Volkswagen Emission Scandal: A Case Study in Business Ethics

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ACADEMIC AND PROFESSIONAL SKILLS
VOLKSWAGEN CASE STUDY

EXECUTIVE SUMMARY
It is evident that a successful business is dependent on certain core values such as ethical,
moral, values, etc. In addition to this, it is also evaluated that the organizations in the
current business environment have been indulged in carrying their business operations in a
more frivolous manner to attain personal benefits irrespective of the benefits for the
consumers and stakeholders. Similarly, Volkswagen which is known as the world's leading
automobile organizations in the world has been indulged in an unethical practice. The
organization has utilized a faulty software in order to pass the emission test which results in
millions of cars who are dangerous to the environment and individuals. A study has been
conducted to assess the unethical practices carried by Volkswagen to conduct the product of
their diesel cars with the faulty emission software. The study would be helpful in gaining
substantial insights regarding the areas which are majorly influenced by the emission
scandal of Volkswagen. Further, several recommendations are made for Volkswagen to
overcome the unethical actions and build trust among the stakeholders.
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Table of Contents
EXECUTIVE SUMMARY............................................................................................................. 1
INTRODUCTION........................................................................................................................3
ANALYSIS.................................................................................................................................. 4
CONCLUSION............................................................................................................................8
RECOMMENDATIONS...............................................................................................................9
REFERENCE LIST......................................................................................................................10
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INTRODUCTION
The success and growth of an organization in the industry are dependent on its core values.
The organization carries its operations and functioning by considering their core values
which build their mission, vision, and objectives. In addition to this, the role of moral and
ethical values in the organization has been huge. It is vital for the organization that they
work effectively towards the goals and ensuring their core values. The role of ethical and
moral values in the organization has been huge as the unethical functioning deteriorates the
organization growth. There are various organizations that have been carrying certain
business operations in an unethical manner which influence the individuals and society at a
huge level. It is essential for the organization that they ensure that the functioning and
operations should be conducted in an ethical manner.
A study has been conducted which focuses on understanding the ethical issues which are
faced by the organization in their functioning and operations. In this study, the case of
Volkswagen Emission Scandal has been considered where the ethical issues among the key
members of the organization are assessed and their influence on the key attributes of the
organization is discussed. Volkswagen is one of the leading automobile organizations in the
world and they have been carrying their business operations in different parts of the world.
The organization has introduced a diesel car with a faulty device which helps the vehicle to
pass the emission test (Metcalf, 2015). The faulty device helps the vehicle to pass the
emission test which is unethical in nature as the outcome is catastrophic. The major
implications would be observed on the health of individuals and the rise of pollution in the
environment. Moreover, the study assists in understanding the implications of different key
attributes of the business.
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ANALYSIS
The implications of diesel emission scandal by Volkswagen have been experienced in a
different area of their business. It is unethical by the organization that they carry their
operations through such manner which influences the individual and environment at a huge
level. There are four key areas where the implication of unethical practice by Volkswagen is
assessed such as revenue, customers or patients, public relations, and regulators. These
areas have been discussed in details as follows:
REVENUE
In 2016, Volkswagen admitted that they use false software to cheat the US emission test. It
results in an adverse effect on the sales, profit, and revenue of the organization at a huge
level. In the period of three months, the profit of the organization is declined by 20% which
followed further abruptly. In addition to this, the pre-tax profit of the organization fell to
€3.2bn in the first quarter from the €3.97bn in the same year (BBC, 2016). Further, the
organization has paid more than €16bn due to the scandal and it is expected that the
amount is between 20 to 30bn. The German Automobile Company has made a deal with the
US Department of Justice that the organization would be buying back the cars and
compensating the customers who are influenced by the emission scandal.
