A Case Study on Volkswagen's Diesel Emission Scandal and Its Impact

This case study examines the Volkswagen diesel emission scandal, which involved the company's use of defeat devices to cheat on emissions tests. The scandal significantly damaged Volkswagen's global reputation, leading to a decline in sales, particularly in key markets like the US and China. The unethical practices resulted in bonus cuts for management, environmental consequences including premature deaths, and strained relationships with dealers. The report analyzes the impact of the scandal on various aspects of the business, including financial performance, corporate image, and stakeholder relationships. The analysis explores the ethical implications of the company's actions and the long-term effects on the automotive industry. The study concludes with recommendations for Volkswagen to rebuild its reputation and regain the trust of its customers and stakeholders. The analysis also discusses the cost of the scandal, including recalls, compensation, and legal fines. The case study highlights the importance of ethical business practices and the potential consequences of corporate misconduct.

VOLKSWAGEN CASE
STUDY

EXECUTIVE SUMMARY
Corporate reputation is the overall measurement of the past business performance and the
capabilities of entity through which it would bring improvements in business results. Each
organisation desires and is expected to maintain a good corporate reputation so as to sustain in
market for long run. If an enterprise possesses feasible reputation, consumers will prefer to buy
commodities of that brand and this will raise the sales of company in market. Any business can
easily achieve its targets with a favourable corporate reputation among the stakeholders,
especially business partners, customers and suppliers. This report is based upon the case study of
Volkswagen wherein the company publicly admitted that they equipped vehicles with defeat
devices. Also, it include the probable ways by which company can enhance its damaged
reputation (Jung, Chilton and Valero, 2017). The first part involves the impact of company’s
unethical act upon the bonus of management. The second part of report deals with cost spent by
company to enhance the health conditions of those impacted by company’s cheat scandal. Third
part revolves around the impact of defeat devices upon the sales and profitability of company.
Lastly, fourth part is concerned with the effects of scam on the dealers associated with company.
It is recommended that company can consider restructuring its code of conduct and culture, sign
a bond or team up with independent verification agencies to enhance its global reputation.

Table of Contents
EXECUTIVE SUMMARY.............................................................................................................2
INTRODUCTION...........................................................................................................................1
ANALYSIS......................................................................................................................................2
CONCLUSION................................................................................................................................5
RECOMMENDATIONS.................................................................................................................5
REFERENCES................................................................................................................................7

