Impact of VW Emissions Scandal on the Auto Industry

The Volkswagen (VW) emissions scandal is expected to have a significant impact on the auto industry. The scandal has led to a loss of public trust and a decline in sales for VW, with its share of new car registrations in the EU declining by 10%. The crisis has also raised concerns about the future of diesel engines and the potential shift towards electric vehicles. Furthermore, the scandal may lead to increased regulation and stricter emissions standards, which could benefit companies like BMW that have been investing in low-emission technologies. The scandal has also highlighted the importance of transparency and accountability in the auto industry. Overall, the VW emissions scandal is likely to have a lasting impact on the auto industry, driving changes in technology, regulations, and consumer behavior.

Business case study
Volkswagen Group’s diesel emission scandal
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TABLE OF CONTENTS
Introduction .....................................................................................................................................3
Introduction of Volkswagen Group’s diesel emission scandal .......................................................3
Strategic Analysis of Volkswagen Group........................................................................................4
Value chain Analysis ......................................................................................................................6
Financial Analysis of Volkswagen Group.......................................................................................8
Conclusion ....................................................................................................................................13
REFERENCES .............................................................................................................................15
Appendix .......................................................................................................................................17
PORTER'S five force analysis ......................................................................................................17
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INTRODUCTION
Volkswagen Company is the leading German automotive manufacturing organization. In
the present era, Volkswagen is seen as the second-largest car manufacturer all around the globe.
In addition the company is the largest automotive maker in UK, Europe. The entity has captured
around 12.9% market share in overall world’s passenger car market. In the year 2015, there was
a scandal namely Volkswagen Group’s diesel emission scandal that has influenced the
operational and financial performance of company (Shing, 2015). This scandal was associated
with emitting more CO2 as prescribed by Volkswagen. Germany confirms that VW vehicles
with software installed to cheat emissions tests were sold across Europe. The report herewith
deals with identifying the effects of Volkswagen Group’s diesel emission scandal to the current
condition of the company. Hence, this case study purposes at evaluating the effects of
Volkswagen Group’s diesel emission scandal on its automotive division’s current condition.
Furthermore, consequences of the current affairs of Volkswagen Group’s automotive division on
its brand image, finances, operational activities and the supply chain are going to be analysed.
INTRODUCTION OF VOLKSWAGEN GROUP’S DIESEL EMISSION
SCANDAL
In 2015, there was a scandal arose that was linked to excess diesel emissions than
prescribed by Volkswagen (VW). Recently, this leading European car builder has admitted
manipulating emissions testing to a wider scale. This criminal scheme was gradually being
revealed that has influenced the corporate image of the mentioned entity.
What has happened?
In September 2015, US Environmental Protection Agency (EPA) has sent a notice of
violation of the Clean Air Act to leading luxury car manufacturer and retailer namely
Volkswagen Group. According to the investigation of MacLennan (2015) The main issue was
that number of VW diesel engines were having software which has enabled cars to enhance
emissions performance. This issue was with the cars that produced during 2009 and 2015. In the
investigation made through generalist, Volkswagen has fixed the emissions cheating software in
manufactured diesel cars from the duration between 2009 and 2015 (Annual report Volkswagen,
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2014). The company has admitted that 11 million cars were affected with such software. This
was a historical fraud that has cost €6.5 billion to company.
Implications for VW scandal with strongly supportive evidence
Within two days of scandal VW has lose 35% of market capitalisation because the market
has struggled to specify the cost of recalls and potential fines. According to the investigation of
MacLennan (2015) this scandal has longer term impact on Volkswagen brand. Furthermore, the
organization has to pay monetary cost of possible class action lawsuits and to pay cost for
increasing research & development so as to meet emission requirements. There were potential
reputation-al impact on brand. The use of illegal software has shown the poor performance in
terms of corporate governance within the company. It has been witnessed that the fraud was not
organised by a “small group” of development engineers and technicians but the 30 managers of
different regions were complicit in the fraud.
