Impact of Unethical Practices on Volkswagen: A Case Study

This report revolves around a case study of Volkswagen that has indulged in unethical practice which has harmed this organisation to a large extent. By this scandal, its customers has lost their trust and their public relations has also having negative impact.

Academic and
Professional Skills
Volkswagen

EXECUTIVE SUMMARY
Unethical practices is determined as an action which fall outside of what is considered to
be morally right and proper for a profession, industry and a person. Unethical practice can not
only harm an organisation and its reputation but at the same time it will reduce the revenues and
sales of customers. This report revolves around a case study of Volkswagen that has indulged in
unethical practice which has harmed this organisation to a large extent. By this scandal, its
customers has lost their trust and their public relations has also having negative impact. This
enterprise can again gain the trust of their customers by working on their technology and by
developing such product which is promising for a long run.

Table of Contents
EXECUTIVE SUMMARY.............................................................................................................2
INTRODUCTION...........................................................................................................................1
ANALYSIS......................................................................................................................................1
Revenue..................................................................................................................................1
Auto Industry..........................................................................................................................2
Public Relations......................................................................................................................2
Customers...............................................................................................................................3
CONCLUSION................................................................................................................................4
RECOMMENDATIONS.................................................................................................................4
REFERENCES................................................................................................................................6
.........................................................................................................................................................7

