Understanding The Volkswagen Emission Scandal Case Study

Discuss about the Volkswagen Emission Scandal.

Volkswagen, the world’s biggest car maker company, is indicted of installing software in its diesel vehicles which are sold since 2009 in the US cheats emissions tests by reporting the lower figures (Krall and Peng, 2015). Due to this in the short span of time share prices have fallen, there are lawsuits as well as recall issues. Moreover, criminal investigations are going on by US Department of Justice. Not only this, there is a threat of fine of around billion dollars. All these issues have led me to write a report focusing on the key issues as well as potential implications.

The company was trying to enter in the markets of U.S but unfortunately their vehicles did not meet the emission standards which were quite higher as compared to the requirements. Therefore, it is not possible that they are not aware that something wrong has been done to pass the emission tests. The company has tried various solutions to make it the best product. Initially, they have attempted to resolve the catalytic converter technology which was quite effective in reducing the nitrogen oxide gas from the exhaust of petrol engine. It did not work well in the exhaust of diesel engine due to the high percentage of oxygen. They have also tried to acquire Mercedes' BlueTec method for reducing the effects of pollution. This technology was rejected by other parts of Volkswagen and therefore, they were forced to make their own system. Volkswagen started transferring their light-duty commuter vehicles diesel engines to a fuel injection system. It helped them in getting higher fuel delivery by using electronic fuel injectors as well as higher injection pressure, leading to fuel atomization, enhanced air/fuel ratio management, and emission control.

Thus they have started using the “defeat device” software. Volkswagen has used this software in 11 million cars worldwide and out of these 500,000 were sold in the US since 2009. In this, the engines are attached to the computer software which is smart enough that they can sense the test scenarios with the help of speed, air pressure as well as the steering wheel position (Schiermeier, 2015). The issue came into the light at the inspection of Environmental Protection Agency. The Environmental Protection Agency found the “defeat device” software in few Volkswagen car models.  After detection of the test settings, it connects with the environmental friendly settings in which the speed of the engine is below normal power and ultimately improving the results of emission but this device automatically turns off when the vehicle is on the road so that drive performance can be enhanced (Chris and Gerhard, 2016).

Potential Implications

The main issue of Volkswagen was to increase the sale of diesel cars in the US. To increase the sales a massive marketing campaign was planned in which they declared that the cars' emission is less. The findings of EPA covered 482,000 diesel cars only in the US, which includes Audi A3, Jetta, Golf, Beetle, and Passat. Another issue was that they had modified the software of the 3-liter engines of diesel which is fitted in Porsche as well as Audi (Burki, 2015). The company has denied these complaints at the initial stage due to which 10,000 vehicles were affected.

The crisis of the Volkswagen is due to the failure of culture in marketing, management of risk as well as internal controls. The interconnectivity between these parts is also a failure. The loss of reputation is an attribute of marketing approach. The task of marketing is to increase the sales but also to get the messages from the environment. Volkswagen is considered as an environment-friendly car due to which a lot of consumers have brought the cars but due to the emission scandal they trust on the company is broken. These emissions have caused adverse effects on the environment as well as the health of the individuals (Oldenkamp, van Zelm and Huijbregts, 2016). Now building the trust again is a long as well as hard process.

Secondly, the risk management process of the organization tries to identify the risks apart from the financial as well as operational risks which can affect the image of the company. Some of these risks are ethical, social as well as environmental concerns. These risks although cannot be easily identified as they fall outside from the area of expertise, but it is necessary and possible to keep an eye on any of the wrong doing happening inside the organization. Ultimately, this wrong doing will turn as one of the major crisis in the long run.

The third and the most important aspect is the internal control or audit. In this aspect, the monitoring of all the functions is done by checking the product against the set standards.  The controls should be developed for areas where there is the higher tendency of manipulation.

All the three functional areas can avoid reputational problems. If these systems are synchronized with each other, then it will become the perfect system without any chances of manipulation.

Emission scandal led to the investigation of the Volkswagen Company in various countries. The stock prices have fallen in worth by a third in the days straight away after the news. The CEO Martin Winterkorn has resigned. Not only this, various personnel’s in the top ranks have been suspended such as the brand development head, R & D head. Apart from this the organization has announced to spend US$18.32 billion on fixing the emissions issues and have initiated the recall campaign in which they will refit the concerned vehicles (Altman, 2002). These vehicles have a tendency to emit gasses more than expected in the real driving conditions Approximately 50,000 US vehicles have been told to recall by the Obama administration. Due to this, they have set aside $7.3bn for covering the cost of recalls as well as other damage limitation.The market value of the company is dropped by 23% during the last year end after they have admitted that they cheated the diesel emissions (Licker, 2006). It has affected the sales to a great extent. In U.S. there is a decline of around 25 percent in sales in November 2015. The total estimated cost is likely to exceed $8 billion because of this emission scandal. The effects are not limited to this. There are certain invisible as well as long term damages associated with it for e.g. the negative effect on the trust of the brand, customer satisfaction, and reputation, morale of the workers and trustworthiness, and investor confidence. It is easy to gain the lost money but it is difficult to rebuild the trust, once lost

