Volkswagen Case Study: Emission Scandal, Reputation, and Recovery

This case study examines the Volkswagen emission scandal, focusing on the company's failure to meet legal compliances and the subsequent adverse impact on its performance and brand image. The report analyzes the scandal's effects on Volkswagen's reputation, revenue generation, public relations, and customer satisfaction. It explores how the scandal led to dissatisfaction among consumers and employees. The study provides an in-depth analysis of the scandal, including the installation of defeat devices, the resulting pollution, and the company's attempts to manage the crisis. Furthermore, the document offers recommendations for managing legal troubles, recovering from damages to share value, improving customer relations, and restoring revenue. The study highlights the importance of ethical business practices and the long-term consequences of unethical behavior in the business environment. The case study also discusses strategies for rebuilding brand image, including apologizing for mistakes, taking immediate action, communicating the issue and actions, and fixing the problem.

Volkswagen case
study

Executive summary
The failure to meet the legal compliances can have an adverse impact on the overall
performance as well as brand image of organisation. The report has analysed the case study of
Volkswagen in which organisation fails to meet the legal standards. It has discussed the impact
of this incident on reputation and revenue generation of the organisation. The document also
evaluated that how such legal issues influences the public relations and consumers. The incident
leads to dissatisfaction among its consumers as well as employees. The study has also provided
recommendations to manage such legal troubles and how organisation can recover from the
damages caused to its share value, customer relations and revenues.

