Measuring Production: Yield, Quality and the Evidence Problem

In September 2015 the US Environmental Protection Agency issued a notice of violation to Volkswagen. For several years VW had sold diesel cars in the United States as "clean diesel", an alternative to hybrids with high fuel economy and low emissions of nitrogen oxides (NOx). Meeting the strict US limits on NOx with good fuel economy and a low hardware cost was hard. The engine-control software on VW's 2.0-litre diesel engines, regulators found, recognised when the car was being tested in a laboratory and ran its emissions controls fully only then; on the road, NOx emissions were many times the limit (reported). Road tests by researchers and months of questions from the California Air Resources Board and the EPA had preceded the notice, and VW admitted the device (reported). About eleven million diesel vehicles worldwide carried the affected software (reported). Martin Winterkorn, the chief executive, resigned within days, saying he had not been aware of wrongdoing (reported); he has continued to deny it.

The bill was among the largest for any quality failure in industrial history. VW booked a charge of €16.2 billion for 2015, against €6.7 billion first set aside, and its total costs rose to €28.2 billion ($32.7 billion) by 2018, after a €800 million fine imposed on Audi in Munich, and later to a reported €31.3 billion ($34.69 billion). The US civil settlement of 2016 was worth up to $14.7 billion, of which $10.03 billion was for buying back cars at their pre-scandal values and compensating owners, without an admission of wrongdoing (reported). On 26 May 2025 a regional court in Braunschweig convicted four former VW managers of fraud, two of them to prison terms and two to suspended sentences, in a verdict that was not final; Winterkorn's part of the case had been split off and suspended on health grounds (reported). Separately, on 8 July 2021, the European Commission fined the VW Group €502.4 million and BMW €372.8 million for coordinating on the technology for cleaning diesel exhaust, with Daimler granted immunity. VW stopped selling diesels in the United States and turned to electric vehicles.

Nothing failed on VW's assembly lines. Every car was built to its design, and the design met the test. The defect was in the measured property itself: the number that regulators, customers and VW's own managers used to judge the product was true only on the day it was measured. That is the most extreme form of a problem that runs through every chapter of this book. Manufacturing produces a great many numbers, yield, OEE, capacity, utilisation, defect rates, backlog, "jobs created" and "investment", and each one means something precise only once its definition, its basis and its source are known.