Moreover, it is also evident that the group sales revenue of the organization is fell near 3.4%
which is near €51bn during that period of time. The major drawback for the organization is
the decrease in sales of their cars as the business fall by 83% to €73m which was at €514m
in last year. Still, the organization has maintained a forecast of 5% fall in its revenues in 2016
(AFP, 2018). The reason for the fall is the economic condition in Russia and South America,
diesel issue, and exchange rate development. Moreover, the organization has experienced a
decrease in sales revenue of their passenger car brands. In addition to this, the shares of
Volkswagen are fall by 3% during that year. Thereafter, the sales of the organization
enhance due to their proactive action toward the diesel issue. The organization involves in
several CSR activities which helps in enhancing their image in the market (Boston, 2017).
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CUSTOMERS OR PATIENTS
There are around 11 million cars in the world that are affected by the diesel deception of
Volkswagen. The image of Volkswagen has been deteriorated in the US and then in its core
European market. The organization has equipped the software in around 11 million diesel
cars such that the organization covers 6.5 billion euros in order to comply with the pollution
standards. Volkswagen has been facing various lawsuits in different parts of the world due
to its unethical practice in business. The diesel emission scandal has resulted in several
speculations over the impact on the individual and environment. There are around 86%
Volkswagen drivers who are concerned regarding the adverse effect of their cars on the
environment while the 83% drivers are questioning the influence on the resale value of their
car (Chu, 2017). In addition to this, the 73% drivers feared regarding the performance of
their vehicles. Moreover, there are huge numbers of consumers who have been focusing on
not buying the products of Volkswagen in future.
The emission scandal of Volkswagen would adversely affect the health of the individuals as
the NOx emission would be high which result in high air pollution. The high air pollution
would be affecting the health in terms of respiration and it also impacts the environment.
The excess emissions of Volkswagen would result in the premature death of 1200 in Europe
only. The high NOx emission in the environment results in the development of particulates
and ozone which is harmful to the individuals (SGL, 2016). The patients have been
experienced respiratory issues as the particulates in the environment increases which
impact their health. The number of deaths has been increased in recent time due to the
high NOx emission. The emission scandal by Volkswagen result in an adverse effect on the
environment and individuals which is due to their unethical action. It is important for the
organization that they enhance their operations in order to ensure a healthy life to the
individuals (Ewing, 2015).
PUBLIC RELATIONS (PR); MEDIA COVERAGE
The emission scandal of Volkswagen has embroiled the reputation of the organization in the
global market. The organization has not only broken the laws in different jurisdictions but
also lie to their stakeholders and consumers (LeBeau,). In addition to this, the organization
has tarnished its core values on which they have built their reputation such as safety and
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technical reliability. The corporate fraud done by Volkswagen is huge in the automobile
sector. Moreover, the public relation professionals in the industry evaluate that the brand
image of Volkswagen has been declined against various automobile companies (Ruddick,
2015). The customer base of Volkswagen is developed due to their image of the safe and
reliable carmaker in the industry but the breach of ethics and trust due to the scandal has
diminished the brand image at a huge level. The major player who is influenced by the
action of Volkswagen is the stakeholders. In addition, the sales growth of the organization
has become stagnant in North America and Europe for a long time which is a huge concern
for the organization. Moreover, the organization has lost the trust of millions of customers
due to the emission scandal.
Volkswagen has experienced significant challenges in media coverage as they have invested
$388m in 2015 on media but they didn't pull back much in 2016 due to the scandal (Cremer
and Lewis, 2015). In addition, the organization has been focusing on expanding its
investment in 2017 to attain development. It is also evident that the emission scandal has
declined the sales of the organization as they have managed 10.3 million sales in 2016 which
is 0.1 million sales more than Toyota (Mortimer and Faull, 2017). The organization has been
enhancing its PR strategy in order to conduct effective marketing in the industry so that they
could improvise their image in the market. Still, it has been evident that the business growth
of Volkswagen is not facing significant challenges in attaining development in business
(D'Agostino, 2016).