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

INTRODUCTION
Ethics refers to a branch of knowledge that deals with moral principles. Whereas business
ethics means professional ethics which can arise in business environment. Organization needs to
work in ethical manner so that it can generate good reputation within industry. Volkswagen was
involved in a scandal in 2015. Ruiz-Alba and Sánchez, 2017 stated that Company admitted
that almost 600000 cars produced in US was fitted with a defeat device. This was done in order
to pass the emission test. But at later stage it was found that devices were installed to improve
the performance of car but it resulted in consuming large quantity of diesel and high level of
smoke and rise in pollution level in different states of US. Soon, the company published a
statement in which they said that devices was installed in around 11 million cars. Therefore, the
operational head of US, Michael Horn claimed that it was work of some software engineers. But
in annual report of company it was clarified that organization engineers were having difficulty in
building that devices. similar case occurred in Mitsubishi’s where they used unapproved method
to calculate mileage of car for 25 years. According to Mujkic and Klingner, (2018) in 2016 they
stopped the production of mini vehicles. Reputation helps them to attract large number of
customers and sustain in market for long time. moreover, it is necessary to maintain reputation in
market as it contributes in generating revenue. this assignment will discuss about how
Volkswagen was involved in scandal case and what were the results of it. besides this, it will
describe how organization reputation is damaged due to it and what can be done to rebuild
reputation in market. in another section some recommendations are given.
ANALYSIS
Brand image refers to reputation of a company within industry and in the minds of
people. It means the perception of people when they hear or see logo, sign, etc. of that particular
brand. Therefore, every company tries makes huge efforts to build and develop a positive and
better brand image. Reputation can be damaged if there is any legal obligations or scandal in
which firm is involved. This can result in downfall in organization growth and market value. In
addition to it, the overall industry condition is affected by this. The negative image is created in
minds of people and they start resisting in buying company products. Besides this, speculations
are built in market about business growth said by Strittmatter and Lechner, (2017). It shapes
perception of people towards firm. apart from it, there is high decline in sales and profits. the
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organizational culture is affected in negative way as well. In similar way Volkswagen was also
involved in emission scandal. Therefore, they have to rebuild their reputation to overcome
negative impact of scandal. It is because it has led to high loss in revenue and goodwill.
Moreover, improving reputation will help Volkswagen to gain trust and satisfaction of
customers. they will be able to grow in different markets. Alongside it, the profits and sales will
come on track again. This is done by branding, marketing, public relations, etc. if reputation is
harmed or impacted due to any reason it affects the overall goodwill of company in market.
involving in any case or scandal forces business to face difficulties and certain obligations.
Furthermore, a negative image of brand is developed in mind of customers.
Areas which impact reputation
It can be identified that there are several areas through which reputation is damaged. It is
supported by Horie, Kiritoshi and Ma, (2016) it can be inside or outside the company. The areas
are discussed below :-
Revenue- the major impact of scandal is on revenue of organization. This is because major part
of revenue is generated from reputation. It can be said that having a good brand image results in
generating more revenue. But on contrary, firm have to pay high amount of penalty or fine for it.
this results in decrease in its revenue.
Share price- the occurrence of any case or scandal directly impact on share price of company.
This is because shares are listed on stock market and it fluctuates with change in market
condition. They are major source of income for company. So, if there occurs any scandal it
results in downfall of share price. This makes value of per unit share low. Hence, investors sell
shares and resist in buying. Downfall in share price automatically impacts on reputation.
Customers- According to Irwin, 2018 they are significant source of company income. The
overall firm reputation is built by customers. they perception of customers helps in generating
brand image. So, if any scandal occurs, customer starts thinking negative about business. they
resist in buying products and services. It reduces customers base. They develop wrong image in
their minds and decreases their satisfaction level.
Public relations - it means the way in which company interact or communicate with their
customers. a strong PR will reflect in creating a positive image in market. so, happening of any
case will impact on PR. The company will not be able to interact in same way. furthermore,
customer do not respond properly and communicate. Thus, it impacts on reputation of enterprise.
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However, occurrence of such scandal also affects in its growth and development. For
instance, a company wants to expand in different country and such incident will create a bad
image. So, government of other country will not allow them to enter in market. similarly, its
sales and profits get declined and customer base is reduced. It has been determined that
Volkswagen reputation is highly been impacted. According to Fracarolli Nunes and Lee Park,
2016 due to this they have to suffer a huge loss in market. also, its share price recorded the
greatest downfall in auto mobile sector. there was decline of 17.14 % . (VW emission scandal.
2018) it resulted in decrease in market value and share. Moreover, they have to pay $18.2 billion
to government to deal with it. in addition, there was sales and profits went down.
Figure 1 Volkswagen annual sale 2017
(Source: Luis Pesce. 2018 )
It is essential for Volkswagen to rebuild their brand image in market so that it can regain
customer satisfaction and maintain it. moreover, efforts are made to remove negative image from
minds of people. It will benefit in retaining them. In addition to it, it will help Volkswagen to
generate sales and revenue from market and compete with competitors. In this not only effective
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branding and marketing is done but also some more strategies are implemented. These are
described below:-
Ways to rebuild reputation
