Academic and Professional Skills
The following report highlighted the biggest scandal ever in the history of the automobile industry- "the Volkswagen Scandal." The event is still the biggest shame for the automobile car makers. It all started in September of 2015, when the US Environment Protection Agency found that the German Car Making giant was violating the emission standards and the provisions of Clean Air Act. The company was found guilty of installing the defeat devices that control the emission in cars at the time of testing. The actual emission was very higher in reality when VW cars are driven on the road. The company accepted this fact and apologised publically.
Volkswagen miseries manifold when different countries began to check the emission of VW’s cars and the found the same problem too.The unethical conduct of the company resulted in various investigations coming from different countries and various lawsuits from the company’s customers. No doubt Volkswagen and its management should be held for its inactions, but the major concern, in this case, it that the use of software to manipulate the emission tests went undetected for such a long duration. Amidst this scandal, the CEO and the directors gave their resignation and the company was fined US$ 18.32 billion and the company was ordered to recall their millions of vehicles on the road. The company is still facing many lawsuits filed by customers, government agencies, and the dealers.
This report studied and analysed the impacts and consequences faced by the company as a result of diesel emissions scandal. This scandal not only disrupted the reputation of the company but also disrupted the culture, suppliers, dealers, and many other areas of the company and its business. In addition to the damage to the reputation of the company, the entire diesel industry was put under scrutiny. In the end of the report, three major suggestions have been provided for the Volkswagen based on the literature studies done for completing this assessment. These recommendations include:-
- Volkswagen should think about rebranding
- Volkswagen should sign a bond
- Volkswagen should join a reputed Independent Verification Agency
Volkswagen is a German company operating in the Automotive industry.The company owns the [majority of the luxurious brands in the automobile industry, such as Bentley, Audi, Lamborghini, Porsche, SEAT, Bugatti, and Skoda. The so-called "Volkswagen Scandal" is the best example of how organisations can shape the political and ethical issues related to the environment. In September 2015, the company was involved in a diesel emission scandal and the company came in limelight when it was issued a notice of violation of the Clean Air Act by the United States Environmental Protection Agency (EPA). This became so significant event because of the great reputation and brand image that Volkswagen has and the long-lasting damages to society and environment the company is causing which is even way beyond economic damages (Bachmann, et.al, 2017).
This has caused some serious damages to the company as it lost its competitive position in the market. Volkswagen had a goal of becoming the leader in the automobile market by 2018, but this event cost the organisation a great fortune as it lost one-third of the market share. In order to compensate for the violation of the environmental code not in the USA but the whole world, the company voluntarily recalled its automobile and issued an apology followed by the resignation of the CEO and board of directors (Blackwelder, et.al, 2016). This report is studying and analyzing the impacts and consequences faced by the company as a result ofdiesel emissions scandal. This scandal not only disrupted the reputation of the company but also disrupted the culture, suppliers, dealers, and many other areas of the company and its business. In addition to the damage to the reputation of the company, the entire diesel industry was put under scrutiny.
The newly appointed CEO of Volkswagen, Matthias Miller was left with the daunting management challenge when faced with trust shattering exposure of Volkswagen Group (VW)on emission scandal. In the legal notice issued by EPA to VW, it was claimed that the company used a ‘defeat device’ programming for controlling emissions during laboratory driving and testing so as to remain within the limits permitted. However, the actual emissions were later found to be almost times higher than actually shown (Bachmann, et.al.,2017).
