Volkswagen's Diesel Emissions Scandal . - Account.a1writing
CASE STUDY127Case Study: Volkswagen’sDiesel Emissions ScandalByJae C. JungSu Bin “Alison” ParkIntroductionIn September 2015, Volkswagen (hereafter VW) madenews headlines all of a sudden regarding recallsof nearly 500,000 diesel cars in the United States,branded as VW and its upscale Audi. Within a few days, VWsaw a massive sell-off of its stock, wiping out 16.9 billionof company’s market value. Later, VW admitted that its 11million diesel vehicles in the world were equipped with adefeat device that disguised emission levels in laboratorydiesel-exhaust emissions tests. After the scandal erupted,VW’s economic situation was damaged from worldwiderecalls, loss of sales, and decreased stock market price. Thetotal cost of VW’s losses was yet to be determined due tothe immense calculations and early period of the scandal.However, experts estimated the scandal would cost tens ofbillions of dollars or beyond to the company.Diesel EngineDiesel vehicles had been known for benefits over gasolinevehicles, such as durability, cost saving of early repairs, fuelefficiency (i.e., driving up to 30% more miles per gallon),and lower levels of carbon monoxide. However, dieselvehicles had drawbacks, including frequent changes of airand fuel filters, noisiness, and expensive production coststo produce and purchase as compared to gasoline counterparts. Diesel vehicles required extra equipment to meetstrict exhaust guidelines (see Table 1). Many car manufacturers, including VW, developed turbochargers to increasecombustion preciseness as well as technology to minimizenitrogen emissions. VW’s diesel cars had a nitrogen oxidetrap in their exhaust system. A downside of the system wasthat it required more fuel to trap nitrogen oxides. Therefore,a big challenge for VW was to both reduce fuel consumptionand increase the car’s acceleration (Stapleton, 2015).Volkswagen ’ s Diesel EmissionsDeceptionAs mentioned earlier, controlling diesel-exhaust emissions was a big challenge to diesel vehicle manufacturers. Diesel engines emitted a great number of harmful1 Benefits and Drawbacks of Diesel Vehicles overGasoline CounterpartsTABLEBenefitsDrawbacks More durable to reduce costsof early repairs Drives up to 30% more milesper gallon of fuel than gasoline vehicles and more costeffective than electric hybrids Quick acceleration and powerful towing capacity Lower levels of carbon monoxide, hydrocarbons, and carbon dioxide emissions thanthose of gasoline engines Requires frequentchanges of air andfuel filters Known to be noisyand slow More expensive toproduce and purchasethan gasoline counterparts due to installation of the extra equipment to meet strictexhaust guidelinesSource: Stapleton, 2015.Correspondence to: Jae C. Jung, Bloch School of Management, University of Missouri–Kansas City, 5110 Cherry Street, Kansas City, MO 64110,(816) 235–5161 (phone), (816) 235–6505 (fax), jungjc@umkc.eduPublished online in Wiley Online Library (wileyonlinelibrary.com) 2016 Wiley Periodicals, Inc. DOI: 10.1002/tie.21876
128 CASE STUDYpollutants such as nitric oxide and nitrogen oxide. Thesechemicals could create hazardous pollutants and groundlevel “bad” ozone while merging with other atmosphericsubstances. Moreover, nitrogen oxide was known to causeemphysema, bronchitis, other respiratory problems, andcancer (Gates, Keller, Russell, & Watkins, 2015; Selin,2015).Due to public health concerns, in 2013, the International Council on Clean Transportation, a nonprofitgroup, proposed on-road emission tests for cars in theUnited States. On-road tests were something new andwere not performed as part of the regular laboratoryemissions test. California regulators joined in the projectwith the hope that diesel cars in the United States emitted fewer pollutants than European counterparts due toa stricter national standard (Ewing, Hakim, & Kessler,2015). In May 2014, the California Air Resources Board(CARB) embarked on an investigation to test VW dieselmodels on the road. Followed by the investigation, theexcessive level of nitrogen oxide emission was found byresearchers at West Virginia University. The emissionslevel was 40 times higher than the US regulation threshold (see Figure 1) (Gates et al., 2015). After the investigation, the Environmental Protection Agency (EPA) andthe CARB refused sale of VW’s 2016 diesel models. Thecompany admitted its diesel emission deception in September 2015 (Associated Press, 2015a).Worldwide, 11 million of Volkswagen’s diesel carswere equipped with the deceptive software to cheatby inaccurately lowering the emissions. In detail, thecompany confirmed that Volkswagen-branded