Fraud Scandal of

Volkswagen

Beetle. and the VW models Jetta. However. VW has had a major push to sell diesel cars in the US. The German car giant has since admitted cheating emissions tests in the US. Golf and Passat. But VW has admitted that about 11 million cars worldwide.000 cars in the US only. in December it said that following investigations.000 of the cars it produces each year. In November. are fitted with the so-called "defeat device".including petrol vehicles. backed by a huge marketing campaign trumpeting its cars' low emissions. The company has also been accused by the EPA of modifying software on the 3 litre diesel engines fitted to some Porsche and Audi as well as VW models. including eight million in Europe. changing the performance accordingly to improve results.Fraud scandal : Volkswagen Volkswagen: The scandal explained By Russell HottenBusiness reporter.  the Environmental Protection Agency (EPA) found that many VW cars being sold in America had a "defeat device" .bbc. including the VW-manufactured Audi A3. VW has denied the claims. In September. which affect at least 10.in diesel engines that could detect when they were being tested.or software .000 cars in Europe . it had established that this only affected about 36. BBC News 10 December 2015  What is Volkswagen accused of? It's been dubbed the "diesel dupe". VW said it had found "irregularities" in tests to measure  carbon dioxide emissions levels that could affect about 800. http://www. The EPA's findings cover 482.000 vehicles.com/news/business-34324772 .

Pure Risk  Definition : Pure risk involves no possibility of gain either a loss ocurrs or no loss occurs   Ex : A)Personal Risks : Ceo of VW group Winterkorn with allegations that he ignored warning signs about the emissions in 2014 and had accepted the "responsibility for the irregularities that have been found in diesel engines and have therefore requested the Supervisory Board to agree on terminating my function as CEO of the Volkswagen Group  B)Risks arising out of failure of others :    Drop profit Loss customer trusts Have to account the fines. and attorneys’ fees the company will eventually have to fork over. restitution. compensation. .

(possibility of gain / loss such as gambling) This case have an element of speculative risk that actual results were worse (‘downside risk’) than forecast. gain or no change. .  Ex:  The fraud about the designing software that provided false emissions data in order to appear compliant with emissions standards  This may lead to improve the performance in the eyes of customers(to gain the customer trust and confident how good Volkswagen car by making untruthful or inflated claims over their products)   It also may gain more profit if the scandal had not been spread out.Speculative Risks  Definition : Speculative Risk involves three possible outcomes: loss.

2. VW had been exposed for the penalties for compliance violations include payments for damages and fines which can lead to the organization's loss of reputation and business opportunities. The ceo of Volkswagen group had been exposed to risks of legal action for negligence that he ignored warning signs about the emissions in 2014.  Compliance risk : 1.Categories of Risks  Legal/Litigation Risk : 1. 2. Volkswagen company have been exposed to legal action for compensation for the cars that had been affected for the cheated test. the Consumer Sales and Guarantees Directive which this lead to result from non-compliance with laws . VW Group has been investigated if they had broken two sets of EU consumer laws. .

Corporate Reputation Risk : Volkswagen group reputation had been affected as before the scandal had been exposed it had became the brand with quality cars. Volkswagen had been exposed to the possibilities customers will not buy the cars such as Jetta or that sales demand for current products and services will decline unexpectedly. .Categories of Risks  Product Risk : 1.  1.

The Volkswagen Group has set aside $10 billion (£7. 2. Volkswagen reached a $15 billion (£11. US owners of affected VW Group cars have already received gift cards worth $1.3 billion) settlement with US car owners over the dieselgate emissions scandal. .000 as an apology from VW.Corporate Reputation Risk Financial Risk : 1.000 vehicles with the 2-litre diesel engines found to have 'defeat device' software installed to cheat emissions tests.51 billion) to repair or buy back around 475.514). Under the deal VW is offering to buy back or repair vehicles affected by the dieselgate scandal as well as paying out compensation. The Group initially struggled to find a fix for the 2.0-litre TDI engines after the California Air Resources Board rejected VW's initial proposals. It has also agreed to compensate owners with payments up to $10.000 (£7.

Strategies for hedging financial risks  Liquidity risks : 1. both Standard & Poor’s and Moody’s Investor Service affirmed the Group’s existing ratings.It also cover the capital requirements of the growing financial services business mainly by raising funds at matching maturities in the national and international financial markets as well as through customer deposits from the direct banking business. 3. in each case assigning a positive outlook. hybrid notes were issued in the amount of €2. However. in light of Volkswagen’s overall financial stability and flexibility.0 billion in order to further strengthen our liquidity and capital base with a view toward future global growth and the systematic implementation of our Strategy 2018 . Volkswagen Financial Services AG and Volkswagen Bank GmbH can be found in chapter Ratings of this report. underpinned by the strong performance by its operating business. 4. through confirmed credit lines and through the tried-and-tested money market and capital market programs. The Company remains solvent at all times by holding sufficient liquidity reserves. In the reporting period. Information on the ratings of Volkswagen AG. A downgrade of the Company’s rating could adversely affect the terms attached to the Volkswagen Group’s borrowings. 2.

VW use residual value forecasts to regularly assess the appropriateness of the provisions for risks and the potential for residual value risk. As part of VW risk management. 3. . VW compare the contractually agreed residual values with the fair values obtainable. These are determined utilizing data from external service providers and the own marketing data. In the process. 2. This process design ensures not only professional management of residual risks but also that VW systematically improve and enhance on handling of residual value risks. In the financial services business. VW evaluate the underlying lease contracts at regular intervals and recognize any necessary provisions if we identify any potential risks. monitoring. Residual values are set realistically so that VW are able to leverage market opportunities. management and communication of risks. Management of the residual value risk is based on a defined feedback loop ensuring the full assessment.Strategies for hedging financial risks  Residual value risk in the financial services business : 1. VW agree to buy back selected vehicles at a residual value that is fixed at inception of the contract.