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Cue Diesel Gate
Cue Diesel Gate
Table of Contents:
Overview.. 4
Background. 5
Company Background... 5
Corporate Culture.. 6
Corporate Social Responsibility 7
The Emission Problem 8
Impact of Emissions and the Clean Air Act. 8
International Council on Clean Transportation ..9
Inquiry to Volkswagens Emissions.. 9
Volkswagens Response 10
Performance Over Sustainability 11
Timeline. 12
Public Response 13
News/Auto Industry Response. 13
Public Relations Response.. 13
General Publics Response... 14
Impact of Volkswagens Lie 15
Public Impact 15
Financial Impact... 15
Works Cited/References. 17
Abstract
Volkswagen, a German car company who prides itself on its sustainable cars, admitted to
using a defeat device in its diesel passenger cars that would allow its cars to pass emission tests.
Research on diesel cars discovered that Volkswagens cars were emitting 15 to 35 times the legal
NOx emissions.
Key Words:
Corporate Culture; Corporate Social Responsibility; Volkswagen Scandal; Dieselgate; Public
Relations; NOx Emissions
Overview
On September 18, 2015 the United States Environmental Protection Agency (EPA)
announced that Volkswagen had violated the Clean Air Act. The EPAs investigation into
Volkswagen revealed that the car company had been using a software algorithm, a defeat device,
to pass emissions test on their diesel cars (EPA, California Notify Volkswagen of Clean Air Act
Violations). It was a discrepancy between the laboratory emission tests and road tests. The road
test results showed NOx emissions to be 15 to 30 times the US legal limit (Jaynes, 2015).
Back in May 2014, the California Air Resources Board (CARB) and the EPA ordered
Volkswagen to look into the testing discrepancies. December of the same year, Volkswagen
claimed that it did look into the problem and found a software issue in some of their vehicles.
The auto company then recalled 500,000 cars. However, the CARB did not stop testing the
vehicles and once again brought up the emission discrepancies to the EPA on June 8, 2015
(Jaynes, 2015).
In the wake of the EPA announcement, Volkswagen decided to come clean about the
cheating and launched their own internal investigation. The internal investigation revealed more
than 11 million cars were affected by this software algorithm (Volkswagen says 11 million of
its cars have emissions test-beating software, 2015).
Volkswagens scandal, which some had nicknamed Dieselgate, is the biggest scandal
in the auto companys 78 years in business (Cremer, 2015b). Since the announcement, the
companys stocks took a hit and it may be facing criminal charges (Plumer, 2015). The company
has admitted to needing to change the way they manage their employees and build a corporate
culture that encourages open conversations with superiors (Cremer & Bergin, 2015).
Background
Company Background
Volkswagen Aktiengesellschaft was founded on May 28, 1937 in Berlin, Germany, under
the control of the Nazi party. At the time, the company was named Gesellschaft zur Vorbereitung
des Deut-schen Volkswagens mbH (Volkswagen Chronicle; Volkswagen is Founded). Later
that year, the company change its name to Volkswagenwerk. Volkswagenwerk translates as
People Car Plant, or The Peoples Car Company. (Volkswagen is Founded). The company
started building two manufacturing plants in 1938, one in Fallersleben, Germany and another in
Brunswick, Germany. In 1948 the company moved its headquarters from Berlin to Wolfsburg,
Germany (Volkswagen Chronicle).
During World War II, the company was reorganized to manufacture military vehicles,
instead of passenger cars. During this time, the company force more than 15,000 individuals
from concentration camps to work in the factories. After the war the company returned to
automotive manufacturing and started producing sedans under British administration (Bowler,
2015).
Over the next few decades, the British Military Government would appoint the
companys General Directors. In 1949, the British hand the Volkswagen works over to the State
of Lower Saxony with the understanding that they have control of and are under the supervision
of the federal German government (Volkswagen Chronicle).
In the mid-1950s Volkswagen broke into the European, American and African auto
markets. The Volkswagen Beetle was the bestselling automobile in that decade and the company
was considered Germanys most important automotive maker (Volkswagen Chronicle).