vehiclesaccounted for about 5 million out of 11 million. Therest of the vehicles were subsidiary branded (i.e., 2.1million Audi branded, 1.2 million Skoda branded;700,000 Seat branded, etc.). Among the 11 million,there was a total of about 500,000 US four-cylinder diesel engine models with the deceptive software. Furtherrepresentations of cars with this software include VWmodels of Jetta (2009–2015), Beetle and Beetle Convertible (2012–2015), Passat (2012–2015), Jetta SportWagen (2009–2014), Golf (2010–2015), Gold SportWagen(2015), and Audi models of A3 (2010–2015) (Gates etal., 2015; Statista, n.d.).Even though the scandal erupted globally, it affectedEurope more than the rest of the world because dieselvehicles account for about 41% of all European cars(Kayakiran & Lehane, 2015). The European Union hadincentivized and subsidized production and purchase ofdiesel vehicles over gasoline models. Among Europeancountries, Germany had the most cars equipped with thedefeat device (about 2.8 million cars). The United Kingdom and France were the second and third countries,respectively, with about 1.2 million and 984,000 VW diesel cars with the defeat device. Most of the countries withthe rigged vehicles were European. The United Statesranked fourth with 500,000 affected cars, whereas Chinahad only 1,950 affected cars (see Figure 2) (McHugh,2015).Why Did the Scandal Happen?The following factors created a climate for the scandal:austere leadership styles, insular corporate governance,and drawbacks from family feuds and nepotism.2 Number of Volkswagen Diesel Models Affectedby the Defeat System by CountryFIGURE1 Volkswagen’s Nitrogen Oxides Emissions duringOn-Road TestingFIGURESource: Gates et al., 2015.Source: McHugh, 2015.Thunderbird International Business Review Vol. 59, No. 1 January/February 2017DOI: 10.1002/tie
Volkswagen’s Diesel Emissions ScandalAustere Leadership StylesFerdinand Piëch, a grandson of Ferdinand Porsche,served as CEO for ten years at VW, until he became thechairman of the VW’s supervisory board in 2002. Thisambitious former CEO and engineer was notorious for histoxic leadership style in managing his employees by beingauthoritarian and coercive. His influence over his successors continued. Piëch banished or dispatched executivesfor making mistakes and failing to meet his expectations(Milne, 2015). In 2007, Martin Winterkorn—“handpickedand groomed by Piëch”—became an interim CEO (Levin,2015). He had worked at Piëch’s side for a long time asthe most prominent colleague. Winterkorn was no different than Piëch, regarding his leadership style. Knownfor being a perfectionist, he insulted and punished hisemployees for small flaws. His authoritarian leadershipstyle allowed no autonomy to subordinates, cultivatedfear, and discouraged open communication across themanagement hierarchy. Piëch always had an ambition tomake his company the world’s number one automaker.He burdened Winterkorn with great pressure and highexpectations. Winterkorn took on the heavy responsibilityof ensuring the future of VW (Meiners, 2015).In order to acquire the company’s dominant market share in America, Winterkorn focused on its dieselvehicles, instead of betting on electric-hybrid vehicles likeits competitors, including Toyota (Ewing et al., 2015).In Europe, VW could sell a large volume of their dieselmodels because EU government policies promoted dieselengines. However, compared to Europe, diesel vehicleswere not as dominant as in the US auto market (seeFigure 3). The company promised high mileage and lowemissions for its diesel vehicles. Due to its robust marketing strategy, VW overtook Toyota as number one inworldwide annual car sales for the first half of 2015 (seeFigure 4) (Gates et al., 2015).However, the diesel scandal almost destroyed Winterkorn’s ambition. Matt Delorenzo, a diesel expert andthe managing editor at Kelley Blue Book, described thescandal as a failure to keep up with the Obama administration’s environmental regulations, which had beenratcheted up. The scandal could be seen as Winterkorn’slack of vision and innovative mind-set. While competitorssuch as Toyota and Tesla had been successful in the ecofriendly automobile industry, VW concentrated solely onrefining present technologies (Meiners, 2015). Winterkorn’s strategy was to put emphasis on merely meetingthe requirements on the emission of nitrogen oxide asthe regulations were developed. His major concern wasthe cost of compliance (Bershidsky, 2015). This approachlimited the opportunities for developing innovativeDOI: 10.1002/tie1293 Diesel Volkswagens Registered in the UnitedStates (January 2009 to June 2015)FIGURESource: Gates et al., 2015.4 Worldwide Annual Car Sales before the VWScandalFIGURESource: Gates et al., 2015.Thunderbird International Business Review Vol. 59, No. 1 January/February 2017
