Volkswagen Emission Scandal Case Study

This case study analyzes the Volkswagen Emission Scandal, exploring its ethical implications and the impact on the company's business operations. It examines the scandal's effects on customer sentiment, public relations, stock prices, and shareholder confidence. The study also provides recommendations for Volkswagen to recover from the scandal and rebuild its reputation.

Volkswagen
Case Study

EXECUTIVE SUMMARY
Volkswagen is a German automaker which is founded in almost 28th may 1937 by
German Labour front by having its headquartered in Wolfsburg. In fact, company have their
largest sale of automobile in 2016. However, main market of this organization is in china that
delivers around 40% of its sales and profit level. Therefore, main objective of this assignment is
to highlight the “Emission Scandal” of Volkswagen and various problems that are faced by an
association at that time. Along with this, proper description of whole scenario will be discussed
in the project for analysing the depth of this most famous scandal that influence overall success
and development of an enterprise. This means that whole project is revolving around the scandal
news and assess the situation by considering three major elements such as; viewpoint of
customers, public relations and the industry.

EXECUTIVE SUMMARY.............................................................................................................2
INTRODUCTION...........................................................................................................................4
ANALYSIS......................................................................................................................................5
CONCLUSION................................................................................................................................9
RECOMMENDATION...................................................................................................................9
REFERENCES..............................................................................................................................11
3

INTRODUCTION
Ethics is a branch of philosophy which involves systematizing, defending and
recommending concepts of right and wrong conduct. It’s a matter of value which covers the
branch of philosophy known as axiology. Basically, this term obtain to resolve the questions of
human morality by explaining the term as good, evil, right, virtue, vice, justice and crime.
(Rhodes, 2016). Mainly, word Ethics is derived from Ancient Greek word “Ethikos” that means
“relating to one’s character” that it comes from root word ethos which shows the character or
moral nature. According to Rushworth Kidder says that an appropriate definition of ethics
includes distinct phrase such as “the science of idea human character or moral obligation”. On
the other hand, Richard William Paul and Linda Elder states that ethics is consider as a cluster of
concepts and principles which assist an individual; which nature of a person helps or harm
sentient creatures.
This project is going to revolve around the case study of Volkswagen Emission Scandal
that begins in around September 2015 at that time when United States Environmental Protection
Agency issued a notice of ruining the clean Air act to the German maker of automobile
Volkswagen group. However, agency have identified that Volkswagen had intentionally planned
Turbocharged direct injection diesel engines for activating the emissions regulations only while
laboratory emissions testing that caused the cars output for meeting the US standards while
regulatory testing. Thus, Volkswagen publicly admitted this that around 600,000 cars made for
US market which has been fitted with defeat device. Moreover, it has been understood that
almost 11 million cars have been defeat devices fitted in it. As a result, it has been understood
that image of an organization get destroyed by them at global platform and in automobile
industry (Cavico and Mujtaba, 2016).
Apart from Volkswagen there are some other carmakers are also identified who have
joined the diesel emission row such as; Mercedes-Benz, Honda, Mazda and Mitsubishi’s cars are
highlighted in regulatory tests that these cars are also emitting significantly more Nox pollution
on road. In the case of automobile sector, the reputation of companies is considered as highly
significant as it is related with the products which are used by consumer as their luxury. For
example; on road testing, some of the Honda models emitted six times the legal limits of Nox
pollution whereas few unnamed cars model emitted around 20 times the Nox pollution which
4

