Volkswagen Emission Scandal: Impact on Sales Revenue, Share Price and Automobile Industry

This report analyses the Volkswagen Emission Scandal, its impact on sales revenue, share price and automobile industry. It also provides recommendations to prevent such scandals in future.

Running Head: Volkswagen Emission Scandal
Academic and Professional Skills
Report
System04104
12/9/2018

Volkswagen Emission Scandal
1
Executive Summary
In the third quarter of 2015-16, the entire automobile industry was shocked because of
unethical practices of Volkswagen, which was one of the largest automobile manufacturing
players in the automobile industry. This report analyses the case of Volkswagen that is also
called ‘Dieselgate scandal’ or ‘Emissiongate scandal’. Since October 2015, many regulatory
bodies are still investigating this scandal and have managed to find out several factors behind
this unethical practice of the company. One of the major causes was the unethical practice of
their employees to face the fear of losing their jobs.
In this report, a brief introduction has been given on the causes of this scandal and further, the
impact of such a scandal has been analysed with the help of some data and statistics. The
impact of such scandal has been mainly observing on the sales revenue of the company,
impact on shareholders, Share price of the company, and impact on the entire automobile
industry. Further, there has been a short conclusion added in the report that describes the
summary of the report. In the end of the report, there are three key recommendations has been
given that elaborates what can be done to prevent such scandals in future.

Volkswagen Emission Scandal
2
Table of Contents
Executive Summary...............................................................................................................................1
Table of Contents..................................................................................................................................2
1. Introduction...................................................................................................................................3
2. Analysis..........................................................................................................................................4
2.1 Impact of emission scandal on Volkswagen.................................................................................4
2.1.1 Revenue:........................................................................................................................4
2.1.2 Share Price.....................................................................................................................6
2.1.3 Shareholders:.................................................................................................................7
21.4 Automobile Industry:.........................................................................................................7
3. Conclusion.....................................................................................................................................8
4. Recommendations.........................................................................................................................8
References...........................................................................................................................................10

Volkswagen Emission Scandal
3
1. Introduction
Reputation of any company helps a lot in creating positive mind-set of the customers and
helps them to be a loyal customer of a particular company. A positive reputation of company
can create a unique image of the company in the mind of customers as well as in the mind of
community in which company is operating its business. This report is about the famous
Volkswagen emission scandal that happened in September 2015, and known as “diesel gate”
or “emission gate.” In September 2015, it was found that Volkswagen was found to be guilty
of breaching the rule that was related to the emission rates. Actually, the company making
cars that appear in far less emission than required limit set by the USA, but after an
investigation conducted by ‘US environmental protection agency,' it has been found that
VW's diesel cars were emitting up to 40 times more toxic fumes on streets than permitted
(Irwin, 2018). Then the US heads of VW accept the reality that a couple of engineers failed to
develop a mechanism that was expected to reduce the emissions on the road and they were
failed to do so. However, the CEO of VW, Martin Winterkorn resigned from his post in
September and made an announcement that he was fully aware of this scandal. Further, it
analyses the causes behind this unethical incident of the company. This report also measures
the impact of this scandal on the financial performance of Volkswagen in the third quarter of
2015-16 financial years. In the end of this report, it includes a short conclusion and
recommendation that how a company can avoid such type of unethical practices in the
organisation by providing perfect training and motivation to them towards the ethical
practices in the organisation.