130 CASE STUDYtechnologies and for being ahead of the emerging ecofriendly automobile market.Volkswagen’s Insular GovernanceIn fact, it was not the first time that VW had cheatedon emissions standards. In the 1970s, VW was one ofthe first firms accused of equipping their vehicles witha defeat system to disguise emission levels (Ewing et al.,2015). VW’s unique, insular governance culture was aroadblock to comprehensive inquiries of a problem,which impeded effective organizational learning andprevention of repeated errors. The owner families (thePorsche and Piëch families), the government of LowerSaxony, and the unions formed the supervisory board,worked very closely together for a shared goal of fullemployment and production. This powerful boardapproved all key decisions of the company (Ruddick,2015).The governance culture discouraged the members ofthe supervisory board from accepting negative information on their projects (e.g., cheating on emissions regulation or forecasting costs of developing diesel vehicles) andfrom disengaging a failing course of action. Furthermore,the culture enhanced the leadership style of Winterkorn,which was known for emphasizing new-product development and sales growth, rather than accountability andsustainability of the company. It was highly possible thatthe centralized management style, with little influencefrom outside voices, contributed to the scandal. The company had an environment ripe for breeding the scandal:clannish executive board with a strong decision-makingpower and an engraved culture of hostility against environmental regulations (Stewart, 2015).During Winterkorn’s tenure, VW faced a number ofissues in getting production costs down to compete in theUS market. The supervisory board neglected to addressWinterkorn’s ineffective strategy in the US market. Inserving the interests of labor unions and the local government, VW increased the number of employees and laborcosts. The labor costs constrained VW’s investment inemissions control technology. Instead of complying withthe US government regulations and reducing productioncosts, the company was more interested in boosting salesin the short term (Forbes, 2015). When Winterkorn’sposition was threatened by Piëch, members of the supervisory board backed Winterkorn, saying that “it was inthe interests of Volkswagen to focus on its core businessrather than questioning the company’s leadership andthere was no evidence that the CEO steered the companyin a direction that had greatly harmed it” (“VW Board,”2015).Thunderbird International Business Review Vol. 59, No. 1 January/February 2017Drawbacks from Family Feuds and NepotismThe feuds between the Porsche and Piëch families inbusiness increased risks of letting emotions interferewith making sound business decisions. As referencedby the history of owner families, Ferdinand Porsche,the founder of the Porsche automobile company andthe engineer of the VW Beetle, had a son as well as adaughter who later acquired the surname Piëch from herhusband. With extensive power in ownership, the families had been involved in the management of VW andPorsche. Two grandsons of Ferdinand Porsche, WolfgangPorsche and Ferdinand Piëch, served as chairmen in thesupervisory board of Porsche and VW, respectively. Thedeeply divided Porsche and Piëch families had battledover power and money. These family feuds in businessled to spontaneous emotions often influencing and complicating business judgment and decisions. For instance,Piëch’s attempt to overthrow Winterkorn triggered apower struggle between the two families. Piëch distancedhimself from Winterkorn, in reaction to the stagnantgrowth of the company’s market share in America. However, when Wolfgang Porsche and other members of theVW supervisory board backed Winterkorn, Piëch had toresign from his chairman position.Nepotism also existed in the management culture.Piëch practiced favoritism toward his fourth wife, Ursula.She became a member of the VW supervisory board in2012. Many shareholders questioned her qualificationsand objectivity. However, the opposition was ignored bythe Porsche and Piëch families, who owned the majorityof the voting shares (Ruddick, 2015). She continued herrole in the management structure until she resigned withPiëch in April 2015.Impact in Multiple DimensionsThe scandal had economic, political, and social consequences.Economic ConsequencesVW experienced enormous economic damage. There wasa net loss of 1.84 billion following the scandal. The sales ofVolkswagen cars dropped from 2.44 million in September2014 to 2.35 million in September 2015 (Boston & Sahin,2015). VW’s stock was sold off enormously on Monday,September 21, 2015. It resulted in the loss of 16.9 billionof its former market value (Eisenstein, 2015). VW’s stockprice plummeted from 38.03 on September 17 to 23.07on October 2 after the case was revealed (see Figure 5)(Gates et al., 2015). Also, VW’s stock was suspended fromDOI: 10.1002/tie