INTRODUCTION
Ethics can be defined as that branch of philosophy which deals with the decision making
of individuals or groups with respect to what is right and what is wrong. In this regard, business
ethics is that aspect of ethics which deals with the examination of values, beliefs, practices,
systems, techniques, methods, code of conduct, culture, policies and corporate governance of
company (Mansouri, 2016). This is related to the study of various areas of business environment
so as to determine and ensure that business do not get indulged in unethical practices like
stereotyping, discrimination, terrorist financing, money laundering etc. To ensure that an
organisation sustain in industry for a long duration of time, it is essential that they make use of
such practices that are ethical and do not cause harm to public interest, industry or environment
in any way. Over years, business organisations have realised the importance of sustainable and
ethical practices to maintain its growth and profitability.
The present report is based upon the case study of Volkswagen which is a world famous
automotive brand. This report highlights the unethical practice adopted by company to evade
legal procedures. Volkswagen publicly accepted that most of the vehicles manufactured and sold
by company worldwide were equipped with defeat devices or software so as to conceal the
original diesel emissions of cars (Hotten, 2015). This practice was executed by company so as to
improve the performance of vehicles in the eyes of law as well as public. This was done with the
aim to pretend that vehicles distributed by company complied with all the emission standards.
Consequently, company conducted the test of pollution emission in lab as against on roads.
Similar incidents have happened in many automotive companies over years. Concealment
of General Motors’ small car ignition switch, Toyota's sticky gas pedals, Takata’s faulty airbags
have been some of the major scams and incidents in the history of automotive industry that have
brought defame to vehicle manufacturing sector.
Corporate image hold immense significance for any company functioning as a part of
marketplace. A good corporate reputation indicates that customers place trust and belief in the
products manufactured and sold by company and thus, prefers to buy them so as to enhance the
revenue of enterprise.
This report will explore the areas affected by the unethical practices of company and how
the scandal defamed company’s reputation.
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ANALYSIS
THESIS STATEMENT
The thesis statement is 'Volkswagen's Diesel emission scandal deeply impacted
company's global reputation and reduced sales for the first time in 11 years'
As a result of Volkswagen’s diesel emission scandal, the global reputation of company
was largely affected. Also, the consequences of cheat scandal of company were so huge that
management decided to deduct the bonus of chief management of company except one or two
persons operating at senior most positions. Besides this, the impact of defeat devices upon the
environment was so detrimental that it even caused certain premature deaths. Along with this, the
sales and profitability of enterprise fell significantly after the public announcement by company.
Furthermore, the scandal caused disappointment to a large number of dealers with which the
company shared business relationship.
“Volkswagen cuts bonus as a result of Diesel Emission Scandal”
According to Andreas Cremer, when the company publicly announced that they had
fitted defeat devices in their diesel engine so as to improve the vehicle performance and evade
the emission test of cars, consequently, the sales and revenue of enterprise fell down immensely.
As a result of this, the owners of company decided to cut the bonus of chief management of
Volkswagen. The direct meaning of this was that the workforce of entity would not be eligible to
receive fair remuneration for conducting the activities and procedures required for manufacturing
and other necessary process that are necessary for running of organisation. Along with this,
Volkswagen publicly announced a statement in relation to company focussing upon decline in
compliance to such models that encouraged a fair and equal remuneration for all the employees
of enterprise (VW plans bonus cuts after diesel scandal pressure, 2018). This largely reflected
that a rational resolution for the persons engaged in carrying out the operations of entity was
totally liberalised. Also, the decline was only constrained to management of company including
all such persons that are placed at a designation that directly assist the CEO of company in
supervising the tasks that take place within the premises of entity (Krall and Peng, 2015). The
only faculty who got redemption from cutting of bonus was the supervisory of Volkswagen
except the company’s chairman, Mr. Hans Deiter Poetsch. This caused a huge blow to the overall
corporate image and position of organisation in marketplace. Also, as a result of this act of
owners to cope with the loss that got incurred due to the dishonest arrangement of cheat devices
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in vehicles, the management felt cheated and betrayed. They started developing a feeling that
they were not being paid fairly as per the work performed by them.
“Volkswagen scandal caused premature deaths and huge cost for company”
According to Roger Parloff, the unethical arrangement of defeat devices in cars
manufactured and distributed by company worldwide cause huge levels of toxic pollution and
released it into air which posed threat to safety and security of a large number of persons all
across the globe. As a result of these defeat devices and emissions from the engine of vehicles
manufactured by company, around 62 premature deaths took place in just a span of few days
(Crête, 2016). Over next some years, the large scale of cars produced by Volkswagen released a
dangerous gas called nitrogen oxide into the environment which was a threat to the overall health
and stability conditions of people of the countries where cars sold by company were run. This
largely showed that company was very liberal while complying with the emission standards set
by Clean Air Act. Also, nitrogen oxide released by the vehicles of company contributed to the
phenomenon of smog as it is itself an important element of the process (Mansouri, 2016). The
detrimental impacts of smog are universally known to people. It causes many heart and
respiratory health disabilities and diseases. Along with this, it was largely observed that vehicles
of Volkswagen created huge air pollution which led to chronic Bronchitis among people.
Consequently, the only measure left with company to deal with this was recalling of all of those
cars in which the defeat devices were fitted. This caused huge cost to company. Along with this,
diesel cars were an addition to the overall cost of vehicles (How VW Paid $25 Billion for
'Dieselgate', 2018). When nitrogen oxide released by cars of company reached an excessive
limit, it even caused acid rains which are very harmful for human health and also the nature as
well as natural resource. The corporate reputation of Volkswagen across the globe got adversely
affected as a result of this and it even caused reduction in sales and profitability of enterprise.
