Volkswagen Case Study: Diesel Emission Scandal and its Consequences

This case study examines the Volkswagen emissions scandal, detailing the company's fraudulent practices related to diesel engine emissions. The analysis covers the actions of managers, the impact on consumers and shareholders, and the responses of regulatory bodies. Volkswagen, a leading car manufacturer, faced significant legal and reputational damage after it was revealed that the company had installed "defeat devices" in its diesel vehicles to cheat emission tests. The scandal led to a loss of consumer trust, a drop in share prices, and numerous lawsuits. The report discusses the involvement of senior management, the role of regulatory agencies like the EPA, and the long-term consequences for the company. Recommendations include emphasizing ethical governance and addressing tighter pollution policies. The study underscores the importance of honesty and transparency in business operations, highlighting the risks associated with corporate fraud and the need for robust regulatory oversight.

Volkswagen case study

Executive summery:
Volkswagen is a leading car manufacturing company and is one of the powerful name in
the car industry around the world. Each and every model of the different cares manufactured by
the organisation passed the emission test conducted by the regulators of transport and vehicles.
The circle of managers with direct knowledge of how the company falsified the emission
performance of its diesel vehicles is much wider than the company had so far indicated The
consumer lost their trust in the organization as it is difficult for them to gain that faith again
with the same consistency is difficult. More than 1,400 complaints from institutional and
individual shareholders seeking 8.2 billion euros were instituted by the shareholder in a time
span of few days. The main regulators in this case were the Environmental Protection Agency
who detected the frauds of defect devise installed in the cars in September 2015.

Table of Contents
INTRODUCTION...........................................................................................................................1
ANALYSIS......................................................................................................................................1
CONCLUSION................................................................................................................................4
RECOMMENDATIONS.................................................................................................................4
REFERENCES................................................................................................................................6