This software was installed so that the cars will become able to evade nitrogen oxide
emissions tests thus; it could be seen cleaner as compared to described diesel emissions. It has
been witnessed that more than 11 million cars are affected on global set-up while also includes
VW cars i.e Audi, Skoda and Seat cars and commercial vehicles of Volkswagen group. In
addition to that 800,000 cars had been found with "inconsistencies" that is relating to carbon
dioxide emissions (Morgan, 2015).
STRATEGIC ANALYSIS OF VOLKSWAGEN GROUP
SWOT Analysis
Strength: The biggest strength of Volkswagen is the global presence of this German auto
manufacturing and selling company. Being a world's second largest auto manufacturer the
organization is known for dealing in quality cars. In addition, the research and development team
of well qualified engineers has kept this company as a competitive global brand (Chambolle and
Chiron, 2000)
Weaknesses: The major weaknesses of this mentioned entity is its limited presence in
emerging market as well as less transactions in US passenger car market. Furthermore, many of
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cares of Volkswagen brand i.e. Porsche, Lamborghini and Bugatti are not designed as per
environmental friendly aspects as because these cars emit high amount of CO2 (Carbon roof tops
BMW). The scandal held in 2015 relating to diesel emission scandal is the recent weakness of
company that affects the trust of dealers and customers on this brand (Naomi, 2015).
Opportunities: However, the company has admit its fault and apologies by announcing
recall of 8.5 million cars in Europe, as well as 2.4 million cars and 1.2 million cars are
announced to be recalled from Germany and UK respectively. In addition, approx 500000 are
called from US as a result of mentioned emissions scandal. This can be an opportunity for
company to gain its trust back. Furthermore, the organization could put investment in research
and developments so as to come up with innovative models and more fuel efficient cars. Now
company has to reduce carbon emission from vehicles so that trust of customers can gain back
(Contributions Published in Strategic Analysis, 2013).
Threats: The major threat to the company is counted as the warning that is made by
German economists. The Author has mentioned that VW scandal may jeopardise the growth of
German economy. In addition to that the environmental groups are going to start their own
inquiry into car emissions. The new lab tests and their comparison with cars on the road are also
the biggest threats to the company. The declining sales growth after such scandal is also seen as
the one more threat to Volkswagen (Shing, 2015)
Table 1 SWOT Analysis of Volkswagen after scandal
Strength
Global presence
World's second largest auto manufacturer
Weaknesses
Diesel emission scandal 2015
Limited presence in emerging market
Opportunities
Investment in research and developments
CSR activities
Threats
Inquiry into car emissions by environmental
groups
Threat to the growth of German economy
Declining sales growth (Naomi, 2015.)
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VALUE CHAIN ANALYSIS
The tool is used to describe the activities that are going to be taken place in business and
provide competitive advantage to the organization. There are two kinds of activities in a
corporate entity such as primary activities and supporting activities. Primary activities include
such operations that are directly concerned with creating and delivering a product on the other
hand supportive activities are those which are not directly involved in production (Value chain
analysis. 2015). Value chain analysis is a tool to identify best practices in all such activities so
ads to gain competitive advantages.
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Illustration 1: Value Chain Analysis
(VALUE CHAIN ANALYSIS: An exploratory field study. 2013)

Primary value chain activities:
Inbound logistics: Volkswagen is committed to purchase the best quality raw material
for automotive products. After the scandal, the company is going to identify the best quality raw
material suppliers who provides material at low cost.
Operations: The process of transferring raw material into finished goods is said to be
operation. The recent scandal has impacted the production of company as it affects the demand
of Volkswagen products. However, the company produces as per the market demand.
Outbound logistics: Volkswagen has its own warehouses in production places, however,
it also has warehouses and distribution channels to departure goods from manufacturing areas to
other places (Value chain analysis. 2015).
Marketing and sales: Company produces the good as per the demand of customers in
the market. The company can improve its image after this scandal by providing good
advertisement about the brand and affected cars.
Services: The services include support of customers after selling them products. After the
scandal, company has recalled many cars however, the image can be improved by providing
improved services and additional features to such cars.
Supportive value chain activities:
Infrastructure of firm: The infrastructure of Volkswagen includes different layers of
management and accounting and quality monitoring departments. To the supportive activities,
company has to develop a control system and strong corporate governance to reduce unethical
practices.
