A Foreign Scandal in America: Volkswagen Emission Scandal

Introduction

Founded in 1932, Volkswagen (VW) has prided themselves on delivering exceptional turbocharged vehicles to the world market. On May 28, 1938, VW was founded under the German Labor Front, a Nazi organization during Adolph Hitler’s rise to power. Adolph Hitler’s main project was to build an affordable vehicle that would sell for less than one hundred and forty dollars at the time. Hitler was instrumental in the development and launching of the VW brand. In 1939 World War II began, and the production of VW vehicles stopped completely.

Once the war was over, the VW factory was in ruins, and the Allies turned their focus on resurrecting the brand and continuing the vision of an affordable vehicle for German needs.

The first task was to brand the vehicle for global sales, and the USA was the first country on the list. After the war, VW had a tough time trying to introduce their vehicles to the American market because of its Nazi history. In 1959, to get the German brand vehicle to be accepted in the US, the cars were introduced as the “beetle” and Americans were told the vehicle’s small size would be an advantage and gas saver. Over the next several years, VW went on to become the largest selling imported vehicle in the United States.  In 1960, VW sold more than 6o percent of its stock to the public officially denationalizing the brand.

Industry Change to Low-Emission Vehicles

Moving into the new age, in 1990 an amendment to the Clean Air Act forced many car companies to tighten up on the vehicle emissions of hydrocarbon, carbon monoxide, and nitrogen oxide. This new law would prove to be a problem for many automakers as they began to make changes to meet the guidelines of the amended Clean Air Act. Contrary to popular belief, Volkswagen was not the first automaker to violate the newly amended clean air act. General Motors (GM), between 1991 and 1995 sold more than four hundred thousand vehicles with an emissions defeat device (Davenport and Ewing, 2015). The emission defeat device is a device that is placed on a vehicle to control the emissions. In GM’s case, the defeat device would activate when the air conditioner was turned on, allowing the vehicle to put off more emissions during this time. According to the EPA, emissions test were to be performed with the vehicles air condition and heaters off, but during a routine check, the EPA found the defeat device and GM was fined and was forced to recall thousands of vehicles. Since GM had made such a colossal mistake and suffered a fit fine, one would think that all the automotive companies learned from GMs mistake, but this was not the case for Volkswagen. In 2008, Volkswagen started to install emission defeat devices on their vehicles once they determined their newly designed diesel engine, the EA 189 would not pass the emissions test (Hotten, 2015). The EA 189 was supposed to be the most critical engine in VW history. The EA 189 was built to go into most of the vehicles under the VW umbrella including Audi, and Seat.

The Scandal

The Environmental Protection Agency found that the Volkswagen cars that were being sold in the United States all had a “defeat device” in them. This software was placed in diesel engines and allowed the car to detect when it was being tested. These devices would cause the vehicles to switch to a safety mode which resulted in the engine running differently from how it would while on the road. Consequently, this device caused the vehicle’s engine to emit nitrogen oxide pollutants that were more than forty times above the rate that was allowed in the United States. The Environmental Protection Agency(EPA) found over 482,000 cars sold in the United States that had the “defeat device” software in them (Davenport and Ewing, 2015).

The public was outraged by the Volkswagen scandal. Even though some individuals felt that the EPA treats automobile companies harder than other sources of pollution, Environmentalists and supporters of the EPA felt as though the company should be punished for the deceit of its customers and their lack of concern for the environment. Along with environmentalists, the customers of Volkswagen felt enormously betrayed. The company failed to establish transparency between the public and their customers, ultimately resulting in a loss of trust. Everyone affected by the Volkswagen scandal wanted the problem to be fixed quickly; however, the public failed to realize that this scandal had affected millions of people.

Volkswagen’s Reaction to the Scandal

Volkswagen company recognized that they had lost the trust of their customers because of their actions and their failure to be transparent with them. After the company’s executives were notified about the scandal, there were significant changes in the company’s leadership (Lynch, 2016). The executives at Volkswagen made it their mission to investigate all areas of the company to ensure that the employees were following protocol. The company’s former chief executive, Martin Winterkorn, resigned soon after the scandal occurred. After Mr. Winterkorn’s resignation, Matthias Mueller replaced him. Not only did the scandal cause changes in the company’s executive leadership, but it also resulted in financial hardships for the company (Lynch, 2016).  Volkswagen was forced to recall millions of cars. The company not only had to recall vehicles in the United States, but also millions of cars in Europe, Germany, and the United Kingdom. Volkswagen suffered from its first quarterly loss in fifteen years after the recall occurred. The EPA also had the power to fine the company up to $37,500 for each vehicle that did not meet the organization’s standards. The defeat device caused the Volkswagen company to suffer tremendously in their global market.

How Volkswagen’s Company Culture Propelled Their Ethical Failure

As much as Volkswagen and its trusted customers would love for there to have been a rational explanation for their actions the truth is Volkswagen’s ethical issues began well before their 2015 emission scandal.  Most people believe that ethics are based on individual behavior and beliefs. While that is true, ethics within an organization starts at the top which is known as organizational ethics. “Organizational ethics are primarily driven not by policies and procedures but by the actions of its leaders. Good leaders model the ethics they would like to see reflected throughout the organization” (Porter, 2014). When Martin Winterkorn took over as Volkswagen’s chief executive in 2007, he immediately set out to dethrone Toyota from its leadership position and become the largest automaker in the world. This desire created a by-any-means-necessary attitude within the organization. Winterkorn was mentored by Ferdinand Piech a stern and centralized leader (Davenport and Ewing, 2015). Former executives described the company as very controlled and rigid. Employees found themselves being afraid to provide unfavorable news. Volkswagen’s leader Martin Winterkorn aided in fostering a dishonorable and deceitful culture that allowed for a scandal like this to happen so quickly.

Conclusion

Volkswagen should have provided open access to information about their strategies and performance, kept their promises and commitments. In this paper, A provided a brief history on VW and discussed how its company’s culture bred an environment for an ethical scandal to thrive.  Details of the 2015 emission scandal along with Volkswagen’s response to the scandal were provided. To conclude, as mentioned in the paper VW is not the first automotive company to exhibit unethical behaviors or be a part of a major scandal. Regulators in the automotive domain will consistently be faced with an immense financial incentive to cheat. It is vital in moving forward that Volkswagen takes active strides to learns from its ethical failures. While Volkswagen’s reputation is bee tarnished and it will be a long process to gain back the trust of its customers, this is not the end of VW.

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