Volkswagen Scandal Case Study

Table of Contents

• Executive summary
• Introduction
• Analysis
• The impact made Volkswagen by this diesel dupe
• Managers
• Threatening People’s Health
• Drop in Volkswagen Sale Conclusion
• Recommendations
• References

Executive Summary

In light of the year 2015, the scandal regarding diesel cheat damaged the image of the Volkswagen Company. The harmful and mortal effects of nitrogen oxide, which is a pollutant found in car’s exhaust have led to the Environmental Protection Agency (EPA) to tighten emission control considering the attention paid to conservation and saving the green. The management decided to pursue short-term needs forgetting the future prospects of the company.  The leadership of the company made a complete gamble with the stakeholder's trust and resources. The cheat was in line with the stringent measures initiated by the EPA. These stringent measures are necessary considering that nitrogen gas emitted is harmful to human health and results in diseases such as asthma, premature death, bronchitis, respiratory and cardiovascular. The Volkswagen Company’s reputation was severely damaged by scandal leading to low revenue and other effects including law suites.

For more information on Volkswagen as a business and how they operate, take a look at our Volkswagen SWOT Analysis.

Introduction

Over the last few decades, there has been great concern regarding the sustainability and conservation of the environment. Environmental pollution and globalization have become the concern of most environmental protection agencies. The harmful and mortal effects of nitrogen oxide, which is a pollutant found in car’s exhaust have led to the Environmental Protection Agency (EPA) to tighten emission control considering the attention paid to conservation and saving the green (Yadigaroglu, 2015). These concerns have made the EPA constantly announce restrictions for standard emission for all types of vehicles the sports care, heavy-duty trucks, automobiles and other types of cars. These stringent measures are necessary considering that nitrogen gas emitted is harmful to human health and results in diseases such as asthma, premature death, bronchitis, respiratory and cardiovascular.

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The scandal clearly reflects corporate misbehavior from the part of Volkswagen. The automakers manufacturing fuel-efficient diesel cars in the United States faced hardships due to these new stringent emission regulations. Volkswagen is among the automobile makers in the United States market that were new stringent regulations. However, in the year 2015, the EPA announced that the Volkswagen was a diesel dupe following its strategy to deceive the emission test. Volkswagen managed to deceive the test by showing less emission in its engines than what the engine emitted in the real sense (Clothier, 2015). Therefore, this essay is aimed at analyzing the extent to which this issue of diesel dupe has ruined the reputation of the Volkswagen.

Analysis

In light of the discovery of the diesel dupe of Volkswagen in 2015, the mechanism's aim was to alter the detection of nitrogen oxide gas in Volkswagen diesel engines. The test of the emission of nitrogen oxide in the lab was thirty-five times more on the road hence endangering lives of the people (Burki, 2015). The leadership of Volkswagen decided to take a shortcut in the production of their internationally recognized brand (Carter and Greer, 2013). This rigging scandal has had a bad reputation on Volkswagen leading to a series of consequences to its direct and indirect stakeholders.

The Impact the Diesel Dupe had on Volkswagen

In the previous year before the rigging scandal, Volkswagen was among the leading automobile producer in the automobile industry just second after Toyota Company. However, Volkswagen admission of guilt in the scandal had a series of effects on it and its operations and to the company (Davenport and Hakim, 2016). The scandal severely damaged the company’s reputation in the automobile industry. Building a reputation in the business world takes time but destroying it is often fast, therefore, this has led to the Volkswagen Company bringing in three public relations company companies to help manage the crisis one from Germany, Britain and the United States. The implications of this deceit by Volkswagen leaves the company in a bad condition considering that it has to deal with different regulations since the company is an international brand.

The Role of the Managers

Good leadership has three pillars that support it which are commitment, character and competencies. Therefore, if any of these three values is not present then there is bound to be problems for the stakeholders, the manager and the entire organization. In any organization, the corporate social responsibility and sustainability have proven too challenging. This follows as managers are faced with the challenge of the tradeoff between the long and short-term decisions. This tradeoff often poses decisions between the survival of the business and their annual compensation, between long-term environmental factors and quarterly profits, between short-term and long-term goals. Business schools must learn a better way to teach students regarding these tradeoffs and ways of handling them not ignore them. Resilience is key to financial sustainability. Therefore, business is capable of surviving natural disasters or financial crisis. Moreover, the manager's relationship with the employees, the environment and the community result in resilience. Therefore, it is important that businesses not work against the institutions that enable their long-term success. However, the antithesis of sustainability is what the Volkswagen Company showed in 2015 through diesel dupe. It does not make any sense for the managers of Volkswagen to create this shortcut and be comfortable thinking it would lead to long-term success. The deception played on the consumers and the regulators compromised the long-term needs and success of the company despite achieving the short-term needs.

The decision the managers made regarding tradeoff between short and long-term was surely misguided. Volkswagen is a company surrounded by competent staff and the managers are well educated and have vast experience in the industry. Therefore, tabling an argument that there was a shortage of expertise would be wrong and misguided. The strong desire of the managers to succeed at whatever cost is what brought this predicament to the company (Goodman, McGrath and Leah, 2015). They did everything with a sense of urgency and approached the challenges faced by the company with passion and vigor. From the decisions these managers made, it is a case of failure in leadership. Researches have concluded that drive, temperance, courage, humanity, collaboration, humility, integrity, accountability, justice, transcendence and judgment are all qualities of a good leader and must all work together since using over using one trait may result to liability. These traits are essential considering they enable a leader to think things through before making a decision. Moreover, the trait of justice helps in know the importance of giving back to the society that ensures the success of the business and not harming them like in the case of Volkswagen (Elson, Ferrere, and Goossen, 2015).

