Case Study

Background
Founded in 1937, Volkswagen is the world's second largest car manufacturer. In the early 1930s,
the German automotive market comprised of luxury cars, but less than 0.02% of the population
owned cars during that time. Then, the concept of "people's car" emerged and thus, Volkswagen
cars came into existence. The Golf, Polo, and Passat models fared exceptionally well in the
European and American market in the late 70s which helped Volkswagen to get a foothold in the
automotive industry. Currently, it is a part of the Volkswagen group - a conglomerate of mega
car and truck brands like Bentley, SEAT, Audi to name a few, and has a market share of 20%.
Situation
In September 2015, Volkswagen Group was charged by U.S. Environmental Protection Agency
(EPA) for violating the emission standards. A series of tests were carried out on VW Jetta, VW
Passat and BMW X5 by the International Council on Clean Transportation (ICCT). It revealed
that the real-world Nitrogen Oxide emissions were 15 to 35 times higher than the predefined
standards in the Jetta, while it was 5 to 20 times higher in the Passat. On the other hand, the
BMW had issues only while traveling in rural uphill conditions.
Volkswagen introduced a 2-litre TDI engine to achieve a better fuel economy. Despite several
warnings from Bosch, a so-called "defeat device" was installed in the diesel-powered cars
manufactured between 2009 to 2015. This software activates the NOx trap in the engines,
consuming more fuel during a standard lab test complying the emission standards. While
operating on-road, the device turns off (leading to a better mileage) but NOx emissions increase
by 40 folds.
Though the chief engineers have been held responsible for this cheap act of falsification, the
involvement of top-level officials cannot be ruled out. In a company like Volkswagen, the higher
management officials are the key stakeholders. It is quite impossible to think that such a huge
change will go unnoticed by them. Martin Winterkorn has been the CEO since 2008, and his
resignation speaks a lot about the people responsible for this fiasco.
Key Issues and Questions:
-The air pollution caused due to these emissions is tremendous.
-Diesel-powered cars all over the world are under scrutiny.
-Many top officials did not report the crisis in spite of knowing what was going on, why?
-Why did the leaders of automotive industry have to resort to an immoral practice?
-Does environmental sustainability come under the policies stated by Volkswagen Group?
-If it's possible for a company (which has implemented a CSR model) to infringe the rules, then
isn't it high time to make the laws more stringent?
A survey showed that many customers still have faith in the company, but such a narrow and
profit-oriented act is least expected from a company like Volkswagen. Still, Volkswagen Group
has acknowledged the mistake and is ready to make amends. It has started providing information
to the customers via a website to find out if their vehicles are faulty or not.
It will be quite a challenging task for Volkswagen to refit all the affected vehicles and at the
same time, incur a loss for breaching the laws. The situation is not going to change for
Volkswagen anytime soon, but it will be a great comeback if they get back on track in the
upcoming months.

Works Cited

EPA's notice of violation of the Clean Air Act to Volkswagen [press statement]. Retrieved
from http://www.theicct.org/news/epas-notice-violation-clean-air-act-volkswagen-press-
statement.

Stern Stephan (2015, October 1). VW has myopic view of stakeholders. Retrieved from
http://www.ft.com/cms/s/0/54eb7548-636c-11e5-9846-de406ccb37f2.html#axzz3o6rZNynZ
Cremer Andreas & Lewis Barbara (2015, October 2). Volkswagen starts telling customers if
affected by emissions scandal. Retrieved from http://www.reuters.com/article/2015/10/03/us-
volkswagen-emissions-idUSKCN0RU15H20151003
Eisenstein, A. (2015, October 9). Could Rogue Software Engineers Be Behind VW Emissions
Cheating?. Retrieved from http://www.nbcnews.com/business/autos/could-rogue-software-
engineers-be-behind-vw-emissions-cheating-n441451