Analysis of Volkswagen Emission Scandal: Ethical and Business Report

This report provides a comprehensive analysis of the Volkswagen emission scandal, focusing on its ethical and business implications. The report begins with an executive summary and an introduction to the concept of ethics, followed by a detailed examination of the scandal itself, where Volkswagen admitted to using defeat devices in approximately 11 million cars to circumvent emission standards. The main body of the report analyzes the impact of the scandal on various aspects of the business, including revenue, share price, public relations, and regulatory actions, such as the $2.7 billion fine imposed by the US environmental authority. The report uses graphs and data to illustrate the decline in sales and share price. The conclusion summarizes the key findings, and the recommendations section suggests measures Volkswagen could have taken to avoid such ethical lapses, including improved oversight, better management of revenue, and enhanced customer and stakeholder engagement, as well as adherence to legal standards. The report highlights the importance of ethical conduct in business operations and brand image.

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EXECUTIVE SUMMARY
Ethics is an important part which should be followed by everyone. Concept of philosophy has
been provided in it which govern rightness and wrongness of acts of an individual. The report
has been drawn on Volkswagen emission scandal happened in 2014, whereby approx 600,000
cars were recalled for repair. This lifted the veil which provided findings about 11 millions cars
were built with defeat devices and failed to comply with emission standards. Further, a detailed
analytical part have been mentioned showing the impact of this incident. This includes effects in
revenue, share price, public relations and regulators. It was clearly an ethical mistake for which a
fine of $2.7 billion was imposed by US environmental authority. This resulted in huge financial
loss which the company is still recovering. Number of customers were reduced after this incident
however, it raised its internal techniques to launch cars with improved technologies which met
with minimum standards. Further, recommendations have been provided to make it easy for the
reader what more could be done in order to avoid such mistakes in future.

Table of Contents
EXECUTIVE SUMMARY.............................................................................................................2
INTRODUCTION...........................................................................................................................4
MAIN BODY...................................................................................................................................4
CONCLUSION...............................................................................................................................8
RECOMMENDATIONS.................................................................................................................8
REFERENCES..............................................................................................................................10

INTRODUCTION
Ethics is a part or branch of philosophy concerned with right and wrong acts of a person.
It operates on doctrine of morality which should be followed by every person in decisions to be
made by them (Bowie, 2017). The report covers Volkswagen case study, in which the company
admitted about a mistake done by it in which approx. 600,000 cars to be sold in US had defeat
devices. On investigation, it was discovered that some 11 million cars have the same devices
across the world. Further, the findings stated that Volkswagen's engineers struggled to design a
diesel engine that would give high performance while keeping emissions within regulatory
standards. Along with this, the mechanism built by them provided results of reduced emissions
while testing, however, on roads emissions exceeded legal limits. A similar case study can be
portray here, which is about Jaguar Land Rover. It is one of the leaders manufacturing premium
cars. It recalled almost 44,000 cars for repair after it was found that some of its units emitting
carbon dioxide above the prescribed limits. Brand image or reputation of an organization is its
intangible asset which it can not afford to destroy it. Ethical issues have huge impact and
significance affecting reputation in both positive and negative way. For example, a company
acting morally will have positive and huge recognition by people around the world as compared
to entity involved in unethical issues. The report includes analysis of Volkswagen case study in
which data and findings will be provided which is followed by a conclusion.
MAIN BODY
Thesis statement: Attribution of ethics in business and human life.
Ethics will rule and guide the actions of a person including organizations. The importance
of this can be understood with number of cases happened in the past. There should be a clear
distinction between right and wrong while making decisions or proceed with an activity.
Furthermore, ethics provide positive benefits only and should be made part of both personal and
professional life (Cha and Bagozzi, 2016).
An analysis of ethical issue of Volkswagen has been conducted in order to prove the
above mentioned statement correct. For effective implementation and to have benefits by being
ethical many factors or aspects should be studied and evaluated. The analysis is as follows:
Impact on Revenue: It is the income generated by selling goods or services. This is
directly linked to amount of sales made by an entity over a period of time. Emission scandal of

