reputation of environmental responsibility. It is quite amazing that so many people would do something so dishonest. Unfortunately not totally surprising in today's world. Toyota was heavily investigated after it's acceleration problem. Fortunately there were no integrity issues found and the company has largely maintained its reputation for quality. VW appears at the moment to be a different type of story.

Your comments about smart devices requiring a 'sea change' in the way regulators look at these products is on target. It is unfortunate that self policing policies failed, thus requiring more outside eyes.
Posted on
Thanks for the comment Michael. Perhaps this case will indeed spur manufacturers to take self-policing aproaches more seriously. We can only hope so. But as always happens with any new technological wave, whether it's modern air tavel or the internet, there's often a lag between initial deployment and effective governance and regulation. As change and complexity become increasigly exponential, that lag will need to shorten if society is going to benefit from new ideas, products and services with confidence in future. 
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