The unethical conduct of the company resulted in various investigations coming from different countries and various lawsuits from the company’s customers. No doubt Volkswagen and its management should be held for its inactions, but the major concern, in this case, it that the use of software to manipulate the emission tests went undetected for such a long duration. If it were not professor ArvindThiruvengadam of West Virginia University and his team, the scandal would have been uncovered and VW’s cars would be emitting the dangerous gases in the atmosphere (Crête, 2016). Many environmental groups and NGOs have warned the European Commission and the national car approval agencies that the NOx emission level by cars was very less as compared to what it is on roads. Many of them have mentioned the tricks used by the manufacturer to control the emission during the testing, thereby getting the certificate of approval. The Volkswagen scandal was held to be different than other past scandals of automobiles industry as it was an intentional scandal rather than a manufacturing defect. The impact of this scandal extended to various outside people and authorities (Ewingand Tabuchi, 2016). These may include:
Environmental Degradation: The entire tragedy revolved around the massive emission of the nitrogen oxide from the combustion of fuel into the atmosphere. The environmentalist raised concern that this may increase the smog, acid rain, and may even harm the ozone layer which would further result in skin diseases. In addition to this, NOx gases are the prime causes of respiratory diseases, such as asthma, emphysema, bronchitis, etc. Therefore, it is important to measure the environmental and societal damage of this high-profile scandal of Volkswagen and their lasting impact (Georgievskiand Al Qudah, 2016).
Customers’ rage: The damage caused to the company resulted in lost resale value, repurchase behavior,and customer loyalty. The diesel technology has an advantage of fuel-economy over petrol engines and the clean diesel by VW was positioned to improve the fuel economy by 30% andreduce emissions by 97%. Due to this, the buyers were encouraged toacquire fuel efficiency and green image by paying a premium price. The disclosure of scandal by company left the customers disappointed as the resale value of cars affected was expected to decrease by $5000 (Georgievski, and Al Qudah, 2016).It is important to note that Volkswagen has only 6% market in the US, whereas its 40% customers belong to the European markets. This means the news of scandal has a greater impact in Europe. The company posted a deep loss of 1.58 billion Euros in 2015 due to the side-effects of the emission scandal. In addition to this, the revenue fell by 5% and a sharp decline in the customers.
Penalties: The federal court of San Francisco has fined the German automaker with $15.3 billion which is the heaviest penalty or what they call it a settlement amount imposed on the car manufacturing company. The German newspaper called it "the most expensive act of stupidity in the history of the car industry." In the midst of the scandal, the company starts losing its market share and stock price (Oldenkamp, et.al, 2016). Due to the defeat device, the company had to recall its more than 11 million cars from all the countries which include luxury cars, such as Audi, Porshe, Lamborghini, etc. The company had set 6.7 billion Euros for repairing the recalled cars and other vehicles that had emission problems. The Australian government had also taken the legal action again the car company and sued the company for 2 billion euros. However, the nations, such as the UK, Spain, Germany, Czech Republic, Greece, Lithuania, and Luxembourg had not taken any action against the company. This might be due to the fact that Volkswagen is the biggest employer in these countries. In Germany, VW employs 120,000 workers and another 500,000 in other nations (Rhodes, 2016).
Enforcement and Law Suits:
Even after the billions of dollars of settlement in the San Francisco court, the company still faces numerous lawsuits and enforcement actions from various investors and government agencies from around the globe. To top this all, many customers have filed the cases for fraud and cheat on the company as the company cheats the emission test. It installed a device that has a software which controls the car system to shut down or underperform in order to generate limited emission to be in the standards set by the pollution control boards While running on the road, the cars were generating the dangerous gases (Schmidt, 2016). Furthermore, the car dealers and the showroom owners have also dragged the company in the courtroom for their losses amidst the scandal.
From the case study, it can be seen that no matter what position a company holds in the market, an unethical decision can make the market situation for a company upside down. It had been seen that the company lost its customer, its reputation, market share, and had to recall its 11 million cars worldwide. In addition to this, the company is facing innumerable cases from car dealers, government agencies and customers that are yet to be settled and may cost Volkswagen billions of dollars. However, the company has been working in improving its position in the market. In the report, four of the major impacts on the organisation due to the scandal had been discussed. These were environmental degradation, customer loss, penalties and settlement amount, and lastly the enforcement and lawsuits some of which has been settled. The major one was settled in the court of San Francisco. The overall learning from the case study is that if companies are indulged in this kind of illicit and illegal practices and employ computer software to cover up their defects, then they will surely be paying back more than they have earned in the due course.
As the Volkswagen Group is currently facing some serious repercussions that include the problem of re-establishing the credibility to its stakeholders. There are no recommendations to improve the reputation that has been deeply damaged by its violation of environmental codes (Zhou, 2016). However, some experts have proposed the following suggestion for the Volkswagen in order to improve its image and market share.