Threatening People's Health

In case the scandal regarding the cheat device would not occur, sixty people would have died a premature death in the United States alone by the end of 2016 due to the addition pollution the Volkswagen cars produce (Selin, 2015b). The 428,000 Volkswagen and Audi diesel cars manufactured produced more nitrogen oxide gas forty times more than the standard allowed by the Clean Air Act in the period between 2008 and 2015. Researchers have concluded that in every six years the cars Volkswagen and Audi produce an excess of about 36.7 million kg nitrogen oxide, which is very bad for the environment and the health of human beings considering diseases like cardiovascular diseases and other respiratory diseases are caused by this emission (Selin, 2015a).

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Moreover, the research also stated that sixty people between the age of 10-20 are endangered by these emissions. Additionally, the effects of these emissions would result in the United States spending about $450 million on people over six years in the period between 2008 and 2015 (Kalaugher, 2015). There would be 140 premature deaths in the event Volkswagen failed to recall vehicles manufactured from 2015 onwards. Moreover, the Volkswagen diesel cars would cost about $840 million in health cost (Chue, 2015). Finally, acid rains are caused as a result of nitrogen oxide production in the atmosphere which leads to the destruction of property, natural resources and badly affects the health of humans.

Drop in Volkswagen Sale

Bad reputation ruins businesses beyond recover. Just as expected, Volkswagen faced a severe decline in revenue since the diesel cheat scandal. The scandal resulted in customers switching to its competitors disabling the sales of Volkswagen vehicles (Kottasova, 2015). For the first time since the year 2002, Volkswagen sales plunged throughout the world due to bad reputation (Waecsh, 2016). Furthermore, the scandal affected every aspect of the Volkswagen brand considering even the share values slumped (Gomez, 2016). The slump in share value started declining immediately the scandal was revealed resulting in one-third drop. The decline in revenue was expected considering no one wants to be associated with a company facing a scandal and no customers would buy products that cause health problems to them (Mittelman, 2016).

Conclusion

In light of the diesel scandal discovery, it is clear it was an act of pure conmanship. The company decided to make profits at the cost of its customers and the environment. This scandal clearly created a complicated situation for the stakeholders of the company. The actions of Volkswagen management were unethical to the business world leaving a bad name for the company (Mansouri, 2016). The management decided to pursue short-term needs forgetting the future prospects of the company. The scandal left the company in a series of cases including violation of the Clean Air Act and a series of international laws. The leadership of the company made a complete gamble with the stakeholder's trust and resources. The company had already established it itself worldwide hence such a scandal cost it a huge price considering it would take a long time for it to get back to its glory days. The leadership of an organization is vital as it plays a significant role within the organization and its decisions may make or break the organization, therefore, in this case, Volkswagen leadership made a grave mistake.

Recommendations

The culture and structure of an organization is key to its success. The business environment is very different from the practices in the past (Webb, 2012). Employees are the engines, which move an organization; hence, failure to treat them in an ethical manner could result in grave consequences. Increasing the morals of employees is vital to the achievement of tasks and productivity in an ethical manner. There is no hierarchy in value-based practices and employees work in small groups that enhance productivity (Sherk, 2014). Moreover, democracy is promoted considering the employees report issues and concerns to their superiors resulting in high productivity within the organization. From the actions of Volkswagen regarding diesel cheat, it is evident that the company resorted to shortcuts due to the stringent measures imposed by the EPA.

Therefore, it is the role of the EPA to ensure the automobile industry does adequate research and find alternative technology, which has no effect on the environment; moreover, the EPA body has the mandate to ease its stringent measures. The EPA body must ensure it offers adequate support to the automobile makers and introduces a more feasible standard to the automobile makers to avoid companies from taking such actions as Volkswagen. The value-based approach is vital in the management of employees hence it should be embraced by organizations (Walentynowicz, 2014). It is also the duty of the EPA to provide programs, which support the endeavours of the automobile makers. Volkswagen Company can regain its reputation back but that will not be easy. The first thing the company must do is do an overhaul of its leadership and bring in new faces. Moreover, there needs to be a fresh start therefore, the personnel must also be new. After clearing the personnel and the leadership, there should be constant apologies to its customers. Afterwards, the company needs to spend more money buying back the cars and fixing the problems to meet the standards of the EPA. The process of recovery will take time fixing the court cases and getting back on the good graces of people. However, spending time and money and ensuring no more mistakes is the only way the company will recover from this hit.

References

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• Burki, T. (2015). Diesel cars and health: the Volkswagen emissions scandal. The Lancet Respiratory Medicine, 3(11), pp.838-839.
• Carter, S. and Greer, C. (2013). Strategic Leadership. Journal of Leadership and Organizational Studies, 20(4), pp.375-393.
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• Chue, J. (2015). Study: Volkswagen’s emissions cheat to cause 60 premature deaths in U.S., Massachusetts Institute of Technology. Retrieved from http://news.mit.edu/2015/volkswagen-emissions-cheat-cause- 60-premature-deaths-1029.
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• Selin, N., E. (2015a). Volkswagen emissions cheating caused $100 million in health costs, according to analysis, Grist. Retrieved from http://grist.org/climate-energy/volkswagen-emissionscheating-caused-100-million-in-health-costs-according-toanalysis/.
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