Apologize for mistake- here, Volkswagen can apologize for the mistake which has been
occurred. It shows accountability and responsibility of top management towards customers. it
reflects a positive image in market about Volkswagen (Tips to rebuild organisation reputation.
2018). it can be done publicly by releasing a press conference. Apologizing show concern of
organization. By this they can retain customers and rebuild reputation in market.
Take immediate action – in this Volkswagen can take immediate action related to issue. they
can either form a committee to investigate and resolve issue. doing this, shows how responsible
Volkswagen is towards issue. also, it shows how much business value their customers and
stakeholders. on contrary if action in not taken in specified time it can lead to creating more
rumors about company. Volkswagen can take action to recall cars or pay compensation to
customers.
Communicating issue and action- it can also help in rebuilding reputation. Through the use of
reports, statements, press conference, etc. Clemente and Gabbioneta, 2017 agreed that action
must be communicated to public. This is because it will help in finding out what action are been
taken to resolve issue. it helps in showing in industry that Volkswagen is solving issue.
Fix the problem- Volkswagen can also take action to fix the problem. It will help in gaining
back trust of customers. besides this, a proper plan can be developed on how problem will be
fixed. The fixing of problem must be done as soon as possible as it will help in retaining
customers. it shows how much company is concerned for its customers.
Thus, by following all these strategies Volkswagen can rebuild their reputation. It will be
beneficial for them to assure customers that they are concerned about them. Other than this, it
reflects a good image in industry. Also, its shows accountability of business towards its
customers.
CONCLUSION
It can be summarized from report that firm highly focuses on maintaining their reputation
in market so that it can retain customers. there is a negative impact on organization brand image
due to occurrence of any scandal. It directly effects on their growth and development. Also, there
are different areas such as revenue, public relations, share price, etc. on which reputation impact
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can be seen. Moreover, there are many strategies like fixing problem, communicating action, etc.
through which reputation is rebuild. It helps in retaining trust and satisfaction of customers and
ensuring sustainability in market. it shows accountability and responsibility of business towards
its customers.
RECOMMENDATION
In order to rebuild or gain reputation in the market Volkswagen can initiate different
strategies for it. this will help them in improving its brand image. But in case of future,
Volkswagen can follow certain recommendation that will help them to resolve and handle
situation in effective way. besides this it will be useful in avoiding such mistakes in the future.
They are included as below :-
 Volkswagen can reform their policies and procedures of solving issues and scandals.
They can prepare several plans on how to deal with issues if it is occurred in the future ().
Reforming policies will set some guidelines and standards that can be followed to deal or
resolve issue. it will help in finding out reason and taking immediate action.
 The company can increase responsibility of top management regarding occurrence of
issue. this can be done by assigning more roles to them. It will help in effective
monitoring of overall business functions. With it, issue can be solved in effective manner
and reputation is improved.
 A committee should be formed that will look after all external affairs of Volkswagen. it
will enable top management to investigate issue properly and take strict action against the
one who are involved in it. in this shareholders member must be included so that
investigation is properly done. It will be useful in giving what action must be taken to
resolve issue. in this way it can be quickly solved and reputation is gained.
 Volkswagen can conduct risk assessment to identify risk and mitigate it. this will be
useful for them to develop several strategies and implementing them in situation of
occurring of any case.
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REFERENCES
Books and journals
Clemente, M. and Gabbioneta, C., 2017. How does the media frame corporate scandals? The
case of German newspapers and the Volkswagen diesel scandal. Journal of Management
Inquiry, 26(3), pp.287-302. < http://journals.sagepub.com/doi/abs/10.1177/1056492616689304>
Accessed on [11 December 2018]
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.<
https://www.emeraldinsight.com/doi/abs/10.1108/JGR-05-2016-0011> Accessed on [11
December 2018]
Horie, S., Kiritoshi, K. and Ma, Q., 2016, September. Concrete Relationship Analysis of
News Events Based on a 5W Representation Model. In International Conference on Database
and Expert Systems Applications (pp. 102-117). Springer, Cham.
<https://link.springer.com/chapter/10.1007/978-3-319-44406-2_9 > Accessed on [11 December
2018]
Irwin, M., 2018. Case Study: Volkswagen's Diesel Emissions Control Scandal. Journal of
Strategic Innovation and Sustainability Vol, 13(1), p.53. <http://digitalcommons.www.na-
businesspress.com/JSIS/JSIS13-1/MerendaMJ_13_1.pdf> Accessed on [11 December 2018]
Mujkic, E. and Klingner, D., 2018. Dieselgate: How Hubris and Bad Leadership Caused the
Biggest Scandal in Automotive History. Public Integrity, pp.1-13. Accessed on [11 December
2018]
Ruiz-Alba, J. and Sánchez, M., 2017. Trend Scenarios: Innovative Methodology and Tools.
Universitat Oberta de Catalunya (UOC).
<https://westminsterresearch.westminster.ac.uk/item/q2yq2/trend-scenarios-innovative-
methodology-and-tools > Accessed on [11 December 2018]
Strittmatter, A. and Lechner, M., 2017. Sorting on the Used-Car Market After the
Volkswagen Emission Scandal. <https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2985342>
Accessed on [11 December 2018]
Otto A., Paul U. and Carlo A., 2018 Technological Response Options after the VW Diesel
Scandal: Implications for Engine CO2 Emissions. Reviewed on [11 December 2018]
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Angie Z., 2016 Analysis of Volkswagen scandal possible solution for recovery. Pp 16-12
Reviewed on [11 December 2018]
Online
Tips to rebuild organisation reputation. 2018. [online] Available Through : <
https://webcache.googleusercontent.com/search?q=cache:tnXYEtpfBAYJ:https://
www.rowland.com.au/articles/six-tips-rebuilding-corporate-reputation-crisis-strikes/
+&cd=16&hl=en&ct=clnk&gl=in>
VW emission scandal. 2018. [online] Available Through : <https://earthtalk.org/volkswagen-
emissions-scandal-impact/>
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