Human resources management: The organization is having a team of quality people
who are committed to provide best quality products and services to customers. The workforce of
Volkswagen is doing the best for making innovations in products and services to the best level
(VALUE CHAIN ANALYSIS: An exploratory field study. 2013).
Technical development: The technology use by company in the products is unique as
the company is committed to provide fuel efficient cars with innovative features howsoever, the
recent scandal has questions the unethical use of technology in the business.
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Procurement: The business entity has adopted strategic approach to manage and reduce
the wastage of resources and it tries to maintain good relation with the suppliers (Value chain
analysis. 2015).
FINANCIAL ANALYSIS OF VOLKSWAGEN GROUP
According to a news came in 2015, in regard to the diesel emission scandal and the
market value of Volkswagen AG has been declined in a single quarter. The organization has
admitted to cheating on U.S. air pollution tests from a long run i.e. 2009. It has put major impact
on the world’s biggest car maker for maintaining the reputation (Yeomans and Bradshaw, 2015).
According to the case, it was mentioned that Volkswagen plunged approx 23 5 to 125.40 Euros
in Frankfurt and $17.6 billion Euros have lost as per market value. In addition to that the stock
prices of mentioned entity were closed at 132.2 Euros that were the lowest among last three
years.
Illustration 2: Share price after scandal
(Source : Naomi ,K., 2015.)
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Impact of scandal on other brands
The Volkswagen group was seen to missing the gaps among emissions on the road and
lab tests for the lading diesel car models of VW group. To the view point of an Environmental
Protection Agency, the company were overruling the environment protection rules. The financial
impacts of such scandals have also been seen to the other German competitors i.e. BMW AG and
Daimler AG. It has been witnessed that the shares of both the companies have been declined the
most in almost a month (Massey, 2015).
Impact of Volkswagen share prices After and before VW scandal
Date VW (Share Prices)
Before
3/Aug 191.55
10/Aug 180
17/Aug 165
24/Aug 170.5
31/Aug 159.95
7/Sep 166.25
14/Sep 161.35
21/Sep 115.55
After
28/09/15 101.15
5/Oct 125.9
12/Oct 121.2
19/Oct 121.85
26/Oct 126.1
2/Nov 121.9
9/Nov 118.45
16/Nov 123.9
23/Nov 134.25
30/Nov 141.3
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The table and graph above represents the fluctuation in share prices of Volkswagen group
after and before scandal. These are weakly figures that are shown that from the dates of new
announced of Volkswagen scandal share price is decided to 101.15 from 115.55, however, this
process was seen fluctuating for all the years.
The reputation of Volkswagen was highly influenced and the German engineering was
cornerstones of company's strategy to catch-up U.S. market. The significant violation of
environmental rules have nearly affected more than half a million vehicles, that is going to be
result in almost $18 billion fines. This fine is based on cost per violation as well as total number
of cars that were made with that software which is designed to misjudge the amount of carbon
emission (Shing, 2015). On the other hand, this act can also be counted under criminal
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prosecution. This scandal has affected the sales of almost all major diesel versions of
Volkswagen i.e Jetta, Golf, Beetle, Passat and Audi A3.
As an impact of diesel emission scandal Kepler Cheuvreux investigated that Volkswagen
has not only faced short-term drop in sales but this scandal has impacted the reputation of
business for a long run. However, this scandal was done in US so the business was under the risk
of litigation in the U.S. In addition to a financial impact the crises have triggered company’s debt
rating as it came down (Pollard, 2015).
It has been evident that the cars with “defeat device” are going to pollute 10 times to 40
times out form the legal limits. This estimation was made through EPA that is going to put a
negative impact on the business in financial terms. It has been evident that the organization was
already struggled in U.S market from a long run. However, after this scandal the sales of VW-
brand cars have been dropped by 10 percent as compared to last year to 366,970 (Morgan, 2015).
It has been witnessed that the company has made objective to reach the sales of Audi and VW
brand to 1 million vehicles by 2018 but after this scandal, it was too tough achieve the pre
designed sales figures. However, the European Commission has said that VW has cheated the
public seriously and the policy makers are dealing with the U.S. regulators to take major action
in respect with the company (Yeomans and Bradshaw, 2015).