Volkswagen had affected its revenue majorly. Pre ethical issue, the revenue was 11 billion euros
in 2014. Sales were going on higher side in US. It was at the position of world's second largest
car make in this sector. The company made claims about emission which forced its sales to
decline to negative which caused huge financial loss. This changed its market and financial
position in the industry. It was an example for other companies operating in same industry which
turned upside down with this incident (Impact on public relations, 2016.). A hefty amount of
$2.7 BN was imposed on it to be paid for environmental aspects and breach. This fine and other
expenditure was set off from the available revenue, due to which its got down to a negative level.
The company failed to predict what could be situations in case it fails to manufacture cars that
according to emission standards. Fluctuations in sales and revenue can be seen in the graphs
provided below:
Graph 1: Decline in sales
Interpretation: The above graph belong to the year 2016. The sales of
Volkswagen saw downfall by 11% which is a huge negative outcome of this issue. The graph
shows that, even in the month of March, 2016 which is an end of financial year, heavy discounts
are offered, the company couldn't make up to its targets.
Impact on share price: A company raise capital by issuing shares and other securities to
have a smooth flow of funds in order to fulfil its objectives. Volkswagen's stock price were
plunged 30-35% after the news of the scandal. According to detailed analysis, in the year 2015,
majority stock were traded in the stock market which caused a loss of 16.9 Billion on the market
value pre issue. It was a straight 1/3 slumped in stock market of United States. This could have
been avoided by acting within legal limits and building a mechanism according to the

requirement. The company lost some key shareholders including other, which was a major
backdrop of it. This took it down from the number 2 position and made its suffer from loss
financial distress (Sierra, V. and et. al., 2017). The company failed to pay dividend due to huge
financial loss. This was the reason which forced shareholders to sell their shares. However, the
company has started to recovered and its profits have double the loss. The company has shown
great efforts in recovering quickly since, it was not easy for it to meet the pace because of the
amount fines imposed.
Graph 2: Stock price of Volkswagen
In_1554811967 (1).docterpretation: It is of 2015 to 2016 which shows the plunge in
stock price after the incident. It can be seen that company was doing great till 2014 and as soon
as 2015 arrived, it started to fall without any stoppage. The downfall was so strong, that it
continued for 2 more years.
Impact of public relations: Customer or public relation is about strategic
communication process in which company's professionals make efforts to build healthy and long
term relations with its customers and other stakeholders who might influence the business of
entity (Impact on revenue, 2016). Volkswagen was a company making profits by selling huge
number of cars before the incident, it has increased customer base and expanded its business in
many countries to target desired market share. Emission scandal hit its image and public
relations very hard. The buyers of Volkswagen along with other people felt cheated and their

trust was broken. On investigating the matter, it was found that, some of its well designed and
manufactured models emitted 40 times above the pollution level which was prescribed in
environmental laws. The impact of this mistake was high that CEO Winterkorn resigned from his
job position. Customers are votal for every organization and should be sold good quality
products. Volkswagen is yet to cope with blunder it did in the past.
Figure 3: Drivers of reputation of Volkswagen
Interpretation: The above graph shows the factors that are responsible for its reputation
by influencing the mindset of consumers. Governance is driver that influence opinions and
perceptions of customers. The level of compliance affect Volkswagen business to the extent of
17.7% which is significant in nature. A customer prefer company making products ethical as
compared to one not comply with ethical standards. This contributes highly in satisfying its
buyers (Singh, 2016.).
Impact of regulators: It is a person or body or association that assess and maintains
systems. They provide rules and regulations which are applicable on entities. They have the
authority to deal with cases and make judgements that will be applicable. Volkswagen never
faced any ethical issues before, this was the first issue. It breached major laws and standards. It
did not amend the structure or design or asked its engineers to work with perfection in order to
act ethically. Volkswagen is a leading company and making huge profits. Regulators never
expected that it would commit such mistake. It was charged by US authorities and European
Union which was approx. $50 Billion. The company stated that it was biggest ever loss occurred