Corporate Culture
Volkswagens core business values are: customer focus; top performance; creating value;
the ability to renew; respect; responsibility; and sustainability (Group Guiding Principles).
Their corporate culture focuses on four main areas: performance, leading by example, active
involvement, and social responsibility (Basic Principles). The company strives for long-term
growth, not short term success, believing everyone should profit from their success, including
society (Forging ahead with sustainability).
Corporate Social Responsibility (CSR) is a large part of the company. Volkswagen has
more than 200 projects that enhance economic and social structures, with emphasis on
sustainability and continuity. Volkswagen has been a part of the largest and most important CSR
initiatives in the world, Global Compact, since 2002 (Forging ahead with sustainability). The
Global Compact is the United Nations call to corporations to promote sustainability (What is
the UN Global Compact). It has 10 principles, but Volkswagen list four as a part of their CSR:
human rights, working standards environmental protection and combating corruption (Forging
ahead with sustainability).
In 2008, Volkswagen produced a mission statement on biological diversity. This
statement shows the companys support for biological diversity and environmental protection,
stating that it is a long established part of the business (Volkswagen publishes mission
statement on biodiversity).
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that comply with the emission standards of the Clean Air Act (Clean Air Act Prohibits Defeat
Devices in Vehicles, Engines).
Volkswagens Response
Volkswagen decided to tell the truth to the EPA after the companys initial excuse failed
to appease the EPAs inquiry on the discrepancy of the emission tests. Following the
announcement, the companys CEO, Martin Winterkorn, took responsibility for the emission
cheating (Cremer, 2015b). However, states that he was not aware of any wrong doing on his part
(Kim, 2015). Later Volkswagen blamed engineers for the defeat device, stating that the corporate
heads had no knowledge (Puzzanghera & Hirsch, 2015).
Winterkorn apologized for breaking their customers and publics trust. In his statement
he told the public that Volkswagen will be cooperating with transparency and urgency in order to
be clear and open so the facts of the issue can be established (Bomey, 2015). Winterkorn also
resigned from his position as CEO of Volkswagen (Cremer, 2015b). Volkswagen also fired two
chiefs of research and development for Audi and Porsche, Ulrich Hackenberg and Wolfgang
Hatz (Cremer, 2015a). The company was going to fire Michael Horn, the CEO of Volkswagens
American branch, but after dealers rallied behind Horn, the company decided not to remove
Horn (Ramey, 2015). After Winterkorn resigned, the position of CEO of Volkswagen went to
Matthias Mueller. Matthias Mueller, 62, was the CEO of Porsche before being offered the
position (Makortoff & Pramuk, 2015). Mueller stated that his focus was first to restore customer
trust. He also state that Volkswagen will be developing and implementing the strictest
compliance and governance standards in the auto industry (Risen, 2015). The company has
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vowed and is trying to regain the trust of its publics through open communication and
truthfulness (Bomey, 2015).
Mueller has developed a 5-point plan to deal with the crisis. The first point is to support
the customers affected by the scandal. Investigating and identifying the people responsible for
the defeat device is the second point. The third point is to give each region and brand more
autonomy. Point four may be one of the hardest, to change Volkswagens corporate culture, one
of openness and cooperation, while still maintaining their pursuit of perfection and social
responsibility. The last point is to push their 2018 strategy back to 2025 (Krok, 2015).
Now that Winterkorn is no longer the CEO of Volkswagen, many wonder if this scandal
is the result of his effect on the corporations culture. Winterkorn was a boss that did not accept
failure. A professor at the University of Duisburg-Essen stated people working at Volkswagen
talk about a special pressure there. However, Volkswagen has not admitted that this scandal was
a result of the companys corporate culture (Cremer & Bergin, 2015). Peter Henning, an expert
in the auto industry and white collar crime at Wayne State University, also stated that the need to
cheat probably came from a culture set at the higher levels. According to him, when mid-level
managers need to meet a sales target or a certain profitability that is when people start cutting
corners (Kimball, 2015).