Figure 1 Volkswagen's share of new car registrations 2015
(Source: Volkswagen's share of new car registrations in the EU from September 2014 to
September 2015)
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According to a recent study the issue was emerged in September 2015 and the recent
financial impact has been seen in the next month when the sale of VW was dropped by 10% in
UK. The major financial impacts of have been summarized in following points:
 According to the Best Global Brands report 2015, the sales of Inter-brands have been
dropped by 9%.
 In addition to that this scandal has impacted VW's share price as it has been declined by
35% in a single week (Naomi, 2015)
 More than €13 billion wiped from VW's market value
 The sales of other automotive companies such as BMW and Mercedes have also been
influenced after the diesel emission scandal. However, in the report it has been found that
Winterkorn, who has led VW since 2007 has apologised for breaking public’s trust.
 In addition to that the VW sets aside €6.5 billion in order to fix dieselgate scandal (Shing,
2015)
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Steps taken out by VW to recover the damage with justification
 The company has recalled all the cars which were found with such software, these are
recalled from different markers such as France, Europe, US etc. This was an instant
initiative taken by Volkswagen to overcome the long time consequences of VW scandal.
The luxury cars were replaced with improved diesel engine so as to reduce carbon
emission.
 The CEO of Volkswagen has resigned with admitting this mistake of irregularities that
have been found in diesel engine. In the statement made by CEO, it was found that
company is going to take a new step to improve the image in the market. There were too
many positive advertisement came in US to improve the damages that were held after the
VW scandal.
CONCLUSION
The report mentioned above has presented the strategical and financial impacts of
Volkswagen Group’s diesel emission scandal to the business. The report has stated that the
company was identified to fix the emissions cheating software in diesel cars 2009 and 2015.
This scandal has influenced the business in the ways of announcing recall of 8.5 million cars
from Europe and 2.4 million and 1.2 million cars from Germany and UK respectively. In
addition to that the stock prices of Volkswagen were declined to 132.2 Euros that was lowest
among last three years. The organization is committed for doing everything necessary that is
essential for reserving the damage that are caused in long run. To recover the image company
has to come up with CSR activities that can be done towards environment. However, there may
be some positive advertisements to improve Volkswagen’s brand perception. More research and
developments can be done and company can come up with some electric cars.
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REFERENCES
Annual report Volkswagen, 2014. [Online]. Accessed through
<hhttp://www.volkswagenag.com/content/vwcorp/content/en/misc/pdf-dummies.bin.html/
downloadfilelist/downloadfile/downloadfile_30/file/Y_2014_e.pdf>.[ Accessed on: 9th
November 2015]
Chambolle, E. and Chiron, P., 2000. Volkswagen. Paris: Eurostaf.
Contributions Published in Strategic Analysis, 2013, Strategic Analysis, 38(1), pp. 138-147.
Gowthorpe, C., 2008. Financial analysis. Oxford: CIMA.
MacLennan, S., 2015. How will the VW emissions scandal impact the auto industry?. [Online].
Available through :< http://www.schroders.com/tp/home?id=a0j3800000CqBbrAAF>.
[Available on: 9th December 2015].
Massey, R., 2015. Going at top speed: Britain's luxury car makers leave rivals in their wake as
sales drive export boom. [Online]. Accessed through
<http://www.thisismoney.co.uk/money/cars/article-2978465/UK-luxury-car-makers-leave-
rivals-wake.html>. [ Accessed on: 9th November 2015].
Morgan, T., 2015. Volkswagen scandal: Britons face extra £50 bill after recall. [Online].
Available through :<
http://www.telegraph.co.uk/motoring/car-manufacturers/volkswagen/11903041/
Volkswagen-scandal-Britons-face-extra-50-bill-after-recall.html>. [Available on: 9th
November 2015].
Murphy, S. D. And Yetmar, S., 2010. Personal financial planning attitudes: a preliminary study
of graduate students. Management Research Review. 33(8). pp. 811–817
Naomi ,K., 2015. Volkswagen Drops 23% After Admitting Diesel Emissions Cheat. [Online].