Volkswagen Emission Scandal
4
2. Analysis
Volkswagen scandal was the famous scandal in the automobile industry and it destroyed the
reputation of the company worldwide. VW was the world's second largest car manufacturer
in the automobile industry after Toyota Motor Corporation. The ‘Dieselgate scandal’ also
affects its stakeholders directly and indirectly. The impact of the emission scandal was taken
seriously by both the US government and European countries as well. Car sales of
Volkswagen were down tremendously. After that, VW was felt to deal with different
international regulations by hiring Former communications of BMW as a consultant. Apart
from this to handle and cope up with this crisis, VW brought in three public relations firm in
USA, Germany, and Britain. This scandal influenced the entire automobile industry along
with VW.
2.1 Impact of emission scandal on Volkswagen
The major impact of this scandal was on the sales revenue and on the share price of the
company. The company faced a huge loss after this scandal and a large number of
shareholders filed sue against the company for their loss. The emission scandal badly affects
the car market, as people were afraid of buying diesel cars, which covers nearly 3% of new
cars sold in the USA and almost half of the cars sold in Europe (Volkswagen, 2015). The
European countries focus on fuel efficiency and control of greenhouse gas emission. The
USP of diesel cars is fuel efficiency with low carbon emission (Anenberg, et. al., 2017).
However, the problem is here that these cars also emit nitrogen dioxide that causes asthma
and other health-related problem.
2.1.1 Revenue:
The major effect of the Volkswagen emission scandal was on its revenue and sales of its cars.
As shown in Fig. 1 and 2 annual reports of the company, sales revenue and profit of the
company tremendously declined in the financial year 2015-16 in comparison to 2014-15. In
2014, Volkswagen reported sales revenues of €202.5 billion, up 2.8% year-over-year and
operating profits up 8.5% to €12.7 billion (approximate figure). Operating margins of 2014
also improved from 5.6% to 6.3% (Jung and Alison, 2017). The company increased its sales
revenue up to 8.5% in the first half of 2015. But after the scandal sales of Volkswagen
decrease tremendously with the decrease in sales of its other brands such as Audi and Skoda
were also affected because of the emission scandal that causes a decline in total revenue of

Volkswagen Emission Scandal
5
Volkswagen in the third quarter of 2015 (Cavico, and Mujtaba, 2016). The bad reputation and
unethical practice of Volkswagen affected the loyalty of customers, they move to the
competitor brands, and it also causes a decline in sales of Volkswagen. According to a report
of VW Company, global sales of the company slipped by 3.5% and company worldwide
recall its vehicle to change the device used in the cars (Bachmann, Ehrlich, and Ruzic, 2017).
After this scandal, Toyota takes the first place in car selling and Toyota sells more than 7.5
million cars in those three quarters and after that General motors sale was increase by 1.%
and they sell 7.2 million cars (Tse, et. al., 2017).
Fig. 1 Key figures and sales revenue of Volkswagen in 2014 and 2015 (Source:
Volkswagen Annual report, 2015-16)

Volkswagen Emission Scandal
6
Fig.2 Volkswagen’s Vehicle sales and Sales revenue in different regions (Source:
Volkswagen Annual report, 2015-16)
2.1.2 Share Price
The major effect of this scandal was on the share price of the company. VW loses one-third
of its share in just 2 days. The unethical practices of Volkswagen scandal directly affected the
share value of the company where market capital of the company decreased by one third
(Valentini and Kruckeberg, 2018). Company lose billions of dollars in the share market and
also face billion dollars penalty by different countries because of the emission by its cars
(Moravcsik, 2017). After this scandal, when the Frankfurt stock exchange opens on Monday
(21 September 2015), more than $15billion wiped off, because company's share price
dropped. The German government warns that this scandal affects the entire automobile
industry worldwide.
Fig. 3 Volkswagen Market Cap (Source: Mansouri, 2016)
Market share capitalization dropped by 35 billion dollars from $95 billion to $65 billion in
just 10-12 days. Thus, the share price of Volkswagen decreases by $52.50 to $28.25 per share
in the duration of just 10 months (Wang, Jerrett, Sinsheimer, and Zhu, 2016). The share price

