Gary moore show, and there was a caveat in the first five years that some brilliant lawyer or my agent or somebody came up with that said, if within the first five years of the tenyear contract, if i wanted to push that button, they would have to put us on the air one hour, 30 pay or play variety shows. We continue with the remember rains of yogi berra. The baseball legend died tuesday. We look back at his appearances on this program. We sit around the table all the time and the kids would say, dad, you said another one. I dont even know i say them. You dont. I dont know i say them. I can go to parties and people say, let me hear you say one of your funny things. I dont know i say them. It just comes out. You tell me what time is it, i say now. Rose whats your favorite . You come to a fork in the road, take it. You cant hit and think at the same time. Rose go ahead. Youre doing very well. What are some of the others . Id still be asleep if you didnt wake me. Rose nobody goes to that restaurant anymore because its too crowded. It gets dark early out rose funding for charlie rose has been provided by american express. Rose additional funding provided by and by bloomberg, a provider of multimedia news and Information Services worldwide. Captioning sponsored by Rose Communications from our studios in new york city, this is charlie rose. Shatzker good evening. Im Eric Shatzker of Bloomberg Television filling in for charlie rose whos on assignment. We begin this program with the ongoing developments at volkswagon. The german carmaker admitted last friday it provided talls Admission Test results in the United States. Shares plunged by 36 in two days. Germanys transport minister suggested today gene cars could be affected as well. Volkswagen c. E. O. Martin vintercorn resigned as a result of the allegations and the scandal isnt ifn close to being over. Joining the program from washington jeffrey thinnes, c. E. O. And cofounder of j. T. I. And former daimler executive. From detroit, jamie butters and Lawrence Ulrich of time inc. s auto vertical the drive. Pleased to have them all on the program. Gentlemen, welcome. Im looking at the vw and wondering to myself if it doesnt quickly become the biggest auto scandal of all time . But its easy to feel that way today, so lets put it into perspective. Lets rate the vw scandal on the timeline of continuum of auto scandals over the time. We have a lot to choose from in the last five years. G. M. , takata, toyota. Lawrence, where would you put it . Its hard to get perspective at the moment. Its a hot issue, an important issue. I would put it in the low top ten. Were talking about previous scandals from ford pinto to toyota, General Motors, injuries, fatalities. No one has died here. Perhaps a little lung congestion, and thats not a good thing, but, right, this is a its a bad scandal. Its corrupt. Its the unseemliness thats driving it home, for a company to you know, a studious company, you picture volkswagon as this intelligent, German Company, educated car in other words, its almost like a frat boy cheating on a test. Its the last thing you would have expected from volkswagon. Shatzker jeffrey, lawrence is absolutely right, nobodys died or will die as a result of the scandal, at least not directly because volkswagon cheated on its emissions tests, but were talking tens of billions of dollars in potential penalties and currently about 11 billion cars at volkswagon only. We have no idea which other carmakers may ultimately become embroiled. Well, thats right. We can already see from the movement of stock prices of other automotivemakers that there is some concern. Until, you know, internal investigations are conducted and those other automotive manufacturers come to the conclusion theyre doing things correctly, that uncertainty will hover over the entire automotive industry. So i would agree that i would rank this somewhere in the middle top ten, if you would, but the fact you have leading engineers from germany with a reputation of quality designing of system and algorithm to circumvent regulations is somewhat unique and i think its going to be met with a fairly large sledgehammer once the regulators get into this. Shatzker jamie, go ahead. I think youre right, its less violent than an unintended acceleration incident that causes the car to accelerate without control and get into a crash or, you know, more than 100 people were killed by the g. M. Faulty ignition switch that g. M. Acknowledges, and others they dont accept. But more than 100 fatalities, violent fatalities, but there was the deliberateness of this and many months of obfuscation, after the Resources Board started asking them why are your cars running dirtier on the road than in the lab, why are they dirtier when theyre warm than cold . It was not until the tenth meeting with a. R. B. They finally raout of excuses and had to admit they put in this defeat device and cheated on the test and its that deliberateness and that unwillingness to admit error that is really going to cause trouble. Like jeff said, the regulators wont take this lightly. I want to get to that notion, the deliberateness in just one question but, before i do, jeffrey, go ahead. Yeah, id just agree and add to that that we have other examples in the related area, for example, in corruption where Companies Put up smoke, didnt respond openly and transparently to the initial inquiries and they paid dealer when it came time to issue the fines and other civil and criminal penalties. So, you know, the fact that vw was dragging their feet over the last several months is definitely going to come back to haunt them. Shatzker the word ive heard used several times in the past couple of days which rings loudly in my head is conspiracy. Jamie got to it with his point about it being deliberate. But unlike the other conspiraciys, say ford with the transmission scandal in the 80s or