Volkswagen's Emission Scandal: A Business Ethics Case Study

This case study examines the Volkswagen emission scandal, focusing on the ethical breaches related to the 'defeat devices' used to manipulate emissions tests. The analysis delves into the scandal's impact on customers, including their disappointment and financial losses, as well as the significant decline in Volkswagen's revenues and public relations. The study highlights the damage to the company's reputation, customer loyalty, and market value. The paper also explores the legal and environmental consequences, including customer lawsuits and environmental damage. The conclusion summarizes the wide-ranging effects on stakeholders. Finally, the study provides recommendations for Volkswagen to rebuild its public image and regain customer trust, including rebranding, partnering with independent verification agencies, and issuing a public bond to ensure future ethical conduct.

ETHICS – Case study
of Volkswagen

Table of Contents
INTRODUCTION...........................................................................................................................1
ANALYSIS......................................................................................................................................2
“Volkswagen’s scandalous practices led to rage and disappointment among Customers”....2
“Volkswagen fitting of defeat devices in its vehicles led to huge decline in Revenues” ......3
“Volkswagen scandalous business conduct of cheat software dampened its Public relations
(PR) or media coverage”........................................................................................................3
RECOMMENDATIONS.................................................................................................................4
REFERENCES................................................................................................................................6

INTRODUCTION
Ethics can be defined as the branch of philosophy which is concerned with moral beliefs
and the acceptable conduct in terms of what is right and what is wrong. In this regard, business
ethics can be said to be associated with the in-depth study of business activities, practice, rules,
policies, structure along with corporate governance for the assurance that entity does not indulge
in any kind of malpractices such as stereotyping, black marketing, false claims, bribery etc. To
attain sustainability in market place, it is required by each and every organisation to apply ethical
practices and values while executing the tasks (Blackwelder and et. al., 2016). Within last some
decades, adoption of ethical practices for the preservation of environment has become important
owing to which the concept of sustainable development has risen.
The following report is conducted upon one of the most well renowned and globally
recognised automaker, Volkswagen. It emphasizes on the malpractices that entity got indulged in
while carrying out its day to day activities of vehicle production. This corporation publicly
accepted that they had fitted a cheat software or device in several cars of company sold across
the international territories. It was done with the sole aim to inflate the output given by auto-
mobiles so that maximum contentment could be gained from customers across the globe (Ewing,
2017). Volkswagen got involved in this malpractice with an aim to show that the auto-mobiles
manufactured and designed by this entity adhere to the standards set for emissions. Thus, the
corporation conducted the test in laboratory instead of road.
Reputation of a corporation is the key to its long term sustainability as well as growth
within market place (Hotten, 2015). The loyalty and belief that is instilled in the customer base
as a result of the goodwill of the company affect the bottom line of respective corporation.
The following report aims at exploring the influence of then scandal in which
Volkswagen played key role upon the market positioning and reputation of business across the
globe.
Just like the Volkswagen’s malpractice and unethical conduct, Toyota has also been
involved in a scandal due to undesirable business practices. Toyota concealed information
regarding the faulty pedals of vehicles. Both the case shows that the entities played the blame
game and put it all upon the engineers or the software developers (Krall and Peng, 2015). These
incidents brought bad name to the company as well as the automotive sector in which they
operate. The report will provide knowledge regarding the major influence of Volkswagen
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cheating conduct on the key aspects of the business entity along with its reputation across the
globe.
ANALYSIS
As a result of Volkswagen’s cheating activity, many consequences took place which
largely impacted the reputation of organisation within the global context (Crête, 2016). Some of
these are discussed in detailed manner below to have knowledge about its influence over the
reputation of company:-
“Volkswagen’s scandalous practices led to rage and disappointment among Customers”
Scandal of Volkswagen defeat device lead towards growing frustration among customers
or patients. Along with this company grappled with customer backlash following with decline in
sales. It has been found out that many of the diesel engine cars fitted with a software-based
“defeat devices”. Organisation witnessed significant decrease of 5.3% in deliveries of the
vehicles worldwide. Customers from all over the world left wondering and cheated as they have
suffered with financial harm. As the affected vehicle have lower sales vale due to non-
compliance with emission standards. In addition with thus, many of the customers asked for
claims against Volkswagen as they suffered from decrease in efficiency and on overall
performance (Jung, Chilton and Valero, 2017). As per according to the report of CNBC, it has
been found out that many of the customers found themselves in awkward position and felt
betrayed after they spend their million dollars to buy diesel cars of this company. The whole
situation left customers worthless and further decreased overall profitability of firm. In addition
with this, this also decreased customer loyalty towards organisation that significantly lowered
down organisation market value in international marketplace. Individuals those who are
concerned towards environment also filed case against company in international environment
tribunals court. This reflected frustration from customers taking company towards hefty loss. In
addition with this, organisation also found themselves in many legal charges. Customers are also
devastated as this scandal also damaging environment. Customers from all around the world
tweeted that this is not expected from the second most popular brand. This scandal by
Volkswagen affects sentiments and value that lead company towards potential damage of their
goodwill and market brand value in international marketplace.
