Volkswagen Case Study: Analyzing the Impact of Diesel Scandal

This case study examines the Volkswagen emissions scandal, focusing on the ethical and reputational damage caused by the company's use of defeat devices in its diesel vehicles. The report analyzes the impact of the scandal on various stakeholders, including the reduction in management bonuses, the health costs associated with increased emissions, the drop in sales, and the challenges faced by Volkswagen dealers. The analysis explores the ethical implications of the company's actions and its effects on the environment and public health. The study concludes with recommendations for Volkswagen to rebuild its reputation, potentially through rebranding or establishing trust-building initiatives. The case study highlights the importance of ethical business practices and the long-term consequences of corporate misconduct.

1813679/1
VOLKSWAGEN CASE
STUDY
To what extent has the situation damaged the reputation of the organisation What
can the organization do to rebuild their reputation
DECEMBER 19, 2018DECEMBER 19, 2018
ACADEMIC AND PROFESSIONAL SKILLS

Table of Contents
EXECUTIVE SUMMARY.............................................................................................................1
INTRODUCTION...........................................................................................................................1
ANALYSIS......................................................................................................................................2
RECOMMENDATIONS.................................................................................................................6
REFERENCES................................................................................................................................7

EXECUTIVE SUMMARY
Ethics are basically the beliefs and values of an individual or an organisation in relation
to business conduct. This report focuses upon the case study of Volkswagen where the company
fitted defeat device in its vehicles so as to evade the diesel emissions tests successfully. This
report is majorly divided into four parts. The first part explores the impact of company’s cheat
scandal upon the bonus of chief management. The second part talks about cost incurred by
company in response to giving better heath opportunities to people affected by company’s
conduct. The third part gains an insight into the ways in which company’s unethical code of
conduct affected company’s sales and profitability. The fourth part is all about the consequences
of scam upon the dealers of organisation. It is recommended that company can restart its
operations under a different name or sign a bond so as to enhance their corporate image across
the globe.
INTRODUCTION
Ethics are the moral beliefs or philosophies of an individual or group in relation to what
is right and wrong. Business ethics is that branch of ethics which is related to study of business
policies, practices, structure and corporate governance so as to ascertain that entity does not
engage in any malpractice like bribery, stereotyping etc. (Blackwelder. and et. al., 2016). For any
business entity to ensure its sustenance in marketplace for long duration of time, it is necessary
that business adopt ethical practices that do not cause any harm to mankind or environment. In
the recent decades, practices concerned with conservation of environment and sustainable
development have gained significance.
The present report is based upon Volkswagen which is the largest automaker by worldwide sales
in 2016. This report focuses upon the practices adopted by company during its conduct of
operations. Volkswagen accepted that in ample number of its vehicles sold across the globe, a
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defeat device or software was fitted in the diesel engine (Mansouri, 2016). This was done with
the aim of enhancing the vehicle performance so as to bring improvements in desired results.
Company engaged in this practice so as to pretend that its vehicles follow emission standards and
thus, entity carried out the emission test in lab and not on roads (Blackwelder and et. al., 2016).
The reputation of a business enterprise is immensely essential for its sustainability and
growth. The trust and confidence gained from consumers as a result of reputation of business
organisation have a direct impact upon a company’s bottom line.
This report will explore the impact of Volkswagen Scandal upon the corporate image and
position of business.
Similar incident happened in Toyota Company where company concealed information
about the faulty pedals of vehicles. In both the cases, the companies passed on the blame over
software developers or engineers to escape prosecution. These incidents damaged the reputation
of both the companies. For any company to become a leader in industry or marketplace, it should
possess good corporate image in market so that people can place trust in the company and buy
the products manufactured by them. This report will explore main impacts of the Volkswagen
scandal upon the different stakeholders and reputation of company.
ANALYSIS
As a result of Volkswagen’s cheating activity, many consequences took place which
largely impacted the reputation of organisation in global context. Some of these are discussed in
detail below.
“The emission scandal of Volkswagen led to a slump in Workforce's Bonus”
According to Geir Moulson, when the test results in relation to the dishonest arrangement
of defeat devices in vehicles manufactured by the company were revealed to public, sales of
enterprise was largely affected. To deal with this situation, company decided to reduce the bonus
of chief management of entity. This reflected that employees would no more be getting fair
wages for carrying out operations within the premises of entity. Also, company publicly made a
statement emphasizing upon the reduction in adherence with all those models that called for a
fair remuneration for all employees of Volkswagen (Volkswagen says its managers' bonuses will
be cut following the automaker's diesel emissions scandal, 2018). This meant that the rational
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solution for all parties involved in conduct of processes and activities in company was
deliberated. Furthermore, this reduction was just restricted to management along with all
individuals at a job position that helps the CEO of company to manage the tasks that take place
regularly. The supervisory of company got saved from this reduction of bonus except the
Chairman, Hans Dieter Poetsch. This badly impacted the reputation of company in long run
along with the management developing a feeling of being cheated upon by not paying them off
properly.