g. M. And takata and perhaps toyota, this was a conspiracy to deceive from the beginning whereas in the other cases it was just a coverup, right . There is a new climate out there. This isnt the first time people played fast with th the emissios results. Cadillac did it and walked away with a slap in the 90s. Very detroit solution. When the car would sense it was being tested, they would put a sensor on the hood pin of the car. When the car was being tested, it was an early defeat device and very elegant as well. How will we set this car up . But they walked away with nothing and it hardly even created a blink in the media. But i think there is a new climate out there now and, again, as jeffrey noted, the massive scale of this, if were talking 10 million, 11 million cars around the world and drag in the fact this is a diesel thats vying for supremacy, there are new wrinkles that werent here 20 or 30 years ago. Shatzker so what does that mean . Jeffrey, erhaps you can answer the question, given your experience, will u. S. Regulators and perhaps, more importantly, prosecutors, in this country and in germany we know theyre beginning a criminal probe, deal with volkswagon in a different way that we havent seen before or will they look back on previous cases like General Motors or toyota or as you pointed out cadillac and say the punishment needs to fit the crime . I think the d. O. J. Will take a hard stand here because of the intentional nature of what was done. A large impact will come from how vw reacts literally in the next days. If they continue to put up smoke, continue to put up denials, then the d. O. J. Will become more and more aggressive, so we have to watch and see what happens in the coming days. You know, theyre very active now. The german prosecutors are also active. What we dont know is whether or not, with or without this vice, the regulations in europe would have been circumvented. They have a different type of diesel fuel in europe which is cleaner than the fuel used here. The use of diesels in the Passenger Car industry is much more widespread in europe than here. It is possible they would have met the local quality standards because to have the better fuel. A lot of questions are open. Well have to see what happens in the coming days. Shatzker jamie i know you and fellow colleagues at bloomberg have been working very hard at doing what we do which is adding up the numbers. Do we have any idea at this point how much this whole affair is going to cost volkswagon . Wow, thats a big number, and i dont know. You know, they lost we had an intern actually trying to play with some numbers the other day and there is so much we dont know. Talking about 20 billion in lost market cap which, of course, isnt the companys money to spend but its a useful measure of the might and what resources they can come up with. Theyve set aside 7 billion, a little more than 7 billion. But who knows if thats going to be enough. There was talk that, well, they could have added the technology for 3,000 to 4,000 per car. 11 million dares, thats 33 billion to 40 billion, a lot of money even for volkswagon which has been extremely profitable and a large, Successful Company. Were talking about an awful lot of money. G. M. Just got their fine for 900 million and smaller than toyotass, even more deaths involved. But g. M. Was seen as being more cooperative. I think that comes into play, where this could really hurt volkswagon with u. S. Regulators. Another thing to keep in mind is that was n. H. T. S. A. , national Highway Safety traffic administration, and they have some powers but pretty limited. Their finability is pretty small. They got the big fines through the justice department. But the Clean Air Act, people have already gone to jail for Clean Air Act violations in a way you dont see for safety violations. So there is much higher likelihood of nonmonetary jail time punishments here. Shatzker i wonder to myself, lawrence, whether this might, for volkswagon, become like the b. P. Disaster in the gulf was for that company, that the numbers involved get so high so quickly and the liability seems so bottomless that the company has no choice but to start shrinking, selling off assets in order to prepare itself for the storm to come . Well, volkswagon must be hoping that they can somehow limit the damage to the United States and not have this bleed off and become this giant international issue. If volkswagon has one thing going for them, they dont do much business in the United States in overall terms. They have a 20year record of floundering here. I speak as a loyal volkswagon guy. I couldnt afford porsches and bostob. M. W. S. Volkswagons never been able to crack the code in the United States since the glory days of the original beetle. Hyundai and kia sell three times as many cars in the United States than volkswagon. Its almost unimagine tobl think that. If there is something theyve got, theyre a niche brand here and this is a niche product within a niche brand. If they can somehow make this right, make their customers happy and somehow rebuild their loyalty, volkswagon owners are willing to take a lot. And if they feel that theyre still driving a good car and a car thats fun to drive. Lets not forget, this could be possibly fixed with software. The engineer who busted this scheme seems confident that good engineering could come up with a software fix for this that might only impinge your mileage by a few miles per gallon. That remainder may have to be made up to customers, maybe offer them a years worth of free gas, Something Big to get out in front of this. But youre still looking at vehicles that get 50 mil to the gallon on highways and produce low Global Warming gallons. A 50mile per gallon car is a prius car as far as Global Warming gases. You fix the smog issue, and to an owner, ive spoken to many diesel owners and pollution is way down on