comes out from the exhaust pipes. Hence main motive of this report is “To identify the issues
and problems faced by Volkswagen while scandal of emission”.
ANALYSIS
United states Environmental Protection Agency issued a notice in 2015 September which
is known as “Volkswagen emission scandal” for violating the Clean Air Act to German
Automaker Volkswagen group. In fact, agency have identified that company have programmed
this things intentionally turbocharged direct injection diesel engines for activating emissions
controls only while laboratory emissions testing that might cause the vehicles Nox output for
meeting the standards of US while regulatory testing. In fact, agency have noticed that large
number of cars are identified which are sold in America are having a defeat device which is a
software that disabled emission controls while real world driving situations even vehicle have
passed the test of formal emission. In fact, company have a major push for selling a diesel cars in
US with the help of huge marketing campaigning proclaiming that their cars are having
minimum emissions. Thus, EPA determines that around 482000 cars in US only that includes
almost VW produced Audi A3 and various models such as Jetta, Beetle, Gold and Passat. But
company admitted that around 11 million cars across the world that covers around eight million
in Europe which are fitted with so-called “defeat device” (Siano and et. al., 2017).
Therefore, US authority charged Volkswagen former chief executive officer Martin
Winterkorn for this conspiracy and fraudulent in wire associated with care company vehicles
efforts for cheating on US diesel emissions tests. As per the indictment unsealed on Thursday in
a Michigan federal court, Winterkorn have resigned in around 2015 as scandal have revealed in
which company have make conspiracy for defraud the US by violating the clean air act, federal
laws that were designed by legal bodies for controlling air pollution (Burki, 2015). Furthermore,
Oliver Schmidt who was a senior Volkswagen executive was in prison for almost seven years as
well as claim for paying the penalty fined nearly $400,000 due to his role in this strategy of an
organization. By analysing all the situation, it has been identified that company pleaded guilty as
a corporation in March and get agreeing for paying a penalty of almost $4.3bn in fines. At the
same time, Winterkorn states in his German Parliamentary inquiry that he was totally unaware
about this software of an organization (Michael Winterkorn, 2018).
Public relations- Communication is consider as power for success of an organization
because it helps in controlling the probabilities of mistakes by getting suggestion from societal
5

members. Initially, public is only aware about the Volkswagen deceived regulators while
emissions tests, generally involvement of around 11 million cars. But, furthermore, constant
coverage of media informed whole public that German manufacture of a car and their leaders
have lied to American regulators for more than a single year on their subject area of emissions
testing by saying that it’s just a “technical problem”. At that time, chief executive of Volkswagen
Martin Winterkorn announced that he was not even know about these things and doesn’t play
any single role in whole scandal. On the other hand, internal documents from 2014 contradicts
his statement that Winterkorn resigned from his post shortly after this and leave the company
with other blow to its current already mangled image. According to Harris Poll 2016, rank of
Volkswagen group is on the last in corporation of all the automobile organization in U.S
instability as well as executives plays a major role in weakening the public goodwill of
Volkswagen. Moreover, absence of universal voice attributes shows the sharp public declining of
an organization at marketplace. Additionally, large number of media involves in exposing the
company over social media across the global platform and publishing lots of negative articles
about a firm. Basically, major issue which is encountered by an enterprise while whole scandal
was a “cross national” media coverage that engaged in generating number of issues which are
not there in Volkswagen (Abbey Mecca, 2016). As a result, whole image of an association get
destroyed because of scandal which spread across the nation.
Customers- Almost 100,000 individuals tweets about the scandal of Volkswagen which
shows the anger of consumers towards an enterprise.
6

From the above graphical representation, it has been assessed that lots of consumers get
affected by the scandal of company and express the criticism on various social sites with their
thoughts and ideas. Therefore, public sentiments have really influenced by an organization action
due to which they were criticising enterprise. For instance; after revealing of Guardian article on
September 30 it has been assessed that emission scandal have affected around 1.2 million
Volkswagen diesel vehicles. Moreover, tweets get increased in next coming two days.
Consequently, it was observed that there is also decrease in the numbering of tweets from almost
5000-7000 to 1000-2000 that overlapped with the headline of “U.S Sue Volkswagen because
diesel emissions scandal” (Vanitha Swaminathan, 2016).
7

From the above explained data and information in graph, it has been assessed that various
types of things are written by consumers on twitter such as; “NEWS, NEWS, CHEAT”, “GOLF,
JETTA, BEETLE”, lawsuit violations, electric buy and many more. This shows that customers
are mentioning number of things in their tweets for showing the condition of Volkswagen at
public place (Suyun Mah, 2016).
Stock price- Volkswagen is having its portfolio with almost 10 brands which includes
Audi, Porsche, Bentley and its namesake VW line. Moreover, company have also made a
strategic acquisition for heavy duty truck assets. VW have seen as dark cloud obscuring its
upcoming outcomes due to emissions scandal and cheating surrounding which shook the
automaker to its core. Therefore, announcement of using Defeat device scandal resulted into
shaved $20 billion off of an enterprise market cap as well as stock get declined almost 30%
virtually in a single night. In the coming of May 2015 its stock price get down by around 40%
(STASH, 2016).
8