The emitted fumes have the ability to cause inflammation in the airways as well as they can worsen the breathing of anyone. NOx emissions can act in response to other compounds which will lead to serious respiratory conditions as well as heart problems. If the exposure is for the Long-term, then it can result to death. The research says that high levels of NOx lead to 9,500 premature deaths (Holland et al., 2016).

It clearly shows that they have not fulfilled their Corporate social responsibility (Zhang et al., 2016). They have polluted the environment to a great extent and also disturbed the ecological balance which is against the ethics as well as the practices of the company. The implication of all this has stopped the sale of 2015 models, and the company is not allowed to sell the 2016 models till it fixes the program. It has put the other car maker’s also into a question that whether they are also using the similar kind of software. Due to this, many manufacturers are under pressure for giving the clarification (Mansouri, 2016). The Environmental Protection Agency of US will screen the other carmakers for the software "defeat devices".

To overcome the crisis and gain the reputation back it is essential to have the strong leadership in which the employees feel free to raise their voice, and if anything like this is occurring then, the issues are brought into the eyes of the board. If the leaders are strong, then they will resolve the problems at the initial stages whereas on the other hand, weak leadership will lead to less chivalry as well as high materialism which have happened in the past. For earning more profits, they have put the lives of many people to danger (Barrett et al., 2015).  To boost the morale of the existing employees, it is essential that the culture of the company is reshaped in which the emphasis should be on human values also apart from profit making. Building the integrity to gain the loyalty of the team members is the foremost step in reshaping the culture.

Conclusion

The corporate culture is a crucial factor (Fombrun and Foss, 2004). The board should be such where there is the diversity of opinion, and the voice of people is heard from time to time. Had there been synchronization in the marketing, risk management as well as the internal audit then such problem might not have evolved. The crisis has affected financially as well as there are invisible long term damages. The company must take steps in resurrecting the image. A plan is required to reduce the emissions and comply with the set standards. The measures should be such that emissions are reduced, and the performance is enhanced. A strong culture will be required for preventing any fraud in the coming future.

References

Altman, W. (2002). Getting the bugs out [Volkswagen in America]. Engineering Management Journal, 12(1), p.5.

Barrett, S., Speth, R., Eastham, S., Dedoussi, I., Ashok, A., Malina, R. and Keith, D. (2015). Impact of the Volkswagen emissions control defeat device on US public health. Environ. Res. Lett., 10(11), p.114005.

Burki, T. (2015). Diesel cars and health: the Volkswagen emissions scandal. The Lancet Respiratory Medicine, 3(11), pp.838-839.

Chris, B. and Gerhard, v. (2016). An investigation of the marketing performance measurement practices in Hatfield Volkswagen group. African Journal of Business Management, 10(6), pp.131-139.

Fombrun, C. and Foss, C. (2004). Business Ethics: Corporate Responses to Scandal. Corp Reputation Rev, 7(3), pp.284-288.

Holland, S., Mansur, E., Muller, N. and Yates, A. (2016). Damages and Expected Deaths Due to Excess NO x Emissions from 2009 to 2015 Volkswagen Diesel Vehicles. Environmental Science & Technology, 50(3), pp.1111-1117.

Krall, J. and Peng, R. (2015). The Volkswagen scandal: Deception, driving and deaths.Significance, 12(6), pp.12-15.

 Licker, P. (2006). An Interview with Warren Ritchie, Director of IT Governance Americas Regions Volkswagen AG. Journal of Global Information Technology Management, 9(4), pp.72-76.

 Mansouri, N. (2016). A Case Study of Volkswagen Unethical Practice in Diesel Emission Test. IJSEA, 5(4), pp.211-216.

Oldenkamp, R., van Zelm, R. and Huijbregts, M. (2016). Valuing the human health damage caused by the fraud of Volkswagen. Environmental Pollution, 212, pp.121-127.

Schiermeier, Q. (2015). The science behind the Volkswagen emissions scandal. Nature.

Zhang, B., Marita, V., Veijalainen, J., Wang, S. and Kotkov, D. (2016). The Issue Arena of a Corporate Social Responsibility Crisis – The Volkswagen Case in Twitter. Studies in Media and Communication, 4(2).