REGULATORS
The emission scandal of Volkswagen has been in front of the world due to various regulators
in the world who constantly assess the functioning of the organization in the country. The
organization has spent around 6.5 billion euros from its third quarter accounts in order to
manage the cost of the scandal (Topham et al., 2015). Australia's competition regulator has
ensured that the organization shouldn't mislead the consumers regarding the emission
claims while in EU the European Commission ensured that the member states should
investigate effectively to determine the use of illegal defeat devices for cheating the
emission tests.
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Britain's transport minister has been working with the vehicle manufacturers to ensure that
the emission cheating software is not used. In addition, the sales of VW cars in Belgium has
been halted while the transport minister of Germany has been working through the fact-
finding committee to access required documents in headquarters of Volkswagen (McGee,
2017). The role of the US regulator has been significant in the emission scandal as they
evaluated that the cheating by the organization in the software. Moreover, the NGO called
the International Council on Clean Transportation (ICCT) has conducted an independent
emission test on various Volkswagen cars which help in evaluating the fraud by the
organization. Further, the ICCT contacted the EPA who takes the action against the
organization. The fumes which are released from the faulty cars of Volkswagen impact the
airways of the human and worsen the breathing. It also results in serious respiratory
condition along with the cardiac problems (Reuters, 2015). The environment bodies and the
Department of Justice has taken serious action against the frivolous act by Volkswagen.
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CONCLUSION
The study has been helpful in attaining substantial knowledge regarding the unethical
practices which are followed by Volkswagen in their business operations. The organization
has developed diesel cars in the market with faulty software which helps them in passing
the emission test but in reality, the emission from the cars is above the normal parameters.
The emission scandal of Volkswagen possesses an influence on a huge number of
stakeholders. In addition to this, the study helps in understanding the areas which are
influenced highly due to the emissions scandal of Volkswagen. The revenue of the
organization soars due to the emission scandal as the brand image of the organization
deteriorates. In addition, the consumers and the patients suffer due to the unethical action
of the organization. The PR and media coverage of the organization was negative during
that period which also impacts the position of the organization. The role of the regulator has
been vital in this scenario as they handle the situation appropriately.
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RECOMMENDATIONS
It has been evident from the study that the actions of Volkswagen have been unethical in
nature and it possesses a significant impact on the society and environment. It is the moral
duty of Volkswagen to take suitable action in order to improve its position in the market by
taking suitable actions. There are some recommendations which have been proposed for
Volkswagen to enhance its existing business operations and develop a potential image in the
market. The recommendations have been mentioned below:
 BUILDING TRUST
It is necessary for Volkswagen that they build trust among the stakeholders such that
suitable actions are required by the organization. The organization should work on
different platforms in order to build trust in regulators, consumers, suppliers, etc. of
different countries in order to carry their future operations in an effective manner.
 ENHANCING OPERATIONS
The procedures regarding the business operations should be improved by the
application of processes like TQM, Six Sigma, and legislation for effective functioning.
It is vital for Volkswagen that they work in compliance with the environmental and
regulatory norms in order to conduct business operations.
 CSR ACTIVITIES
Volkswagen should indulge in CSR activities in order to manage the deterioration
done by them. The CSR activities would be helpful in enhancing the environment at a
certain extent and also help the organization to enhance its brand image. There are
different ways through which the organization could conduct its CSR activities.
 PROVIDING CLAIMS
One of the key recommendations is that the organization should provide claims to
consumers who are impacted by unethical actions.
The aforementioned recommendations should be considered by Volkswagen in order to
gain effectiveness in the market. The action towards the above recommendations would be
helpful for the organization to attain enhancement in its brand image and also gaining a
substantial position in the business.
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REFERENCE LIST
AFP, 2018. Volkswagen profit roars back two years after 'dieselgate'. (Online) Available at:
https://www.thelocal.de/20180224/volkswagen-profit-roars-back-two-years-after-
dieselgate (Accessed on 01st May 2019).