Available through :< http://www.bloomberg.com/news/articles/2015-09-21/volkswagen-
drops-15-after-admitting-u-s-diesel-emissions-cheat>. [Available on: 9th November
2015].
Pollard, T., 2015. Volkswagen's emissions 'cheat' software scandal: UK sales slump 10%.
[Online]. Available through :<
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http://www.carmagazine.co.uk/car-news/industry-news/volkswagen/volkswagens-
emissions-cheat-software-scandal-an-explainer/>. [Available on: 9th November 2015].
Shing, E., 2015. Edmund Shing: Volkswagen emissions scandal is a boon for the BMW investor.
[Online]. Accessed through <http://www.ibtimes.co.uk/edmund-shing-volkswagen-
emissions-scandal-boon-bmw-investor-1521471>. [ Accessed on: 9th November 2015]
Value chain analysis. 2015. [Online]. Available through: <http://research-methodology.net/wp-
content/uploads/2012/10/Dell-Value-Chain-Analysis.png>. [Accessed on 9th December
2015].
VALUE CHAIN ANALYSIS: An exploratory field study. 2013. [Online]. Available through:
<http://degree.ubvu.vu.nl/repec/vua/wpaper/pdf/2001011a.pdf>. [Accessed on
9thDecember 2015].
Volkswagen's share of new car registrations in the EU from September 2014 to September 2015,
2015. [Online]. Available through :< http://www.statista.com/statistics/276300/market-
share-of-volkswagen-based-on-new-car-registrations-in-the-eu/>. [Available on: 10th
November 2015].
Yeomans, J. and Bradshaw, J., 2015. What happens if my VW car has emissions cheating
software?. [Online]. Available through :<
http://www.telegraph.co.uk/finance/newsbysector/industry/11899049/What-happens-if-
my-VW-car-has-emissions-cheating-software.html>. [Available on: 9th November 2015].
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APPENDIX
PORTER'S FIVE FORCE ANALYSIS
Through applying Porter's five force analysis the external market of Volkswagen Group
is analysed. The five forces relating to company are ranked on major 3 points i.e. high, low and
moderate. The points below represent the five force analysis of company with respect to diesel
emission scandal.
New Entry Barriers to industry (Low): The threats from new entrance are too low for
the company as it has already captured huge market share in luxury car market. There are some
challenges that could face by the new entrance such as huge capital investment and strict
government regulations. However, after this scandal there can be some care manufactures that
emerge in the market with low emission cars, hence, the threats from new entrance is low to the
company (Gowthorpe, 2008).
Intense Rivalry (High): Within global market, the company is facing huge competition
with leading auto manufacturer’s i.e German and Japanese. After this scandal major threat is of
losing the market share as existing firms can promote their low CO2 emission cars. The major
competitors of Volkswagen are BMW and Mercedes and after the diesel emission scandal the
sales of these companies have been increased as compared to Volkswagen (Pollard, 2015).
Bargaining power of Supplier (Moderate): From an in-depth investigation, it can be
said that the organization is facing low threat from supplier as there are very few auto dealers in
luxury car market (Shing, 2015). After involving in diesel emission scandal the trust on company
is lose by suppliers thus, it can be said that the bargaining power of supplier is huge. However,
the major steps taken by the company are efficient in recovering the image of business.
Unfavourable decisions the leading auto companies can switch to other supplier (Chambolle and
Chiron, 2000)
Bargaining power of consumers: (Low-Medium) – The bargaining power of customers
is low for this car manufacturing company as there are less population who are willing to
purchase luxurious and expensive cars. In addition to that the recent car scandal can put negative
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impact on business that is the most significant reason for which the customers can switch to the
other car dealers (Yeoman’s and Bradshaw, 2015).
Substitute power (Medium): The customers of Volkswagen are more conscious about
the brand this is the major reason for which they will not switch to another brand. However,
incensing fuel prices and the recent diesel emission scandal is the biggest reason that is going to
affect the sales of company as compared to other car manufactures. In addition to that the
environmentally friendly transportation is also an threats because more and more people are
conscious for opting public transit/walk/cycle (Murphy and Yet mar, 2010).
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