Volkswagen Emission Cheating Scandal: Matthias Müller’s

Big Challenge

ABSTRACT
 
The case is about the worst scandal to affect
Volkswagen in its 78-year history and how the newly-
appointed CEO of the company, Matthias Müller,
faced one of the biggest leadership challenges in
business history. On January 5, 2016, The US
Department of Justice sued Volkswagen AG
(Volkswagen), Europe’s leading automobile
manufacturer, on behalf of the United States
Environmental Protection Agency (US EPA), for
installing ‘defeat devices’ on thousands of its diesel
vehicles including around 499,000 diesel cars with
2.0 liter engines and some 85,000 cars with 3.0 liter
engines. The automaker was also accused of
misleading federal regulators. Volkswagen later
admitted that it had manipulated emission tests on
its diesel vehicles in the US and Europe. The crisis
wiped billions of euros off the company’s shares and
affected its credentials as well as brand image. The
case describes in detail the emission cheating scandal
and its different aspects. Müller faced a particularly
tough challenge as he strove to bring Volkswagen out
of this crisis. At stake was not just the survival of the
company but something bigger – Germany’s pride, its
global economic brand, its engineering. With the
regulators in different countries relentlessly and
vigorously pursuing the company, Müller had his
work cut out for him. What could he do to win back
the confidence of the shareholders and millions of
customers in different countries? What could he do to
boost the morale of the 600,000 employees he was
leading who were feeling personally disgraced by this
scandal? How was Volkswagen to be restored to its
former glory? .
 
Issues
The case is structured to achieve the following teaching objectives:
Study the factors that led to the emission cheating scandal.

Analyze the responsibilities of Volkswagen in the event of the

emission scandal.

Discuss the factors that led to the ethical breaches and how this
could have been averted.

Nicah Louren A. Maestrado MAED Engl - II

MM 112

ISSUES:

The unprecedented tightening of emissions standards by the United

States Environmental Protection Agency (EPA) for model year 2004, when
the agency dramatically raised the bar on how much pollution new cars in the
U.S. would be permitted to discharge into the atmosphere—presenting a
virtually impossible engineering challenge to the world's automakers.

Since the mid-1970s, the EPA has introduced progressively more

stringent emissions standards for light-duty vehicles, including cars, sport-
utility vehicles and small pickup trucks. But the requirements for model year
2004 were among the toughest ever. Pollutants from tailpipe emissions can
cause premature death, bronchitis, asthma and respiratory and cardiovascular
illness.The new standards posed an enormous challenge to automakers
looking to offer fuel-efficient diesel vehicles to the U.S. market. Diesel cars get
more torque, achieve better mileage and hold their long-term value better than
most gasoline-burning vehicles, but the exhaust contains more nitrogen
dioxide than most gasoline-powered engines. With so much room to grow,
Volkswagen sought to crack the U.S. diesel market—and, in the process,
become the world's top-selling automaker.

Volkswagen saw the 2004 EPA decision as an irresistible challenge—and

an opportunity. The automaker rolled out its new-model diesels in the U.S. in
2008 and won the first Green Car of the Year award ever granted to a diesel
at the Los Angeles Auto Show. Volkswagen's remarkable feat of engineering
was a sham. The cheat software, it turns out, was the primary reason for the
car's apparently low emissions and excellent fuel economy. In September
2015, the company acknowledged to the EPA that it cheated. Engineers had
inserted what the EPA calls a "defeat device" in the engine—in this case,
software that concealed the true amount of nitrogen oxide Volkswagen's
diesel engines were producing. 
 On December 10, Volkswagen Chairman Hans-Dieter Pötsch made a
public admission: A group of the company's engineers decided to cheat on
emissions tests in 2005 because they couldn't find a technical solution within
the company's "time frame and budget" to build diesel engines that would
meet U.S. emissions standards. When the engineers did find a solution, he
said, they chose to keep on cheating, rather than employ it. "We are not
talking about a one-off mistake, but a whole chain of mistakes that was not
interrupted at any point along the timeline," he said, announcing the
preliminary results of an internal investigation at Volkswagen into the crisis at
a press conference at the company's headquarters in Wolfsburg, Germany.
Volkswagen admitted this past autumn to installing illegal cheat software into
the engines of 500,000 U.S. vehicles and 11 million vehicles worldwide.

After Volkswagen confesses to the Environmental Protection Agency and

C.A.R.B. that its diesel cars are equipped with def eat-device software that
detects when emissions tests are taking place and cranks up pollution
controls so that the cars will pass. The public learns of the fraud after the
E.P.A. gives Volkswagen a formal notice of violation. Mr. Winterkorn resigns,
but says he is not aware of any wrongdoing on his part. Volkswagen insists
that the illegal software was the work of a small group of rogue engineers.
Volkswagen agrees to a $14.7 billion settlement in the United States to deal
with civil complaints and consumer lawsuits. The settlement includes
compensation to owners and measures to atone for the cheating, such as
installing networks of electric car charging stations. A
longtime Volkswagen engineer pleads guilty in the United States to conspiring
to defraud regulators and car owners, the first criminal charges stemming
from the American investigation into the automaker’s emissions deception.

In January 2017, In a separate settlement with the United States Justice

Department, Volkswagen agrees to plead guilty to conspiring to defraud the
United States government and violate the Clean Air Act. The company will
pay a $4.3 billion fine. The formal plea is submitted in March.United States
prosecutors separately indict six former Volkswagen executives, including an
engineer arrested at Miami International Airport.Volkswagen agrees to pay a
further $1.3 billion to owners of Audi, Porsche and Volkswagen vehicles with
three-liter motors not covered by the earlier settlement. The settlement brings
the total cost to Volkswagen of the scandal in the United States to more than
$21 billion.