Volkswagen should think about rebranding
- Volkswagen has grown globally in the last six decades. Many researchers like Nicolai (2016) think that people will forget very soon what it did with the society. However, some of them think that it should restart under a new brands as it can have many benefits (Wood, 2017).
- According to Wood (2017), it will help the company in speeding up the efficiency actions and save the company from bankruptcy. It may seem to be expensive in the short-run but it is effective in diminishing the negative image of the company from people's mind.
- According to Ewing (2017), the rebranding should not only focus on mitigating the external environment of the company but internal as well. While rebranding, the company should focus on green technology and CSR approaches. In current times, the positive brand image is the most vital factor for the company as it helps in consumer decision-making.
- The new organisation should be focusing on reducing the carbon footprint, fuel consumption, and reducing waste (Bachmann, et.al, 201). In addition to this, for improving the brand image, the company should focus on working with the local community and NGOs to reflect that they care about the sustainable world.
Joining a reputed Independent Verification Agency
- Even if the Volkswagen has its own team that examines the emission level from a vehicle, it is important for the company to partner up with some reputed and independent agencies for emission certification (Valor, 2016). This is the current demand of the time.
- According to Schmidt (2016), global agencies with a great reputation worldwide, such as the Landfill Methane Outreach Program, World Business Council for Sustainable Development (WBCSD), Federal Trade Commission (FTC), and many others. All of these organisation provide certification and rating to the organisation for their contribution to the sustainability of the environment and society (Schmidt, 2016).
If Volkswagen decides to join hand with any of the aforementioned organisation, then this will have a huge positive impact on its reputation and it would increase the trust of the customers back into the company.
Volkswagen should sign a bond
- According to (Zhou, 2016), bond can help in regaining consumer trust as it will assure them that the violation will happen again in the future. A bond can be indicating the credibility. In the bond, Volkswagen can state that if this kind of unethical actions is taken by the company, then it will pay out a bond to the European Commission (Zhou, 2016). This way the European Commission will carry out a thorough audit.
- In addition to thisGeorgievskiand Al Qudah, 2016, the money collected as fine can be used in research and development of electric cars and green technology, road safety, and environmental conservation. All that is required here is that the bond should be set at a very high amount so that the consumers can feel that Volkswagen really and truly regret violating the emission standards.
- Bachmann, R., Ehrlich, G.,andRuzic, D., 2017. Firms and collective reputation: the Volkswagen emissions scandal as a case study.
- Blackwelder, B., Coleman, K., Colunga-Santoyo, S., Harrison, J.S. and Wozniak, D., 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. and Tabuchi, H., 2016. Volkswagen Scandal Reaches All the Way to the Top, Lawsuits Say. New York Times.
- Georgievski, B. and Al Qudah, A., 2016. The effect of the Volkswagen scandal (a comparative case study).
- Oldenkamp, R., van Zelm, R. and Huijbregts, M.A., 2016. Valuing the human health damage caused by the fraud of Volkswagen. Environmental pollution, 212, pp.121-127.
- Rhodes, C., 2016. Democratic business ethics: Volkswagen’s emissions scandal and the disruption of corporate sovereignty. Organization Studies, 37(10), pp.1501-1518.
- Schmidt, C.W., 2016. Beyond a one-time scandal: Europe’s ongoing diesel pollution problem. Environmental health perspectives, 124(1), p.A19.
- Nicolai, F. G. 2016. Bad reputation, customer attrition and marketing of the future: can the management of a company save it from a scandal?.
- Zhou, A., 2016. Analysis of the Volkswagen scandal possible solutions for recovery.
- Wood, S., 2017. Rebranding the Nation: Germany’s Image Politics. International Politics, 54(2), pp.161-181.
- Valor, C., 2017. Can consumers buy responsibly? Analysis and solutions for market failures. Journal of consumer policy, 31(3), pp.315-326.
- Ewing, J., 2017. Faster, Higher, Farther: The Inside Story of the Volkswagen Scandal. Random House.