“Volkswagen emissions cheating caused huge cost in relation to human health”
According to Noelle Eckley Selin, the cars manufactured by company which were fitted
with defeat device released toxic pollution which posed threat to security of people and caused
almost 60 premature deaths. In a span of next some years, many Volkswagen cars run by diesel
posed threat to human life as it released a large extent of nitrogen oxide in the environment. This
reflected that company did not adhere to the standards set by Clean Air Act regarding the
emissions. This was a non-ethical activity that the company engaged in as nitrogen oxide is an
important component of smog. As it is already known, smog is hazardous to health and security
of individuals as it causes respiratory diseases along with bronchitis and heart diseases. At times,
it also led to premature deaths of people (Krall and Peng, 2015). Also, it was observed that
release of harmful particles in air led to huge amount of air pollution.
Along with this, the pollution created by vehicles of Volkswagen fitted with defeat devices
became cause of chronic bronchitis of type thirty-one and thirty-four. US had to incur a huge
amount to deal with the large-scale sickness of people. Volkswagen was just left with the option
to recall all the cars fitted with defeat device otherwise it would have caused many premature
deaths (Volkswagen emissions cheating caused $100 million in health costs, according to
analysis, 2015). Furthermore, diesel cars of company added to the cost. Along with this, release
of excessive nitrogen oxide in environment by Volkswagen diesel cars lead to a detrimental
phenomenon acid rain. This phenomenon largely impacts the health of people along with having
severe effects on nature and natural resource. With such detrimental impacts of the cars
manufactured by company upon the environment, the global reputation of company had an
adverse impact with company losing its stake in market along with decline in its profitability.
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“Volkswagen Defeat Devices led to a drop-in sale of company”
According to Roger Parloff, Volkswagen diesel scandal adversely affected the brands of
Volkswagen group, especially, Audi and Skoda. This led to massive reduction in sales revenue
of company. The effect caused upon sales of company was not just limited to the brands under
the group but also, the overall functioning and system of parent company. As a result of
company's cheating scandal, enterprise witnessed a reduction in sales of company. This was
something that had never happened in the history of Volkswagen. Over a period of past 11 years
also, the revenue of company did not drop to the extent equal to the reduction in sales caused
because of diesel emission case.
Revenue obtained from sale of cars manufactured by company fell substantially which could be
reflected in countries like China and US where the demand for products of Volkswagen reduced
tremendously (Ewing, 2017). This landed Volkswagen in losses in the month of December.
Company publicly announced that it would take measures to fix the damage caused to safety and
security of people and environment as a result of the act of company to fit defeat devices in cars
manufactured by them to escape the results of lab tests of diesel emission. Company experienced
the first drop in its deliveries in last 13 years as a consequence of the underperformance of
company's largest division in terms of sales and revenue. As a result of company's emission
scandal, the sales of cars fell which furthermore resulted in reduction of profitability of business
entity (Hotten, 2015).
The loyalty and belongingness of customers of company towards the brand was also adversely
affected by the series of unethical events that company engaged in. Also, the bad reputation after
the scandal forced the customers to shift to alternative brands that compete with Volkswagen in
automotive industry. Since 2002, for the first time, in 2015, sales of Volkswagen increased
globally after the deceptive act of company. Also, company had to pay huge compensation after
the emission scandal took place. (How VW Paid $25 Billion for 'Dieselgate', 2018).
“The emission scandal created Hassel for Volkswagen Dealers”
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When diesel emission lab tests took place and results came in front of audience, a
package of specific programs with the purpose of assisting retailers to cope with the rigging in
diesel emission test was provided to Volkswagen dealers. The program included specific amount
of money in form of sales bonus, incentives, or subsidy injected to dealership network struggling
with lower sales and profit (Jung, Chilton and Valero, 2017). Slow pace of revenues and profits
largely affected dealers. The loan amount changed according to number of dealers of company.