INTRODUCTION
Volkswagen is a leading car manufacturing company and is one of the powerful name in
the car industry around the world. This group comprises twelve brands from seven European
countries. The organisation is one of the major automobile company and its founded by the
German government in 1937. It also has many subsidiaries such as Audi, Seat, Porches etc. being
a large manufacture of the cars and having big brands under subsidiaries it can be stated that it
hold high reputations and stakes in the industry as well as at global level. A default done by the
firm can lead to damage the reputation in the global market. Back in 2015, the company faced
huge litigation committing a fraud with the regulators authors, consumers and stakeholders.
Fraud is an act of deceiving other who have put there trust in the activities carried out.
In year 2015 such an act of fraud was detected by the regulatory authorities committed by the
Volkswagen which was related with presenting the high level of emission from the cars
manufactured by the company under the limit prescribed by the regulatory standards. Although,
this was pretended in the test that the emission levels were under the prescribed limit but this
was not the actual case. In reality the cars emitted high level of smoke when used in actuality.
The diesel engines presented in the test were mere disguise to cover the fault in the car motors.
In this report a detailed analysis of the case is conducted with giving specific attention to the key
areas related with mangers, consumers, shareholders and regulators. A discussion related with
roles, duties and responsibilities of the manager and impact of their act on the shareholders,
consumers is presented. The litigation and actions taken by the regulators against the act of the
company is disclosed in the report with consequences faces by the organisation.
ANALYSIS
Manager:
With launching new diesel engines in 2009 under many of the cars in US market the
having a carbon emission under the prescribed standards of the US government. Each and every
model of the different cares manufactured by the organisation passed the emission test
conducted by the regulators of transport and vehicles ("Dozens" of managers implicated in
Volkswagen scandal, 2015). With detection of this deceiving act of Volkswagen, the
management first tired to implicate this as an act of certain software engineers who developed
such system that passes the test but do not control the emission of the carbon in the environment
when driven on the roads. They presented the default engines system as “Defect devise” which
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sounds like a sophisticated piece of kit to every one the defect was in the software which was
instilled in most of the cars sold in US to meet the requirement of lower carbon emission in the
environment (Li and et.al., 2018). The circle of managers with direct knowledge of how the
company falsified the emission performance of its diesel vehicles is much wider than the
company had so far indicated. After further investigation it was found that the senior managers
were duly aware of the fact of installment of defect devices in the cars and they knew the
implications when such fraud will be detected (Volkswagen: The scandal explained, 2015). The
management still tried to cover the act of the company but finally it was admitted by the VW
America boss, Micheal Horn that they have screwed up totally and have broken the trust of their
consumers and public (Moravcsik, 2017). More than 30 of person were involved in this scandal.
Initially most small group of lower level employee were charged with allegation but it ended up
with arrest of Audi's CEO Rupert Stadler.
Consumers:
One on the innocent and most hurt sector of the stakeholder of the Volkswagen were
their consumers. Not only the consumers of US whom they sold more than 6000,000 cars and
but also buyer around the world who had been sod over 11 millions car with defect devise were
deceived by the organisation (Jung, Chilton and Valero, 2017). The scandal irked the consumer
who have a long time trust in the organisation in the car manufactured by the firm, also started to
have doubt about the future action of the management of the Volkswagen. The consumer
questioned the ethical and moral practices of the business as this was one of biggest and long
stretched fraud which was detected only after the emission test taken by the environmental
regulation authorities gave misleading results.
The consumer lost their trust in the organization as it is difficult for them to gain that
faith again with the same consistency is difficult. They file law suit against the firm for playing
with the environment and for selling the cars with defect devise in name of a diesel engine in
accordance with emitting carbon under the prescribed limit. This is analyses that the sale were
dropped to bottom fro a period of 2 years as this can be seen from the financial of the
organisation (Bhaskaranand Bandyopadhyay, 2018). The main factors was the installation of the
faulty and defected devise int the cars sold worldwide and this book trust of the costumers.
They did not want to invest their money in such a company that was involved in fraudulent
activities and deceive all those which are related with the organisation.
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Shareholders:
The share holder of the organisation were in a shock when this fraudulent act of the
committed by the management and senior mangers were come in limelight back in 2105. With
this the prices of the shares of the Volkswagen hit the rock hard and they dropped to the bottom.
The shareholder were the one who faced major loss when he fraud was exposed by the
environmental regulatory authorities of the US (Volkswagen Shareholders Seek $9.2 Billion Over
Diesel Scandal, 2016). The German court was flooded with new lawsuits against Volkswagen
from investors who say they lost billions as the value of the shares of Volkswagen plunged after
its diesel emissions scandal was reveled. More than 1,400 complaints from institutional and
individual shareholders seeking 8.2 billion euros were instituted by the shareholder in a time
span of few days. Of all this cases in a single day only 750 cases were filed. About 40% of the
company's market value was wiped out when the scandal broke in 2015. Volkswagen admitted
fitting as many as 11 million diesel vehicles worldwide with software that could cheat nitrogen
oxide emissions tests and this lead to instant plugging down of the share price of the organization
leading to face loss of million and billions to the shareholder of Volkswagen (Volkswagen faces
$9 billion legal headache, 2016). This fraud cost the company an amount of $29 billion with