By assessing the above diagrammatic representation, it has been assessed that stock price
of VW drooped off in September which means this month is act as turning point for the share
price due to the announcement of Environmental protection agency about the scandal of
emissions. In fact, investigators identified that actual road testing of these engines showed the
emissions around 40 times then permitted levels. As a result, broad intrinsic research and
inquiries have taken place by various US regulators which includes; US Environmental
Protection Agency, US Federal Trade Commission and number of state regulators (Barrett and
et. al., 2015).
VW Shareholders- Shareholders of an organization presenting around 1670 claims in
order to seek the compensation for a slide in Volkswagen share price triggered due to scandal
which have broken in 2015 September. As a result, this increase the expense of firm nearly 27.4
billion euros as a penalties and fines. In fact, various members are suing Volkswagen by stating
that company get failed in accomplishing its duty for informing shareholders about the financial
influence of scandal which become social after the issuing of notice of violation by US
environmental protection agency on 18th September, 2015 (VW investors seek $11 bln damages
over dieselgate scandal, 2018). This shows that, company have losing their shareholders which
automatically influence the image of an organization and create problem for an enterprise in
establishing their goodwill at marketplace because investors are denying for investing their funds
in Volkswagen.
CONCLUSION
From the above report, it has been summarized that Volkswagen have gone through
numerous of problems and issues while the emission scandal which automatically influence the
9

success of an enterprise in various manner. For instance; company have lost their number of
investors, negative influence on its goodwill at marketplace, decrease the share price of an
enterprise and many more. Throughout the analysis, it has been understood that company have
criticise by number of people as customers are expressing their criticize on social sites such as;
mentioning emission scandal on tweets. Thus, overall project aids in understanding the problems
faced by Volkswagen during the whole scandal which influence the development of an
organization at global platform. In fact, negative messages of customers on Twitter, criticism
from public, reduction in share price and loosing various shareholders shows that company’s
image is totally ruin at marketplace. As a result, profit margins of an association get minimized
because of consumer rejection and few executives of an enterprise was in jail also that
automatically shows that whole company was in a major trauma at that time.
RECOMMENDATION
Throughout the assessment, it has been analysed that Volkswagen have encountered
numerous of problems during the scandal of emissions such as; minimization of stock price,
claim by investors, fines, penalty charges, government legal cases and many more. All these
actions have created major problem for an organization by affecting them in various manner. By
analysing the whole situation, there are some major things that can help an enterprise in
improving its performance are discussed as follows-
 Volkswagen have an opportunity to improve its performance by conducting a public
conference for apologising to their mistake in order to make realized other that company
have now taken steps for moving forward.
 An organization needs to hire skilled or talented employees by convincing them with
their future promises as well as offer rewards, appraisals, high level profit and many
more. Active role of employees are really beneficial for the company because these
members are liable for dealing with direct customers. Hence, staff members have an
opportunity to convince their employees about company’s product by informing them
about products.
 Provides advertisement on various social media such as; Facebook, Twitter, writing
impressive blogs and many more for capturing the minds of distinct customers. Along
with this, it will help an organization in informing society about the change that is going
to adopted by an enterprise.
10

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.
Siano, A and et. al., 2017. “More than words”: Expanding the taxonomy of greenwashing after
the Volkswagen scandal. Journal of Business Research, 71, pp.27-37.
Barrett, S. R and et. al., 2015. Impact of the Volkswagen emissions control defeat device on US
public health. Environmental Research Letters. 10(11). p.114005.
11

Cavico, F. J. and Mujtaba, B.G., 2016. Volkswagen emissions scandal: a global case study of
legal, ethical, and practical consequences and recommendations for sustainable
management. Global Journal of Research in Business & Management. 4(2). pp.303-311.
Burki, T. K., 2015. Diesel cars and health: the Volkswagen emissions scandal. The Lancet
Respiratory Medicine. 3(11). pp.838-839.
Online
Michael Winterkorn. 2018. [Online]. Available through<
https://www.theguardian.com/business/2018/may/03/vw-emissions-cheating-michael-
winterkorn-charged>
Abbey Mecca. 2016. [Online]. Available through<https://abbeymecca.com/public-relations-
communication-power/ > .
STASH. 2016. [Online]. Available through< https://www.investopedia.com/news/vw-scandal-
how-has-it-impacted-volkswagens-stock-vlkay/ >.
VW investors seek $11 bln damages over dieselgate scandal. 2018. [Online]. Available
through<https://www.cnbc.com/2018/09/10/reuters-america-vw-investors-seek-11-bln-
damages-over-dieselgate-scandal.html>
Vanitha Swaminathan and Suyun Mah. 2016. [Online]. Available through<
https://hbr.org/2016/09/what-100000-tweets-about-the-volkswagen-scandal-tell-us-about-
angry-customers .
12