As the unethical practice of company got unleashed in front of public, there were adverse
impacts upon the brand name and position of company. The major concern of dealers was in
relation to the sufficiency and adequacy of funds. A dealer of company Steve Kalafer in New
Jersey said that the given fund will be utilized to cover the store’s operating costs and to boost
the budget in relation to marketing. The scandal that took place was globally considered as a
deceptive act by people and thus, therefore, there was great impact upon the existing customer
base of company, employees and investors. The concern of employees was about their job
security. Another Volkswagen dealer in east coast came up with a view point saying that dealers
of Volkswagen in the United States are not making money or just breaking even (US Volkswagen
Dealers Want VW to Pay, 2018.). Another dealer of Volkswagen Bill Wallace in Stuart pointed
that overall customer traffic has reduced significantly but it is essential for converting shoppers
to sales. General Manager of Volkswagen mentioned that a proportion of funds will be utilized
primarily to close deals with the diesels car owners who are unwilling to get into Volkswagen
gasoline cars, whilst the rest of fund will be given to sales workforces with the purpose of
improving their satisfaction and motivation.
CONCLUSION
From the above report, it can be concluded that Volkswagen's public announcement of
fitting of defeat devices adversely impacted the reputation of entity. It can be analysed that the
diesel scandal in which the company was involved lead to a decline in sales of company for the
first time in last 11 years. Also, consequently, the share prices of enterprise fell down
significantly. It can also be observed that to deal with the loss that happened to Volkswagen,
company announced the cutting down of bonus of chief management of entity. Furthermore, the
diesel emission leads to a detrimental impact on human health and caused acid rains which is a
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threat for the environment. Along with that, it can be concluded that company need to take
measures to deal with the damage to reputation of company.
RECOMMENDATIONS
The emission scandal had a detrimental impact upon its global reputation. The major
reason behind this was the corporate culture of company. It is highly recommended that
company should conduct certain moral and ethical programmes equipping employees in relation
to what is right and wrong about operations and thinking of individuals and groups within the
organisation. Also, to deal with the loss to corporate image and position, company can consider
three possible solutions. These are, namely, restarting the business again in another name,
joining an independent verification agency or setting up a bond to recover from the loss made to
the brand name. Volkswagen should implement as many measures possible to tackle with the
complex situations that company landed in as a result of the scandal. In the last 60 years,
Volkswagen has become a global brand and possesses a high stake in market that has been
challenged after the scandal. Thus, company can consider the possibility of restarting the entity
under a new name. If the process is carried out, this would lead to enhancement of public image
of company as this will make it easier to speed up efficiency programs and potentially save the
company from losses. Even though the company has its own internal team for examining the
emissions of vehicles yet the company can now consider teaming up with other independent
verification agencies to regain the trust and belief of consumers along with improving its
reputation in market. Company can also consider posting a bond that assures the public that the
similar situation would not take place in future again. This would lead to building up the lost
image of company and regaining the credibility of public and also the government. The bond
would need a huge finance to be made so that customers can be assured that company truly
regrets about cheating with the emission standards and misleading the public as well as law.
Volkswagen is a big name in automation industry and company can consider the option of
selling any of its brands to collect funds for the bond.
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REFERENCES
Books and Journals
Blackwelder, M. and et. al., 2016. The Volkswagen Scandal.
Crête, R., 2016. The Volkswagen scandal from the viewpoint of corporate governance. European
Journal of Risk Regulation. 7(1). pp.25-31.
Ewing, J., 2017. Faster, Higher, Farther: The Inside Story of the Volkswagen Scandal. Random
House.
Hotten, R., 2015. Volkswagen: The scandal explained. BBC news, 10.
Jung, K., Chilton, K. and Valero, J. N., 2017. Uncovering stakeholders in public–private
relations on social media: a case study of the 2015 Volkswagen scandal. Quality &
Quantity. 51(3). pp.1113-1131.
Krall, J. R. and Peng, R. D., 2015. The Volkswagen scandal: Deception, driving and
deaths. Significance. 12(6). pp.12-15.
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.
Online
How VW Paid $25 Billion for 'Dieselgate'. 2018. [Online]. Available Through:
<http://fortune.com/2018/02/06/volkswagen-vw-emissions-scandal-penalties/>.
US Volkswagen Dealers Want VW to Pay. 2018. [Online]. Available Through:
<https://247wallst.com/autos/2016/03/22/us-volkswagen-dealers-want-vw-to-pay/>.
Volkswagen emissions cheating caused $100 million in health costs, according to analysis. 2015.
[Online]. Available Through: <https://grist.org/climate-energy/volkswagen-emissions-
cheating-caused-100-million-in-health-costs-according-to-analysis/>
Volkswagen says its managers' bonuses will be cut following the automaker's diesel emissions
scandal. 2018. [Online]. Available
Through:<https://www.usnews.com/news/business/articles/2016-04-13/volkswagen-to-
cut-managers-bonuses-following-diesel-scandal>
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