damaging its reputation worldwide but this seems to not longed for an extended time. In a span
of 4 years the business have gained its position back with grabbing its position as one of the
leading manufacture of the cars around the globe. Alone in year 2017 the company sold 10.7
million cars in the worlds. The share prices are listed with increasing prices so, this can be stated
that the effect was huge but did not continue for a long time and company steeped back on its
fit with a bang in a period of 2-3 years.
Regulators:
The main regulators in this case were the Environmental Protection Agency who
detected the frauds of defect devise installed in the cars in September 2015. This was identifies
when test were consulted by the regulators when they got a tip from a single employee of the
Volkswagen to the regulating authority of the environment protection (Fracarolli Nunes, and
Lee Park, 2016). The test received the fact the engine struggles back in time to build up a such a
diesel engine that entitled less carbon and nitrogen gases when the car is driven, but they were
unable to develop such engine. In this case that build nut a false software that showed the
regulators during the process of declaring a car engine eligible to be used in card to be software
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in US. With this software the all cars of Volkswagen in the us for a period of 7-8 years (McKay,
Nitsch and Peters, 2015). With getting the tip the regulators again took the test, this time the
results showed discrepancy and with further investigation this fraud was detected in US. The
regulators found that how instead they designed a system to switch on emissions controls when
the cars were being tested, and turn them off during normal driving. This gas been found that the
regulators totally relied on the test format and this did not inspect anything ambiguous in the cars
and engine models. This scandal took a time of 7-8 years to reveal this reflect the fact the authors
of environmental protects were relying on the old methods and there was no invention or
improvement in the existing methods to check the emission of the carbon from the diesel
engines.
CONCLUSION
From the above report it can be stated that Volkswagen being one of the largest
manufactures of automobiles in the world have also been a part of a big scam of deceiving its
consumers, stakeholders as well as the regulatory authorities. The firm started to produce
defective diesel engine which passed the test but in actuality the emission of carbon dioxide was
more the statutory limit. The impact was that the shareholder lost trust in the firm and sued more
than 1400 lawsuits against the company for over $9 millions. The managers were informed
about fitting of the defect devise in the car and also they were aware of the fact of uncovering
of the deception. The regulators found the company in default to device the legal authorities
with fitting of such engine that passes the test but in actuality do nothing to control the carbon
emission. This lead to long litigation and at the end the CEO of Audi Rupert Stadler was
arrested in Germany.
RECOMMENDATIONS
In case the success of a product depends on a lie no company want s to sell it. This is
merely not a moral point rather that fact stats that lies are always unstable. No one can predict
that when such lie will fall apart and involves a huge commercial and regulatory risk when
strategies are based on lies. To sell Diesel car with environmental competency is a challenge in
Europe and to sell the same is US with tighter regulation related with pollution is more difficult.
The matter was highlighted when discrepancies in the emission test were found and the senior
managers also made efforts to concealed the facts. The major reason behind this fraud was
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detected as the tighter pollution policies in the US related with carbon emission from the cars.
Another reason includes poor ethical and regulatory governance practices in the company.
The action that may have prevented this fraudulent act by Volkswagen was effective
ethical practices in the organization. The firm overpowered the morale base over the expansion
and increasing profitability possibilities. The poor decision were supported by the regulators and
senior manger of the company which is not a part of effective organizational management and
business drill. At Volkswagen, poor regulatory incentives met a governance regime that
discourages accountability. The suggestions are made to the company that to avoid such act in
the future, more strict governance and regulation must be implemented in the firm, along with
involvement of ethical regime in the conduction the business operations. With better regulations
and governance the future blows ups can be prevented from happening in actual life with this
the executives who made deliberate misrepresentation did not face jail for the fraud rather they
were mere fined. It is suggested that to put a stop on such act, in the world strict action must be
taken and all responsible persons must be sent to jail to face imprisonment.
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REFERENCES
Books and Journals
Bhaskaran, P. B. and Bandyopadhyay, P. K., 2018. Volkswagen on the Touch-stone. South
Asian Journal of Business and Management Cases. 7(1). pp.1-10.
Fracarolli Nunes, M. and Lee Park, C., 2016. Caught red-handed: the cost of the Volkswagen
Dieselgate. Journal of Global Responsibility. 7(2). pp.288-302.
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.
Li, L and et.al., 2018. Industry-wide corporate fraud: The truth behind the Volkswagen
scandal. Journal of Cleaner Production. 172. pp.3167-3175.
McKay, D. R., Nitsch, R. and Peters, D. A., 2015. Corporate governance and business
ethics. Plastic Surgery. 23(4). p.271.
Moravcsik, A., 2017. Faster, Higher, Farther: The Volkswagen Scandal. Foreign Affairs. 96(5).
p.183.
Online
"Dozens" of managers implicated in Volkswagen scandal. 2015. [Online]. Available
through :<http://fortune.com/2015/10/14/dozens-of-managers-implicated-in-volkswagen-
scandal/>.
Volkswagen: The scandal explained. 2015. [Online]. Available through
:<https://www.bbc.com/news/business-34324772>.
Volkswagen Shareholders Seek $9.2 Billion Over Diesel Scandal. 2016. [Online]. Available
through :<https://www.nytimes.com/2016/09/22/business/international/volkswagen-vw-
investors-lawsuit-germany.html>.
Volkswagen faces $9 billion legal headache. 2016. [Online]. Available through
:<https://money.cnn.com/2016/09/21/investing/volkswagen-shareholder-lawsuits-9-
billion/index.html>.
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