Volkswagen Emission Scandal
7
declines clearly show that it was a tremendous failure of the company towards the social
responsibility and fake emission test of the company. In the month of September and October
(2015), share price of company was on its lowest level and dropped to almost $23 dollar per
share (Clearly shown in fig. 2).
Fig. 4 Volkswagen per share price in 2015-16 (Source: Merenda and Irwin, 2018)
2.1.3 Shareholders:
Shareholders of VW directly feeling the effects of emission scandal as shares were dropped
since the scandal was surfaced. Shareholders of the company claimed for the damages that
company did by their frauds through emission scandal. More than 1670 sue filed by the
shareholders against the company and asked for the compensation of $9.2 billion dollars that
they were lost because of company’s fraud emission testing and irresponsible behaviour
towards the environmental protection (Griffin and Lont, 2018). The failure of the
communication system with the shareholders was also displayed after the scandal and
company had to face huge amounts of fine by different countries and regulatory authority for
the unethical emission scandal.
21.4 Automobile Industry:
The global growth in the automobile industry was 1.6% per year with the increase increased
from $1.9 trillion to $2.5 trillion till 2015 (Nemeth and Carvalho, 2017). However, emission
scandal not only affects the Volkswagen’s sales revenue rather it also affects the entire
automobile industry worldwide. Actually, Volkswagen is one of the largest car manufacturer

Volkswagen Emission Scandal
8
companies in the world and other close competitors were giving very close competition to the
company (Rhodes, 2018). That mistake of VW turnaround to be a big opportunity for other
car manufacturing companies. The result of such fault of VW give a boost to other car
manufacturer and their sales were increased (Cruden and Cruden, 2016). Toyota, which was a
close competitor of VW, increased their sales by up to 3.4%. Sales of Ford car was increased
by 0.4%. GM sales were up 1.5% in the US. Nissan North America sales were up 3.8%.
Chevrolet sales were up 4.8%. America Honda Motor sales were down 5.3%, due to a drop in
Acura brand sales (Fracarolli and Lee, 2016).
3. Conclusion
Volkswagen is one of the well-known companies, but despite being a large and reputed
company, it installed faulty software in more than 11 million diesel cars after manipulating
the pollution test. The result of such emission scandal was the loss in sales and decreasing
revenue of the company that impact the entire automobile industry worldwide because it
includes some major car companies such as Audi and Skoda. Another impact of this scandal
was seen as loss in share market. The prices of shares were continuously fallen and the
company loses its credit rating as well with losing its image in the public. The result of this
scandal was that company had to fire its top executives with some senior engineers who
involved in the faulty software testing. As far as the regulators are concerned, they put a
heavy penalty on the company and make strict rules and regulations to prevent such type of
worst incidents in future.
4. Recommendations
From the analysis of this case, it is clear that the main cause of this scandal was
organisational culture and its structure. The company should implement following practices
to prevent such scandals in future:
1. To prevent the decline of share price, company should launch an immediate press
conference to their shareholders about the scandal and should assure them that
everything will be all right after a strict action taken by company against the
defaulters.
2. This step helps the company to control the decline in revenue of the company
worldwide because of the customer belief and loyalty. Overall, to stop and prevent

Volkswagen Emission Scandal
9
declines in revenues and improve the sales of the company, it should be essential for
the company to give importance to their employees and develop ethical behaviour in
them. The company should also conduct several training programs that train their
employees about the emission technology that ensures them to maintain the level of
pollution and emission. This helps to increase the loyalty of customers and their belief
that results in increasing sales and revenue of the company. Role of regulators are also
important such as US-EPA must take some strict actions to prevent such unethical
practices that cause many health-related problems for the people. The emission
regulatory body should consider the emission standard on such level, which is feasible
for the companies and no company, involves in such type of unethical practices.
3. The company should inform their shareholders about the problem and suggest them
do not worry about the situation. It stops them to sell their share from the market and
assure them about the company responsibility towards society and about its
shareholders. Employees of any company play a vital role in the success of the
company, thus it is essential for a company to motivate them towards ethical practices
and actions in the organisation. The modern business practices are totally based on
ethical practice and far different from our traditional business practices. The
company failed to treat their employees ethically and they were afraid of losing their
jobs, thus they involved in unethical practices.

