Leadership Workshop

Crisis Management Situation

Volkswagen Emissions Scandal

DEEPAYAN KUNAL MEHTA

HIROSH NINA GOUTHAM PARAMJOT SINGH
Volkswagen Scandal
Events leading up to the scandal

Martin Winterkorn,Volkswagens chief executive, outlined

companys bold strategy, By 2018, we want to take our
group to the very top of the global car industry
One way Volkswagen aimed to achieve its lofty goal was by
betting on diesel-powered cars instead of hybrid-electric
vehicleslike theToyota Prius promising high mileage and
low emissions without sacrificing performance.
To surpass Toyota and capture market share, Volkswagen,
needed to build the larger cars favoured by Americans.
It also needed to comply with the Obama administrations
toughening standards on mileage.
All automakers developed strategies to meet the new
mileage rules, and diesel was a big part of Volkswagens
plan.
Volkswagen Scandal
Events leading up to the scandal (contd.)
But diesel engines, while offering better mileage, also emit
more smog-forming pollutants, so Volkswagens strategy ran
head-on into American air pollution standards, which are
stricter than those in Europe.
2001-2013:LEU-based clean air group ICCT monitors carbon
dioxide (CO2) emission levels of 540,000 diesel cars. Gap
between actual CO2 levels and manufacturers claims rises to
38 %.
2013-2014:Joint ICCT and West Virginia University project in
U.S. compares real-world tests on VW cars with lab tests.
Results show nitrogen oxides emissions and exceed lab tests by
Volkswagen Scandal
The Scandal

Volkswagen intentionally programmed the cars diesel

enginesto activate certainemissionscontrols only during
laboratoryemissions testing.
The programming caused the vehicles'nitrogen oxideoutput
to meet US standards during regulatory testing
The engines emitted up to 40 times more nitrogen oxide
pollutants in real world driving
The car maker put this programming in about 11 million cars
worldwide, including 500,000 in the United States, almost 1.2
million VW diesel vehiclesin the UK duringmodel years2009
Volkswagen Scandal
Stock Markets response

Volkswagen booked a $7.5 billion charge in

itsOctober half-year results to account for car
recalls and servicing and asset impairments.
Volkswagens market value dropped by about 26
billion since the scandal erupted, or about a third
Volkswagen Scandal
Societys response
A suit lodged by the U.S. Department of Justice in
January indicatedmaximum damages of roughly
$45 billion
Regulators across the globeare conducting
investigations.
The former UK science minister, Lord Drayson, admited
that the governments support for diesel cars was a
mistake, saying they areliterally killing people.
The Justice Department on Jan. 4 fileda civil
lawsuitagainst the company over the deception.
Response to Crisis
VWs Initial Response
Volkswagen Group CEO Martin Winterkorn resigned
Volkswagen's CEO Martin Winterkorn said: "I personally am
deeply sorry that we have broken the trust of our customers
and the public."
Suspension of
- Head of Audi research and development Ulrich
Hackenberg,
- Head of brand development Heinz-Jakob Neusser,
- Porsche research and development head Wolfgang Hatz.
Announced plans to spend 7.3 Billion USD on rectifying
emission issue
Response to Crisis
Communication (Advertisement Campaign)

- Volkswagen launched a advertisement campaign

in Newspaper in Germany that it would do all it
takes to regain the customer confidence
apologizes.
- Volkswagen of America on Sunday began running
advertisements in major US newspapers
declaring that "we're working to make things
right, and apologizing to its customers
Response to Crisis
Response to fresh orders
- Volkswagen announced that it would offer free engine
upgrades to 800 customers who had ordered a vehicle that
was likely to have been fitted with illegal software

- Sales of vehicles fitted with flawed engines were halted in

many of European countries such as UK, Italy, Spain,
Belgium, Switzerland, the Netherlands.

- In the US, Volkswagen has withdrawn its application for

emissions certification for its 2016 diesel models, which
has left many of the VW vehicles stranded at ports.
Response to Crisis
Compensation offerings

- Volkswagen announced that 482,000 diesel Audi and VW

owners in the United States would be eligible to receive
US$1,000 in vouchers, in addition to the US$2,000 it is
offering current VW owners for trade-ins.
- Volkswagen also created a claims fund, managed by the well-
known mediation attorney Kenneth Feinberg, which will offer
full compensation packages to the approximately 600,000
U.S. owners affected by the scandal.
- No compensation offered for European customers
Evaluation of leadership

Martin Winterkorn had an authoritarian style of leadership

and employees of VW claim that there was special
pressure and distance, fear and respect with the CEO.
He was known to sometimes treat CEOs of other brands
quite disrespectfully.
The chief of the VW works council said "We need in future a
climate in which problems aren't hidden but can be openly
communicated to superiors. We need a culture in which it's
possible and permissible to argue with your superior about
the best way to go."
Evaluation of leadership
There was no supervisory board controlling the CEO as is the

case in Daimler and BMW.

He initially apologized and promised that the manipulation

would never happen again but did not mention a resignation.

He later took full responsibility for the scandal but denied

any personal wrongdoing.

Martin resigned as CEO after a meeting with VWs executive

committee.

Well-respected VW veteran, Matthias Mller, who has headed

Evaluation of leadership
(Rights)
The U.S. Environmental Protection Agency accused the
company of falsifying emissions from 500,000 cars, and the
company itself reported just two days later that, in fact, it
had done the same thing with as many as 11 million
vehicles worldwide.
Leaders have repeatedly promised full cooperation with law
enforcement and regulators, and they seem to be making
good on their pledge.
Matthias Mueller, the new CEO, has undertaken sweeping
structural and management reform, empowering its brands
and regional organizations to become more autonomous in
Evaluation of leadership
(Wrongs)

Neglect of its 600,000 employees and many more who work for
suppliers.
Winterkorn appeared to deflect blame and distanced himself
from the crisis, not something that effective leaders do.
The crisis was instead blamed on the misconduct and
shortcomings of individual employees and nine managers were
suspended.
Winterkorn remained CEO of Porsche, the holding company that
owns 50.7 per cent of VW voting shares.
Other Options Available
Strategic

Accountability
- CEOs departure is a good first step, but its not enough
- Dont challenge any fines coming there way, whatever
amount of pain they provide
Sincerity
- Every business depends on trust of its customers
- Do donate significant amount of money to fund projects like
asthma research, environment welfare
Reflection And Learning
- Have to have concrete and actionable lessons
- External analysis using a top business consulting firm
Other Options Available
Tactical

Switch to local spokesperson to talk with media

Go big with an apology ad.

Some sort of very expensive customer program

Dealer relations program

Listening tour by higher management at auto shows

It is important that internal communications are well-

oiled
Until you are broken, you dont know
what youre made of. It gives you the
ability to build yourself all over again,
but Stronger than ever.

THANK YOU!!