Volkswagen’s Diesel Emissions Scandal131the Dow Jones Sustainability indexes. Dow Jones Sustainability indexes ranked high-performance companies intheir industries in terms of economic and sustainabledevelopment (Bloomberg Business, 2015). Furthermore,demand for VW diesel cars decreased from 40% to 30%,according to a German online car dealership. A UK pricedata firm found that the value of VW diesel cars droppedby 0.2% in September, during a time of overall auto market value increase (Boyle, 2015). For the first time in 15years, VW announced a quarterly operating loss of about 3.9 billion dollars in the third quarter (July–September)(Aljazeera, 2015).Government agencies around the world also exacerbated the economic burden of scandal to the company.The Environmental Protection Agency (EPA) orderedVW to recall all affected US diesel models—about 500,000vehicles—at its own expense. The cost of repairing theengine control software was expected to be millions ofdollars. On a global scale, the company faced a tremendous economic burden to recall 11 million vehicles,which could take more than a year. There were 8.5 million diesel vehicles equipped with defeat devices acrossEurope as well as half a million cars in the United States.Both European and American regulators waited fortechnical details of the solution and the test results of itseffectiveness before ordering a recall (Eddy, 2015; Eisenstein, 2015). Variations in regulations on diesel vehiclesacross the globe highlighted VW’s different approach torepairs in Europe and the United States. VW would installa new pollutant purification system in the vehicles sold inthe United States due to its tougher standards on dieselemissions, whereas European models would not have thenew system. Variations in regulations on diesel vehiclesacross the globe highlighted VW’s different approachto repairs in Europe and the United States. VW wouldinstall a new pollutant purification system in the vehiclessold in the United States due to its tougher standards ondiesel emissions, whereas European models would nothave the new system. Therefore, the costs to recall wouldvary in different countries (Hakim, 2015). Also, the violation of clean air rules could burden VW with a fine fromthe EPA that was expected to be as much as 37,500 foreach affected model (more than 18 billion). The CARB,which had more rigorous standards, could impose itsown penalties (Eisenstein, 2015). The company plannedto reserve a half-year of profits, 6.5 billion euros (aboutUS 7.3 billion) to spend on compliance with these governments’ rules and orders. However, the total costs wereexpected to exceed that amount (Eddy, 2015).Moreover, additional economic loss resulted froma backlash of angry consumers and car owners. VWappealed to customers by claiming “clean, sporty, andfuel-efficient” vehicles. The consumer reports respondedto the scandal by deferring their “recommended” statusof the Jetta and Passat diesel models (Eisenstein, 2015).Car owners who paid premium prices for the dieselengine were outraged at being duped. They were verydissatisfied with the potential costs and hassle of a recall.They were also concerned about how the problem wouldinfluence performance, fuel economy, and what theirinsurance would pay in the case of accident. Volkswagen’scorporate image was discredited. The value of cars waslikely to decline (Noguchi, 2015). Research showed thatbuyers of diesel vehicles were expected to delay their purchase (Clothier, 2015).It was uncertain whether new equipment and technology would lower the fuel economy and hurt performance. With a lot of resentment and concern, US ownersmight not have completed the emissions recall becausethere was no state requirement to force them to carryit out. Therefore, advocates called for the company’sresponsibility to provide incentives to their customers forrecall. As a result, the costs to recall included potentiallyextensive component problems other than the purification of pollutants (Jensen, 2015). A group of car ownersDOI: 10.1002/tieThunderbird International Business Review Vol. 59, No. 1 January/February 2017FIGURE5 Plummeting Volkswagen Stock PriceSource: Gates et al., 2015.