the list. They buy the cars to save money on the fuel, theyre fun to drive, they have 600 and 700mile driving ranges on a tank and they have durability. You cant see pollution. You can see what youre paying in your fuel bill every month. As far as priorities for people, if they can be made to pass emissions tests, i think they could rebuild trust with their buyer base. But its going to be a long road ahead. Shatzker what about the alternative. Could you see volkswagon pulling a peugeot and saying to heck with the United States . They would have to give up their global ambitions. They have been a target for many years. The idea thats driven volkswagons strategy for the last several years is to be the worlds biggest and most profitable and seems there is no way to do that if they skip the u. S. Which is number one in vehicle sales. The vehicles here are more expensive, bigger, have more technology than most to have the cars sold in china. This is where most everybody makes their money. Volkswagon is not going to want to pull out of the United States. Disastrous. Lets not forget awedy, lamborghini, bentley, theres associated fallout. I cant imagine them considering that. Who knows. Shatzker jeffrey . They have all the other brands, many doing well in the u. S. Market. They see the vw brand completing the pallet. Despite the disaster, i dont see them pulling out of here. Shatzker even if they manage to fix the problem with a Software Patch and it only costs drivers a couple miles per gallon on the highway, could it leave a more lasting impression on the mind of the auto buyer and maybe even spell the end of diesel . I think they need to move quickly. If it can be fixed with a software adjustment, great. But they need to get the issue done and dusted and out of the press as quickly as possible and deal with the disappointed customer base. The longer this is in the press and drags on, the more dangerous it will be to recover the brand equity theyve lost. I agree. If im a crisis manager, volkswagon needs something dramatic here. This is in some ways a very insular traditional German Company with a i thin tinge of arrogance at the time and the relationship with america has been difficult. In a way, they dont speak the language of this market and i hope theyre getting good advice in wolfsburg to not be dramatic. Weve seen companies in crises that look worse than this and they end up getting good will if they face it honestly and transparently. Shatzker jeffrey, our viewers might not know you have been a consultant to multinationals and very large German Companies on ethics and compliance, the very issues that volkswagon will have to confront and one would hope is confronting right now. Yes. This is athis isnt uncmon. When you see a Company Getting into hot water of this scale that makes it difficult for employees down the chain to raise concerns, to speak up for fear of retaliation, at the end of the day what you have inside is an absolute need for culture change. That doesnt happen overnight. Its going to take a long time to address that issue inside a vw. Actually bringing in miller is a good step to do that and to bring in culture from porsche thats been on the sidelines. The way German Companies are structured where you have a Supervisory Board with ten remembers representing workers and ten members representing management, on the management side you have two p. X. And two forerns, all being from the porsche family, i think they will exert more influence on the Strategic Direction of the company. Shatzker might we raise another question about miller who looks like he will be the c. E. O. Of volkswagon, and thats why promote from within when it seems the whole volkswagon culture is tainted even by a whiff of this scannedle . Theyve got to believe its only a whiff and the air will blow clean and it will all go away. You know, they have promoted very much from within. They do have bmw had a report that did said they had a diesel chart estthed worse on the road and thats been pretty much retracted and the shares have rebounded. But its who they have and it could be very challenging for them to bring in a transplant executive. I think jeffrey is saying you have the best of both worlds with mueller but its coming from an independent unit within volkswagon and one thats been willing to break with tradition. They have added Sport Utility vehicles then smaller Sport Utility vehicles. Its been very lucrative for them, so maybe there is something to be learned there. Im not saying well see a vw pickup anytime soon, but they might be willing to do things a little differently while still preserving whats been a very Successful Company these last several years. And if there is one lesson volkswagon needs its how to sell a popular suv. Funny of all things porsche would be one to teach them a lesson. Porsches suvs singlehandedly saved and resuscitated that company and volkswagon needs to take it to heart. Americans love their crossover suvs and that is the biggest blind spot in the volkswagon lineup and thats the thing they need to compete here without diesel. Shatzker im going to wrap up the conversation with this last question are we going to look back on this volkswagon emission scandal and say its the greatest thing that ever happened to tesla . Its hard to tell. Its a shame from a technical and enthusiast standpoint, diesel continues to have promise. For as long as petroleum lasts look, 50 of new cars are diesel. They care about the environment in europe. Theyre green in europe. The technology has been proven it can meet modern emission standards, and that is the biggest shame of it is you have a Promising Technology that very likely is only a bridge technology, but were certainly not readyo take the worlds cars off oil and all drive 100,000 teslas. But this is a black eye for technology that did seem to show a lot of promise, and that kind of lac