BBC, 2016. VW profit tumbles 20% in wake of emissions scandal. (Online) Available at:
https://www.bbc.com/news/business-36415462 (Accessed on 01st May 2019).
Boston, W., 2017. Volkswagen Brand Sales Increase in 2016 Despite Emissions Scandal.
(Online) Available at: https://www.wsj.com/articles/volkswagen-brand-sales-increase-in-
2016-despite-emissions-scandal-1483965040 (Accessed on 01st May 2019).
Chu, J., 2017. Study: Volkswagen’s excess emissions will lead to 1,200 premature deaths in
Europe. (Online) Available at: http://news.mit.edu/2017/volkswagen-emissions-premature-
deaths-europe-0303 (Accessed on 01st May 2019).
Cremer, A. and Lewis, B., 2015. Volkswagen starts telling customers if affected by emissions
scandal. (Online) Available at:
https://www.reuters.com/article/us-volkswagen-emissions/volkswagen-starts-telling-
customers-if-affected-by-emissions-scandal-idUSKCN0RU15H20151003 (Accessed on 01st
May 2019).
D'Agostino, D., 2016. Worst PR Crisis of 2015: The Volkswagen Emissions Scandal. (Online)
Available at: https://cprstoronto.com/2016/01/06/worst-pr-crisis-of-2015-the-volkswagen-
emissions-scandal-2/ (Accessed on 01st May 2019).
Ewing, J., 2015. Volkswagen Says 11 Million Cars Worldwide Are Affected in Diesel
Deception. (Online) Available at:
https://www.nytimes.com/2015/09/23/business/international/volkswagen-diesel-car-
scandal.html (Accessed on 01st May 2019).
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LeBeau, P., 2015. Volkswagen dealer: Biggest fraud I have ever seen. (Online) Available at:
https://www.cnbc.com/2015/10/07/vw-dealers-customers-feel-betrayed-by-emissions-
cheating-scandal.html (Accessed on 01st May 2019).
McGee, P., 2017. How VW’s cheating on emissions was exposed. (Online) Available at:
https://www.ft.com/content/103dbe6a-d7a6-11e6-944b-e7eb37a6aa8e (Accessed on 01st
May 2019).
Metcalf, A., 2015. Volkswagen in reputational car crash. (Online) Available at:
https://www.maxim-pr.co.uk/news/volkswagen-in-reputational-car-crash (Accessed on 01st
May 2019).
Mortimer, N. and Faull, J., 2017. Volkswagen's crowning of world's top car maker a triumph
for crisis PR strategy. (Online) Available at:
https://www.thedrum.com/news/2017/02/02/volkswagens-crowning-worlds-top-car-
maker-triumph-crisis-pr-strategy (Accessed on 01st May 2019).
Reuters, 2015. How regulators around the world have reacted to the VW emissions scandal
(Online) Available at: http://fortune.com/2015/09/26/heres-how-regulators-around-the-
world-have-reacted-to-the-vw-emissions-scandal/ (Accessed on 01st May 2019).
Ruddick, G., 2015. VW customers demand answers and compensation over emissions
scandal. (Online) Available at: https://www.theguardian.com/business/2015/oct/15/vw-
customers-demand-answers-and-compensation-over-emissions-scandal (Accessed on 01st
May 2019).
SGL, 2016. Environmental impact of the VW emissions scandal. (Online) Available at:
https://www.vwemissionsaction.com/news/environmental-impact-of-the-vw-emissions-
scandal (Accessed on 01st May 2019).
Topham, G., Clarke, S., Levett, C., Scruton, P. and Fidler, M., 2015. The Volkswagen
emissions scandal explained. (Online) Available at:
https://www.theguardian.com/business/ng-interactive/2015/sep/23/volkswagen-
emissions-scandal-explained-diesel-cars (Accessed on 01st May 2019).
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