132 CASE STUDYcomplained about the potential impact of software adjustments and repairs on fuel economy and performance,and as a result, the company was threatened by severalhigh-profile law firms for potentially expensive classaction lawsuits.Political ConsequencesVolkswagen faced a variety of inquiries and criminalcharges by the US Department of Justice, the EPA, andthe Federal Trade Commission. The Obama administration accused VW of cheating on the emissions tests andordered them to recall all affected diesel models in theUnited States in September 2015. The EPA cooperatedwith the Department of Justice and the State of Californiato take further aggressive actions on the violation (Eisenstein, 2015). Critics of the EPA said that it did not uncoverthe cheating for seven years, but instead researchers atWest Virginia University did. The EPA reformed its testguidelines of diesel emissions to detect any defeat deviceto disguise the emission levels. The test included on-roadtesting (Associated Press, 2015a). The EPA extendeddiesel emissions investigation to other brands (Jopson &Wright, 2015). Furthermore, state attorneys of 45 statesand Washington, DC, embarked on the joint investigationto review VW’s cheating on emissions tests. They weremore likely to end with a settlement with compensationfor customers and harmful environmental effects. However, the joint investigation would not end any sooner.Along with the investigation, states would reinforce theirconsumer protection laws and environmental standards(Greene, 2015).The scandal urged foreign governments to investigate any equivalent violations of their VW diesel models.The European Union also admitted that there was a discrepancy in carbon dioxide emissions between their laptesting for VW diesel models and on-road testing. Theypromised to add on-road testing to the current lap testingin 2016 (Associated Press, 2015a). Governments of several countries outside of Europe and the United States,such as China, South Korea, and Mexico, opened inquiries into the company and initiated their investigationson imported VW models (see Figure 6) (Clothier, 2015).Social ConsequencesThe VW’s diesel engine scandal led to other social costs.The economy of Wolfsburg, where VW headquarters waslocated, was immensely affected by the scandal. Wolfsburg was one of the richest cities in Germany, known asthe capital of the German auto industry. VW and otherauto companies supplied over 72,000 jobs in the city.According to Klaus Mohrs, the mayor of the city, thereThunderbird International Business Review Vol. 59, No. 1 January/February 2017were warned economic fallouts including a temporaryhiring cessation and decreased corporate tax revenue(Bowley & Eddy, 2015). The cost of health damages wasalso emphasized in a public health perspective: healthdamages from the hazardous pollutants of diesel enginescould cost 100 million (Selin, 2015).Reconstructing Volkswagen ’ sManagement, Structure, and MoraleThe scandal revealed a conservative corporate culturethat prioritized tradition and status quo in top-to-bottommanagement. This showed the influence of the German culture on their business. German culture had astrong belief in family businesses as the backbone of itseconomic development. Volkswagen had a legacy of theautomotive pioneer of Ferdinand Porsche and the controlling Porsche and Piëch families. The company had ahuge influence on the local economy and communitiesof Wolfsburg, Germany. These cultural and economicfactors justified a stable and insular management of thecompany (Weidenfeld, 2015).In order to break out of the scandal, VW tried toreconstruct the company’s management, structure, andmorale. As a primary example, Winterkorn, the CEO ofVW, resigned. The new CEO, Matthias Müller, planned torebuild the company as part of a new beginning, stating,“My most urgent task is to win back trust for the Volkswagen Group—by leaving no stone unturned and withmaximum transparency, as well as drawing the right conclusions from the current situation” (Hymowitz & Webb,2015). VW tried to recoup its accountability and sustainability by employing two managers from its competitors.Thomas Sedran, the former CEO of Opel, a subsidiaryof General Motors, was recruited as head of corporatestrategy (Associated Press, 2015b). The company alsorequested that its competitor, Daimler AG (a producer ofMercedes-Benz), release its compliance chief, ChristineHohmann-Dennhardt. Following Daimler AG’s agreement, VW hired Hohmann-Dennhardt as its new integrityand legal affairs manager (Rauwald, 2015). Based onthese changes, experts predicted that VW’s new strategicbusiness plan, called Strategy 2025, would change itsfocus from sales volume to profitability. Matthias Müllerreiterated experts’ anticipation of the new strategy in hisstatement about the scandal:Many people outside of Volkswagen, but also some ofus, did not understand that our Strategy 2018 is aboutmuch more than production numbers. A lot ofthings were subordinated to the desire to be “Faster,DOI: 10.1002/tie