INTRODUCTION
Ethics play the most crucial role in achievement of a company's success that prohibits to
do any restricted activities. It also defines morale and set a standardization in businesses that
prevent an organisation from social and legal issues (Rhodes, 2016). Since today organisations
that mainly deal in global business face numerous challenges related to conduct unethical
practices. Therefore, it impacts majorly on reputation of such companies and affects business in
terms of revenue, share price, stakeholders, public relations and more. In this regard, code of
ethics defines principles by which corporations can improve their performance and maintain
sustainability in business more effectively (Crane and Matten, 2016).
The present report is going to reveal the case study of Volkswagen where it has publicly
admitted to be engaged in unethical practices. It includes a scandal that was erupted in 2015,
where Volkswagen has admitted that it has fitted a defeat device in near about 600,000 vehicles,
with aim to pass emission test. Its management has also explained the entire process to
implement this unethical practices in production, where engineers were encouraged to develop
such devices and hide from outsiders (Quinlan and et. al., 2019). This allegation has impacted
negatively on reputation of Volkswagen and it has failed to gain loyalty of stakeholders for long
term profitability as well. It has suffered a high reputational damage that also decrease its volume
of sales. In same concern, of the other industry named by Toyota Company also faces a
reputational loss due to engage in unethical practices that is fitted of flawed pedals of vehicles.
Therefore, in both cases, it has been evaluated that such incidences puts a high impact on brand
image and sales performance negatively (Hillary, 2017). In this regard, present report describes
the unethical practices carried out by respective company and how it affects performance
through various literature point of view. Along with this, some recommendations also given for
Volkswagen by which it can overcome from such an issue.
ANALYSIS
Revenue
“VW profits down 20% after diesel emissions scandal”
As per article given by Julia Kollewe (2016), it has been evaluated that due to emission
scandal, Volkswagen's profit has tumbled near about 20%. Along with this, because of declining
in sales performance and negative perceptive of customers, revenues also dropped by 3.4% i.e.
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near about €51bn (VW profits down 20% after diesel emissions scandal, 2016). From last 20
decades, it has recorded as the first annual loss that impact on business due to admittance of
engaged in unethical practices (Crête, 2016). The carmaker of Volkswagen have also admitted to
create a cheat activity related to emission tests in more than 11m diesel vehicles. In this regard,
branded cars of Volkswagen have been hit badly by this scandal. Its operating profits has also
been plunged from €514m to €73m as compared to earlier performance. In addition to this, it has
made a deal with US Department of Justice to compensate over 500,000 cars' owners. It has
given opportunity to its major competitors like BMW, Toyota and others to enhance their sales
performance and generate high revenues (Jiang and et. al., 2016). But experts have stated that
apart from various rumours and negative sales performance, Volkswagen still earn profitability.
Auto Industry
According to Scott MacLennan (2015), the European Analyst it has been identified that
Volkswagen has suffered a huge loss and damage in reputation due to emission scandal. This
would have negatively impact on shares price of respective company where, it has faced a loss of
over 35% of its market capitalization in just two days after publicly admittance (Li and et. al.,
2018). In this regard, market has also struggled for quantifying the near term recalls' cost and
potential fines which has affected longer term relationship of Volkswagen with its investors. In
order to pay high compensate to owners who have purchased such cars that are installed with
defect device which results in worst case scenario fines, move quickly from its business to
prevent their investment from heavy losses (Burlea and Idowu, 2016).
Public Relations
According to Tonya Garcia (2019), the scandal which is rocking this car maker
Volkswagen AG which has bruised reputation of the company and also had crushed market value
which has been marked by series that are of missteps of corporate communications and public
relations as per the experts. There is a news regarding installed devices of Volkswagen which is
meant towards circumvent protections of environment in around millions cars that broke in last
week. The disjointed and halting of response of public over next many years had made this
situation even worst. The huge thing which is started for seeing is that this information trickling.
Seitel had recommended towards it which is an urgent approach which has been moved
forward the company that must have to made it clear that it has complete understanding about the
problems that are taking place at Volkswagen. From that side, he said that this company must
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appoint a chief executive that has a spotless background. It is also said that this new leader
should move towards all deliberate for beginning towards recovery procedure.
As per Melissa Arnoff, who is a senior vice president at the public relations firm that is
located at Washington, said that this situation has been made even more difficult due to questions
slew which are required to be answered before a planning of actions which have to be hatched
such as regarding the involvement of government agency and resolving issues towards existing
owners of VW. For this purpose there is a strategy which can be adopted by this organisation
which is that to not speak much about this as by saying about this topic more will worsen the
situation and nothing more.
As per the opinions of Tobe Berkovitz (2019) VW has continuously losing its market
share and also they are losing the race for customers. This enterprise was already a manufacturer
of car which is in trouble and don't possess a strong brand image for falling back. It has been said
that this company must reach out towards the public members to form a strong public relations.
It is also suggested that there can be an outreach towards the owners of Volkswagen cars whose
cars are not even affected.
Customers
According to Pierre-Nicolas Schwab (2019) the position of this organisation has been
seems to be pretty safe. The purchasing of a car is conscious which is determined as a well
thought of a decision. In this pricing plays an important role in its decision. Also, this is in
regards to lowering the product's end range which is 4 cylinder cars that attracts those customers
who are price conscious. Finally, as per the figures that were mentioned in press shows that the
NOx emission are considered as 50 times higher than the manner in which they have to. It
determines that the average customer can face various difficulties for understanding in a precise
manner. It has been predicted that customers will soon forget the scandal of Volkswagen very
quickly. Whatever is done by this organisation is shocking and completely unethical but it is not
recognised as a topmost concern for the customers. It will become the customer's concern only
when there is increase in ownership costs as the engines will get penalised by the higher taxes of
pollution. In this case, customer have to develop an arbitrage and the VW cars can be less at its