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“Volkswagen fitting of defeat devices in its vehicles led to huge decline in Revenues”
Volkswagen post estimated amount of 4.1 Billion Euros loss in the wake of Emissions
scandal. After the scandal, company resulted in a net operating loss of 4.1 billion Euros. In
addition with this, it has been seen that company also lower down their proportion of dividend
shares. Overall revenue rate of organisation decreased with significant ratio of 30%. Along with
this, scandal lead towards foresee slower sales in international marketplace that dropped down
sales revenue economic condition of organisation in many demographic areas. In addition with
this, Volkswagen also find themselves in cost of fixing cars that include 16.1 billion Euros
within which cost to repurchase along with cost to fix 480,000 cars are also included. In order to
rebuild image of company in international marketplace company invested huge amount in the
pending technical modifications along with customer-related measures. Other models of
Volkswagen were also hit by this worst scandal. This further lead towards increase in the higher
sales and operating profits of rival brands including Porsche, Czech brand Skoda and Spanish
margue Seat (Buil and et. al., 2016). Volkswagen encountered with huge loss that decrease down
their economic condition. In addition with this company saw decrease in their passenger car sales
revenues that make organisation to struggle to survive. It has been evaluated that this scandal not
only resulted costly for Volkswagen but also acts as far from life-threatening for company. Lots
of funds of the respective organisation and general reserves were spent on settling various
lawsuits all over the world. In addition with this, decrease in customer loyalty also impacted on
company sales that automatically lower down overall revenue holding ratio.
“Volkswagen scandalous business conduct of cheat software dampened its Public relations
(PR) or media coverage”
Volkswagen by performing their operations successfully built and further communicated
their brand image. Company said that their cars and green and they have world’s best engineers.
In September, this giant automobile manufacturing company was publicly found to be trapped in
the cheating scandal. After this issue Martin Winterkorn who was them the chief of Volkswagen
issued an apology video to reflect regret for the malpractices in which company got indulged. In
addition with this, in order to appease owners company offer estimated amount of 1000 dollars
as incentives. Defeat device scandal drastically impacted on organisational image that lead
towards decrease in overall ratio of company productivity, profitability and public relation. It has
also been found out that media coverage highlighted news in general public that lead towards
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decrease in market image of organisation. This scandal also affected Volkswagen’s relationship
with their stakeholders and public that automatically generated negative outcomes for the
respective corporation in terms of declining revenues and negative brand image across the
various parts of world (Barry and Herkert, 2015). In addition with this, overestimation of media
effects severely inflated issue among general public that further decrease company profitability
and productivity. For this Volkswagen attempted to rebuild its image among its large base of
customers with a number of marketing and other social campaigns. Through this, they seek
towards regaining customer loyalty towards organisation in order to increase overall sales margin
of company and cover up the loss that has been occurred.
CONCLUSION
On the basis of above mentioned discussion and analysis, it can be concluded that there
were a large number of stakeholders that were significantly affected as a result of the scandal that
Volkswagen was involved in. The respective organisation’s public announcement of fitting of
defeat devices adversely impacted upon the reputation of corporation in a substantial manner
within the market place. In addition to this, it can be gained that the diesel scandal led to the
development of sense of dissatisfaction and rage among the customers and they were no more
willing to do expenditure upon the cars manufactured by the entity. Further, the public image of
the entity was totally destroyed as and when the news of its public announcement spread among
the people prevailing in the market. The revenues of this corporation fell down by a significantly
fair percentage causing a first time large decline in the last 10 years. Thus, it can be said that
there is a dire need for the corporation to adopt effective measures through which its public
image can be enhanced for the betterment of market positioning as well as reputation of entity
across the global market place.
RECOMMENDATIONS
The emission scandal of Volkswagen had a massive and destructive effect on the
reputation and market positioning of entity across the confines of globe. It resulted in instilling a
sense of rage, disappointment, disloyalty and betrayal among customers who preferred the option
of switching to other brands after the corporation publicly accepted its unethical practice. The
sales of this entity fell short-hand. Further, the image was devastated as being a large scale and
multinational company, no one could approve of Volkswagen being involved in such an
unethical and illegal business conduct. As a result of all this, the global reputation of company
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significantly came down. To deal with the loss of public relation, customer loyalty and declined
sales, the organisation is advised to take up the afore explained three possible route ways. These
will assist the entity to regain its lost image and market positioning across the global territory.
These solutions are acknowledged to be restarting the business again under a new 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 (Mansouri, 2016). 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. The entity 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. The respective corporation can also consider to post a
public bond which gives the assurance that the organisation would not get involved in any of
such kinds of activities in futuristic course of time period. 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.
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REFERENCES
Books and Journals
Barry, B. E. and Herkert, J. R., 2015. Engineering ethics. In Cambridge handbook of engineering
education research (pp. 673-692). Cambridge University Press.
Blackwelder, M. and et. al., 2016. The Volkswagen Scandal.
Buil, M. and et. al., 2016. An explanatory study of MBA students with regards to sustainability
and ethics commitment. Sustainability. 8(3). p.280.
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.
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