Volkswagen’s Diesel Emissions ScandalFIGURE1336 Regulation Map (as of September 30, 2015)Source: Clothier, 2015.DOI: 10.1002/tieThunderbird International Business Review Vol. 59, No. 1 January/February 2017
134 CASE STUDYEuropean governments had favored diesel engines overgasoline because they focused on lower carbon emissionsand diesel’s high fuel efficiency. However, the scandalwould change the trend in the European auto industry.The governments started moving toward eco-friendlyautomobiles and denouncing diesel vehicles. The scandalwould continue decreasing the market share of dieselvehicles in Europe. The mayor of Paris made a prominentdecision to ban diesel engines within five years as partof the city’s green project. Other European countriesconsidered removing tax incentives or subsidies for dieselengines. Getting rid of incentives and subsidies wouldsignificantly discourage automakers from making dieselengines because they are more costly to manufacture thangasoline engines. The European Parliament’s Environment Committee agreed to rewrite and increase regulations on automobiles’ pollution limits and fines (George& Bousso, 2015). The German government pledged to theauto industry to boost sales and use of electric vehicles upto a million by 2020. Also, a German minister of the environmental department spoke about relocating subsidiesfor diesel to more environmentally friendly electric cars.These decisions were made as a result of a multitude ofinvestigations and lawsuits around the globe (Eddy, 2015).Also, in the wake of the scandal and governmentpolicy in favor of environmentally friendly vehicles, VWshifted gears toward developing new technologies. VWbet its future on revamping its diesel exhaust control system for the upcoming models, as well as focusing on electric and hybrid vehicles. According to the New York Times,VW would use the new technology for the 2019 and 2020models of the Phaeton limousine (Kieler, 2015).The VW diesel scandal was a wake-up call for otherauto companies to pay more attention to clean energytechnology. The auto companies learned the importanceof long-term technology strategies. While VW boostedthe development of electric vehicles, its competitor,Toyota, intends to produce a variety of hybrids and ecofriendly vehicles by 2050. As a result, there would be morealternative-energy car choices for consumers to buy. However, challenges such as low oil prices, expensive costs topurchase, and inconvenience to fuel would overshadowthe long-term benefits of purchasing alternative-energyvehicles at a greater cost (Phelan, 2015). Some analystspredicted that the automakers would consolidate to shareresponsibilities and costs to develop alternative-energycars. However, gasoline engines have become more powerful and fuel efficient, with less carbon exhaust. Therapid development and innovation of gasoline enginesmight slow down the growth of alternative-energy vehicles(George & Bousso, 2015).Volkswagen faced more than a need to develop aneco-friendly technology. Probably Volkswagen’s biggestThunderbird International Business Review Vol. 59, No. 1 January/February 2017DOI: 10.1002/tieHigher, Larger,” especially return on sales. (Miller,2015)Furthermore, the company took other approaches toregain the trust of the public and the government. The company condemned and suspended some employees (suchas Frank Tuch, a quality-control chief) for their unlawfulbehaviors (Boston, 2015). The corporate structure was simplified by combining operations in United States, Canada,and Mexico, under a new North America branch. Its carbrands were reclassified by grouping Porsche with othersports car branches such as Bugatti and Bentley and creating a new “volume” division with Seat and Skoda. The newCEO said that VW decentralized its management