by it. This caused a financial distressing situation for the company which was reflected in its
market share price, reputation, goodwill, profits and sales. Along with this, there are amendments
and rules which are issued by these regulators which should be complied with. Volkswagen was
and is operating in multiple countries which makes it compulsory for it to abide by securities
exchange, environmental laws, etc. in each country (Rohr, 2017).
CONCLUSION
From the above analysis, it has been concluded that revenue generation was impacted
majorly with mistake. The amount of fine imposed on it affected its sales and revenue which
resulted in negative financial status. Sales were good till 2014, however, it saw a great decline
which shook its conduct of business. Furthermore, the sales fluctuated expeditiously which
imbalanced its focus and co-ordination with other activities and departments. Furthermore,
shareholders started to lose their interest in the company and they were highly affected with the
low prices of shares. The sharp fall in stock affected prospective investors to invest in the
company as they were hopeless about any further rise in the prices. Along with this, relations
with customers also ruined due to the fact that people have become more active and aware about
nature and environment. They want cars and other technical things to be made in such a way that
its emit low emission. Lastly, the regulators imposed a hefty fine in order to set an example for
other companies to not do commit such mistakes.
RECOMMENDATIONS
Impact of ethics on business operation and brand image.
Volkswagen should have monitored the all the laws and standards that would become
part of manufacturing cars. The company failed to oversee the designs and technology used in
making the cars. Regular oversee of this would have not affected it negatively. Proper
management of revenue is important so that enough funds are available in order to settle down
losses and expenses. This could have done with the appointment of a professional along a team
participating actively at the time of manufacturing. Furthermore, this would have stopped the
plunge in stock price. In future, the company should engage its investors particularly its
shareholders in decision making. It impact the reputation of a company majorly which can be
improved with better control and effective allocation of budget followed by regular monitoring.
Further, adequate guidelines and direction must be provided to engineers.

The company should make initiatives in managing good relations with customers by
giving them attractive offers such as discounts, gift vouchers etc. This will make its relations
more healthy and friendly. Furthermore, feedback should be opted and included which would
provide it with necessary information about what more could be done in order to make its
products better. A customer feel happy about being involved in decision making and strategies
that an entity may follow. Volkswagen can engage its customers in company's activities. Also,
cars should be made according to beliefs and perceptions of its buyers by maintaining quality in
order to satisfy them.
Volkswagen must abide by all laws and standards applicable on it in order to avoid any
legal consequences. There are awards and appreciation given to organization who have fulfilled
all ethical conditions and work according to what is best for wider public by keeping aside its
self-interests. Legal team of Volkswagen should be updated with applicable laws and standards
so that its does not contravene any provisions as this can have significant impact on its brand
image.

REFERENCES
Books & Journals:
Bowie, N.E., 2017. Business ethics: A Kantian perspective. Cambridge University Press.
Cha, M.K., Yi, Y. and Bagozzi, R.P., 2016. Effects of customer participation in corporate social
responsibility (CSR) programs on the CSR-brand fit and brand loyalty. Cornell
Hospitality Quarterly. 57(3). pp.235-249.
Rohr, J., 2017. Ethics for bureaucrats: An essay on law and values. Routledge.
Sierra, V. and et. al., 2017. Does ethical image build equity in corporate services brands? The
influence of customer perceived ethicality on affect, perceived quality, and
equity. Journal of Business Ethics. 144(3). pp.661-676.
Singh, J., 2016. The influence of CSR and ethical self-identity in consumer evaluation of
cobrands. Journal of Business Ethics. 138(2). pp.311-326.
Online:
Impact on revenue. 2016. [Online] Available through:
<https://www.ijsea.com/archive/volume5/issue4/IJSEA05041004.pdf>.
Impact on public relations. 2016. [Online]. Available through: <http://digitalcommons.www.na-
businesspress.com/JSIS/JSIS13-1/MerendaMJ_13_1.pdf>.