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sustainability and the companys social responsibility. Recently, Volkswagen received the title
world's most sustainable automotive group by RobecoSAM for the second year in a row (Kim,
2015). In this case, however, it seems like Volkswagen chose to pursue performance over
sustainability.
Timeline of Events
2002 - Volkswagen stated the largest corporate social responsibility initiatives to promote
sustainability (Forging ahead with sustainability).
2013-2014 - A research project by the International Council on Clean Transportation
(ICCT), in collaboration with West Virginia University, found that Volkswagens diesel
Jetta was producing 15 to 35 times the US legal amount of NOx emissions (Jaynes,
2015).
May 2014 - The California Board of Air Resources Board (CARB) and the
Environmental Protection Agency put in an inquiry to the Volkswagen Group about the
discrepancy in emissions. CARB continued to investigate the issue (Jaynes, 2015).
June 2015 - CARB went to the EPA and Volkswagen about the emission problem again.
This time the EPA wanted proof that Volkswagen had identified and fixed the problem.
After inquiring about the issue, Volkswagen admitted to using a defeat device (Jaynes,
2015).
September 2015 - The US government launches a criminal probe into Volkswagen
(Bomey, 2015). Volkswagens CEO, Martin Winterkorn, resigns from his position after
apologizing for the scandal. Matthias Mueller takes his place as CEO of Volkswagen
(Cremer, 2015b).
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October 2015 - Matthias develops a 5-point program to deal with the emission scandal
(Krok, 2015).
Public Response
News/Auto Industry Response
Several news sources and magazines have issues stories about the scandal, some even
calling it Dieselgate. (Collins, 2015). In addition to all the media coverage, Volkswagen stocks
dropped 18.6%. The company could also be facing criminal charges from the US government
(Bomey, 2015). In addition, emission test have been conducted on several diesel cars made by
other car manufacturers. Shockingly many of these vehicles showed better emissions during lab
testing than on road emission and many produce more than the legal limit. Mercedes-Benz,
Honda, Mazda and Mitsubishi are a few of the different manufacturers that have diesel cars that
produce more emissions than is legal. For instance, some of Hondas 4x4 models produce 20x
the NOx limit. Unlike Volkswagen, however, there is no evidence of a defeat device in any of
these vehicles. It is suggested that the cars are being designed to have lower emissions in a lab
setting (Carrington, 2015). The EPA has decided to audit every make and model of passenger
diesel cars in response to this scandal (Risen, 2015)
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most recent story for nearly a week after the scandal was their ranking as the worlds most
sustainable carmaker. It took six days later for the news section to be updated with a brief
apology (Colvin, 2015)
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Financial Impact
By September Volkswagens stocks dropped 18.6%. In addition, they were facing fines
and costs of recalling cars (Bomey, 2015). By November, the companys stocks had dropped
25% compared to the previous year (Davies, 2015). Volkswagen has set aside $7.3 billion dollars
to cover the cost of the recalls, which trashes the profit forecast for the year (Thompson &
Kottasova, 2015). They could be facing an EPA fine of up to $37,500 dollars per vehicle, which
would add up to about $18 billion dollars. However, news analysts do not expect the EPA give
Volkswagen a fine of that magnitude (Bomey, 2015). Volkswagen may also be facing fines from
other countries around the world (Pop, 2015). This scandal has cost Volkswagen 40% of its
value in just two days (Colvin, 2015). Volkswagen has also set forth a Goodwill program for
current American car owners affected by the scandal. The car owners will receive $1,000 dollars
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in compensation under this program, which could cost Volkswagen a total of $500 million
dollars (Fisher, 2015).
In addition, the German car company may have to sell off some of their luxury brands in
order to pay the $21 billion dollar credit line that was supplied by banks if it cannot find another
way to pay of the one-year loan (Schuetze, 2015). Volkswagen hopes to overcome this issue by
taking a new approach to sustainability. They plan on shifting their focus away from diesel to
electric and hybrid cars. The company plans to make the Volkswagen Phaeton, a purely electric
vehicle currently still in development, the flagship for the brand (Golson, 2015).
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