structureby giving division managers more autonomy (Ruddick &Farrell, 2015). Volkswagen also offered monetary compensation to customers. It announced a 1,000 goodwill package as well as three years of free 24-hour assistance to UScustomers whose diesel vehicles were affected. In addition,they were given a 500 prepaid Visa loyalty card and a 500dealership card (Sloat, 2015).Nevertheless, there was growing skepticism about theeffectiveness of these attempts at reform and the company’s insularity, even after a new CEO was appointed by thesupervisory board of the company. Critics argued that thenewly appointed CEO, Matthias Müller, had a very similarbackground, as he was CEO of Porsche, a subsidiary ofVW. The features of the supervisory board attributed tothe reason why the members chose an insider instead ofan outsider for critical reform. There was lack of diversityin the supervisory board. Members of the male-dominatedsupervisory board were mostly German or Austrian andhad limited knowledge of and influence in the US market. While the membership consisted of shareholders andemployee representatives, they often shared the samevalues and interests of the company. The members valuedthe traditional top-to-bottom management and increasing sales volume. Also, the members from the supervisoryboard and management board overlapped to take onmore of the same positions. As a result, even though thesupervisory board was supposed to ensure its management’s transparency and seek new talent for employment,the membership characteristics and culture of the boardattributed to the hiring of a CEO with a background similar to the former CEO (Hymowitz & Webb, 2015).Future Prospects for Volkswagen andthe Auto Industry
Volkswagen’s Diesel Emissions Scandalconcern was an economic loss worldwide caused by fines,recalls, and decreased sales in the short term and a dimmedcorporate image in the long term. In the short term, VWwas going to pay heavy fines in Europe due to its dominantscale of diesel vehicle sales. It also had to pay billions of dollars in fines to the US government for the illegal deception.In the long term, VW would have years to overcome a tarnished corporate image and loss of consumers’ trust. Eventhough China and the United States accounted for smallproportions of diesel vehicle unit sales, they had the firstand the second-largest auto markets, respectively. Thesemarkets were critical for the su
Case Study: Volkswagen ' s Diesel Emissions Scandal By Jae C. Jung Su Bin "Alison" Park Introduction I n September 2015, Volkswagen (hereafter VW) made news headlines all of a sudden regarding recalls of nearly 500,000 diesel cars in the United States, branded as VW and its upscale Audi. Within a few days, VW
A Study of the Volkswagen Emissions Scandal . Abstract . This paper uses the 2015 Volkswagen emissions scandal as a natural experiment to provide evidence that collective reputation externalities matter for firms. We find that the Volkswagen scandal reduced the U.S. sales of the other German auto manufacturers—BMW, Mercedes-
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potential effects on the company in the diesel emission scandal years of 2014-2016. We find that the diesel emission scandal had the most impact in the short-term period immediately after its occurrence result-ing in Facebook users reacting negatively against Volkswagen but also some users defending the company. In the long-term, it seems .
the Volkswagen Emission Scandal. Abstract . The disclosure of the VW emission manipulation scandal caused a quasi-experimental market shock in the observable quality of VW diesel vehicles. We consider a classical model for adverse selection and sorting to derive an empirically testable hypothesis about the impact of
Volkswagen Sustainability Report 2014, page U 3. Volkswagen shocked the world on September 18, 2015 with its response to the U.S. . In 2014, Volkswagen had the strongest market share presence, in terms of vehicles sold, in Europe (see Exhibit 3). The typical Volkswagen end-consumer is between the ages of 19 and 32, is
diesel scandal. The case study uses the Volkswagen case to highlight the possible ethical dilemma between the need for greater public and researcher access to vehicle software code versus the automobile manufacturers’ desire to keep the code proprietary. The paper applies the
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