Volkswagen Emission Scandal
10
References
Anenberg, S.C., Miller, J., Minjares, R., Du, L., Henze, D.K., Lacey, F., Malley, C.S.,
Emberson, L., Franco, V., Klimont, Z. and Heyes, C. (2017) Impacts and mitigation of excess
diesel-related NO x emissions in 11 major vehicle markets. Nature, 545(7655), p. 467.
Bachmann, R., Ehrlich, G. and Ruzic, D. (2017) Firms and collective reputation: the
volkswagen emissions scandal as a case study [online]. Available from:
https://www3.nd.edu/~rbachman/BER_current.pdf [Accessed: 12/12/2018].
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.
Cruden, J.C., Engel, B., Cooney, N. and Van Eaton, J. (2018) Dieselgate: How the
Investigation, Prosecution, and Settlement of Volkswagen's Emissions Cheating Scandal
Illustrates the Need for Robust Environmental Enforcement. Va. Envtl. LJ, 36(1), p.118.
Fracarolli N.M. and Lee P.C. (2016) Caught red-handed: the cost of the Volkswagen
Dieselgate. Journal of Global Responsibility, 7(2), pp. 288-302.
Griffin, P. A. and Lont, D.H. (2018) Game changer? The impact of the VW emission-
cheating scandal on the interrelation between large automakers’ equity and credit
markets. Journal of Contemporary Accounting & Economics, 14(2), pp. 179-196.
Irwin, M. (2018) Case Study: Volkswagen's Diesel Emissions Control Scandal. Journal of
Strategic Innovation and Sustainability, 13(1), p. 53.
Jung, J.C. and Alison P.S.B. (2017) Case Study: Volkswagen's Diesel Emissions
Scandal. Thunderbird International Business Review, 59(1), pp. 127-137.
Mansouri, N. (2016) A case study of Volkswagen unethical practice in diesel emission
test. International Journal of Science and Engineering Applications, 5(4), pp. 211-216.
Merenda, M.J. and Irwin, M. (2018) Case Study: Volkswagen’s Diesel Emissions Control
Scandal. Journal of Strategic Innovation and Sustainability, 13(1), pp. 53-62.

Volkswagen Emission Scandal
11
Moravcsik, A. (2017) Faster, Higher, Farther: The Volkswagen Scandal. Foreign
Affairs, 96(5), p. 183.
Nemeth, K. and Carvalho, J.M. (2017) Dieselgate” and Consumer Law: Repercussions of the
Volkswagen scandal in the European Union. Journal of European Consumer and Market
Law, 6(1), pp. 35-35.
Rhodes, C. (2018) Democratic Business Ethics: Volkswagen’s Emissions Scandal and The
Disruption of Corporate Sovereignty [online]. Available from:
https://lra.le.ac.uk/bitstream/2381/41506/6/Org%20Studies%20-%20Democratic
%20Business%20Ethics%20-%20final%20version.pdf [Accessed: 12/12/2018].
Tse, Y.K., Zhang, M., Doherty, B., Chappell, P., Moore, S.R. and Keefe, T. (2017) Exploring
the hidden pattern from tweets: Investigation into Volkswagen emissions scandal. Supply
Chain Management in the Big Data Era, 16(8), pp.172-198.
Valentini, C. and Kruckeberg, D. (2018) Walking the environmental responsibility talk” in
the automobile industry: An ethics case study of the Volkswagen environmental
scandal. Corporate Communications: An International Journal, 23(4), pp. 528-543.
Volkswagen (2015) Strategy 2018, Volkswagen: Aktiengesellschaft [online]. Available from:
http://www.volkswagenag.com/content/vwcorp/content/en/investor_relations/
Warum_Volkswagen/Strategy.html [Accessed: 12/12/2018].
Volkswagen Annual report (2015-16) Annual Report 2015-16[online]. Available from:
https://www.volkswagenag.com/ir/Y_2015_e.pdf [Accessed: 12/12/2018].
Wang, T., Jerrett, M., Sinsheimer, P. and Zhu, Y. (2016) Estimating PM2. 5-associated
mortality increase in California due to the Volkswagen emission control defeat
device. Atmospheric Environment, 144, pp. 168-174.
Zhang, B., Veijalainen, J. and Kotkov, D. (2016) Volkswagen Emission Crisis: Managing
Stakeholder Relations on the Web. WEBIST 2016: Proceedings of the 12th International
conference on web information systems and technologies, 16(28), pp. 157-196.