“Volkswagen’s cheating caused large scale reduction in sales of company”
According to Roger Parloff, the reputation of Volkswagen affected at a huge level after
the diesel scandal. The corporate image and position of company was severely impacted. Also,
as company publicly announced about its unethical code of conduct and practice, people turned
against the brands of company. Consequently, the sales of two most influential brands of
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company got affected, namely, Skoda along with Audi. The effect of the scandal was so negative
that the sales revenue of company fell significantly for the first time in last 11 years
(Blackwelder and et. al., 2016). The dominant markets of the organisation over past many years
had been China and US. After the public admission of Volkswagen about the defeat devices, the
sales generated from these countries got largely affected. The impact could be seen by way of
decreased demand for vehicles manufactured by company in these countries especially. As a
result of this, there were apparent losses to Volkswagen Group. Thus, to protect its public image
and position in marketplace, company publicly made an announcement in relation to improving
the loss caused by company to safety and security of persons across the globe and environment.
Furthermore, when the sales of major brands of company fell down significantly, the profitability
of organisation was also affected. This caused a sudden shift in trust and faith of people in
Volkswagen. Also, customer loyalty and belongingness to brands under Volkswagen Group got
adversely affected. This happened at such a large scale that many loyal customers of enterprise
shifted to substitute brands within the scope of automotive industry. From the year 2002 till the
present time, the sale of company increased for the first time in 2015 post the emission scandal
(Ewing, 2017). But, company had to spend huge amount as compensation for getting off the
charges placed upon them (How VW Paid $25 Billion for 'Dieselgate', 2018).
“Company’s Defeat Devices created disturbance amongst Volkswagen Dealers”
According to Jack Ewing, diesel emission lab test have been executed and provided its
results to the targeted audience. It was considered as the specific program that was initiated for
the purpose of dealing with retailer of diesel (Supplier’s Role Shows Breadth of VW’s Deceit,
2018). This program have included some specific amount of money in several different forms
that is incentives, sales bonus and other subsidiary which were availed to dealers who were
facing problems related to low sales and profitability. It has been realised that slow sales and
revenue generation is impacting work of dealers as they are not able to survive in the same
industry. As per evaluation, it has been observed that major concern of company and its dealers
was to utilise the entire fund in operational as well as marketing areas so that better outcome can
be achieved in an effective way (US Volkswagen Dealers Want VW to Pay, 2018). It can be said
that if any scandal or mischievous activity is taking place in the company then it is directly
impacting over its name at international level as well as its customers. It also places negative
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impression over customers, as a result, their trust over company reduces. Along with this, it is
not only impacting customers but it also increases question mark on the job security of customer.
Because of the scandal, employees may also lose their job.
CONCLUSION
From the above analysis, it can be concluded that the corporate image of Volkswagen
was immensely affected by their public announcement of equipping of defeat devices or cheat
software in vehicles manufactured by them. Also, it can be analysed that the emission scandal in
which the company got indulged led to slump in bonus of chief management. Furthermore, it can
be seen that the unethical and illegal practice of company to evade and pass pollution emission
test caused decline in sales and profitability of enterprise. The sales got reduced to a limit where
it had not reduced so much in last 11 years of company’s operations. Besides this, when the
company admitted their practice of fitting defeat devices, trust and belief of customers in entity
fell down significantly leading to fall in share prices in marketplace. Along with this, it has been
observed that engine of company was designed in a way that it released huge amount of nitrous
oxide which caused acid rain as well as smog and also, caused detrimental health impacts upon
the mankind and environment. Thus, it can be largely said that it is required by enterprise to
adopt such measures that can enhance the reputation and position of brand across the globe.
RECOMMENDATIONS
To deal with the declining corporate reputation, company can adopt three basic measures
through which the image of brand would be enhanced, namely, restructuring company's culture,
signing a bond and grouping with independent verification agencies. It is highly recommended
that company should consider restructuring its code of conduct and practice along with the
corporate culture. The governance of management should be such that it clearly specifies the
role, duty and authority of each individual present in the organisation. Also, any unethical
practice suspected or reported by any employee of the enterprise should be firmly taken into
account and dealt with strictly. Another measure that can be adopted by company is pooling with
various independent verification agencies irrespective of the fact that enterprise has its own team
for examination of emission levels of vehicles so as to gain the trust of public along with
improving overall image and position in marketplace. Lastly, company should sign a bond
stating that they will not get involved in any unethical or illegal practice in future that would
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pose threat to people or environment at such a large scale. Also, company should make a public
announcement of this bond as this would succeed in making the audience believe that company
is guilty of its activity and customers will then be persuaded to, again, consider buying the
vehicles manufactured by company. As a result of all these courses adopted by company, the
worldwide corporate reputation of Volkswagen would improve and company will again be able
to function as a reputed brand in marketplace.
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REFERENCES
Books and Journals
Blackwelder, M. and et. al., 2016. The Volkswagen Scandal.
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.
Online
VW plans bonus cuts after diesel scandal pressure. 2018. [Online]. Available Through:
<https://www.reuters.com/article/us-volkswagen-emissions-bonuses/vw-plans-bonus-
cuts-after-diesel-scandal-pressure-sources-idUSKCN0X92BW >.
How VW Paid $25 Billion for 'Dieselgate' - and Got Off Easy. 2018. [Online]. Available
Through: <http://fortune.com/2018/02/06/volkswagen-vw-emissions-scandal-
penalties/>.
US Volkswagen Dealers Want VW to Pay. 2018. [Online]. Available Through:
<https://247wallst.com/autos/2016/03/22/us-volkswagen-dealers-want-vw-to-pay/>.
Supplier’s Role Shows Breadth of VW’s Deceit. 2018. [Online]. Available
Through:<https://www.nytimes.com/2017/02/01/business/bosch-vw-diesel-
settlement.html>.
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