advantage.
As per the opinions of Andy Sharman (2019) new figures suggest that Volswagen is
covering with backlash of customers in various significant markets that follow the scandal of
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emissions. It has been emerged that the VW sales of its brand cars has been fallen by one-fifth in
United Kingdom, which is even as total of registration of new vehicles in the second large
market rose of UK.
According to Emma Thomasson and Paul Sandle (2019) customers are now unsettled
towards this situation and it will not just pass it without nay problem. In this regard some of the
customer can switch towards the petrol car which can be shielded by customer's loyalty. In the
context of this scandal, customers have been left for wondering what does it really mean and the
way in which this will affect the leased and purchasing of VW vehicles. Also it has been said
that the owners of VW can continue utilise its vehicles for the remaining time being. There can
be a possibility that some of the states may demand the prof that vehicles is being repaired for
complying with the standards of emissions. In this regard, California has tough emission
standards in this country and it can require some proof that this issue can be fixed before it has
been allowed that the diesel cars of VW required to be renewed and registered.
CONCLUSION
From the above report which is based upon the case study of Volkswagen scandal, it has
been concluded that an organisation must adopt ethical practices which will help it to enhance its
overall goodwill and brand image of the organisation. When an enterprise indulge itself in
unethical practices, than it do not only harm its overall productivity but it also reduce its market
demand due to decrease in its goodwill. This report is based upon a case study which is upon the
unethical trade practice the auto mobile organisation named Volkswagen that highlights the
impact of this scandal upon various components of this company such as revenue, public
relations, customers and auto industry. For this purpose an analysation is done which determines
that unethical practices results in decreased revenue, customers and bad relations with public.
RECOMMENDATIONS
An organisation has to indulge itself in ethical practices for the purpose of conducting
various activities of a business. This will help in enhancing the brand image as well goodwill of
the company. But if an enterprise adopt practices which are unethical than it do not only loses its
goodwill but it also loses its customers and market share. Volkswagen has been in a scandal for
fitting defeated devices in its cars for enabling them to pass the emission test. There are certain
recommendations that can be made in this regard which are elaborated as follows-
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 For the purpose of increasing sales and revenue of this organisation, this organisation can
use enhanced and innovative technology which will help this enterprise to achieve its
overall objectives. This organisation has faced this scandal due to low technology and
maximisation in technical errors. This organisation can utilise the advanced technology
which will focus upon providing more promising product to customers. This new
technology can focus upon cars which are battery powered and digital services like
sharing of ride, and so on. This will help the company to enhance its market share as well
as profitability and also will help it to retain its market share and profitability.
 For the purpose of improving public relations, this enterprise can identify the areas in
which it is expertise, determine its target audience, identification of proper outlets of
media, focus upon media which is interested in the enterprise. This way this organisation
can improve its public relations which will help it to achieve goals.
 This incident has negatively affected the trust of its customers and it has lead to a
situation in which customers do not trust upon this company any more. For this purpose,
this organisation can again gain the trust of its customers by coming up with a product
which will be promising and meet their expectations. This will also help to retain
customers and regain their trust upon this enterprise.
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REFERENCES
Books and Journals
Rhodes, C., 2016. Democratic business ethics: Volkswagen’s emissions scandal and the
disruption of corporate sovereignty. Organization Studies. 37(10). pp.1501-1518.
Crête, R., 2016. The Volkswagen scandal from the viewpoint of corporate
governance. European Journal of Risk Regulation. 7(1). pp.25-31.
Bowen, M. and et. al., 2018. Effect of Perceived Crisis Response on Consumers' Behavioral
Intentions During a Company Scandal–An Intercultural Perspective. Journal of
International Management. 24(3). pp.222-237.
Prendergast, G., Paliwal, A. and Mazodier, M., 2016. The Hidden Factors Behind Sponsorship
and Image Transfer: Considerations for Bilateral Image Transfer Among Sponsors and
Events. Journal of Advertising Research, 56(2), pp.132-135.
Burlea, A. S. and Idowu, S. O., 2016. The independence of managers: an ethical
dilemma. International Journal of Social Entrepreneurship and Innovation, 4(2),
pp.152-171.
Li, D. and et. al., 2018. Environmental legitimacy, green innovation, and corporate carbon
disclosure: Evidence from CDP China 100. Journal of Business Ethics, 150(4),
pp.1089-1104.
Jiang, K. and et. al., 2016. Do it well and do it right: The impact of service climate and ethical
climate on business performance and the boundary conditions. Journal of Applied
Psychology. 101(11). p.1553.
Crane, A. and Matten, D., 2016. Business ethics: Managing corporate citizenship and
sustainability in the age of globalization. Oxford University Press.
Hillary, R. ed., 2017. Small and medium-sized enterprises and the environment: business
imperatives. Routledge.
Quinlan, C. and et. al., 2019. Business research methods. South Western Cengage.
Online
VW profits down 20% after diesel emissions scandal. 2016. [Online] Available
Through:<https://www.theguardian.com/business/2016/may/31/vw-volkswagen-profits-
down-20-diesel-emissions-scandal>.
How will the VW emissions scandals impact the auto industry?. 2015. [Online] Available
Through:<https://www.schroders.com/en/us/institutional/insights/economic-views3/
how-will-the-vw-emissions-scandal-impact-/>.
What brands can learn from Volkswagen PR crises?. 2017. [Online] Available Through:
<https://spinsucks.com/communication/volkswagen-pr-crisis/>.
VW Emission Scandal and The Global Car Industry. 2015. [Online] Available
Through:<https://internationalbanker.com/brokerage/vw-emission-scandal-and-the-
global-car-industry/>.
Volkswagen's PR response made problems worse, experts say. 2019. [Online] Available
Through:<https://www.marketwatch.com/story/volkswagens-pr-response-made-
problems-worse-experts-say-2015-09-25>.
Volkswagen scandel: will customers really care? . 2019. [Online] Available
Through:<https://www.intotheminds.com/blog/en/volkswagen-scandal-will-customers-
really-care/>.
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Volkswagen hit by consumer backlash after emissions scandal . 2019. [Online] Available
Through:<https://www.ft.com/content/9ac95faa-9a79-11e5-be4f-0abd1978acaa>.
Customers, dealers left in the dark on VW scandal . 2019. [Online] Available
Through:<https://www.reuters.com/article/uk-usa-volkswagen-consumers/customers-
dealers-left-in-the-dark-on-vw-scandal-idUKKCN0RO0PM20150924>.
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