Review
Volkswagen Group is a German automaker that has its headquarters in Wolfsburg. Volkswagen is among the largest automakers due to its global sales in 2016 and 2017 and a considerable market share of about 2% in the United States (Barth et al., 2019). In 2015, Volkswagen faced its most significant incident regarding environmental pollution through carbon emission when the United States Environmental Protection Agency (EPA) established that the firm had caused severe environmental damage due to carbon emission into the atmosphere, which is a contributor to global warming and climate change. Volkswagen used an illegal emission software that manipulated the carbon emission figures by showing that Volkswagen cars emitted less carbon while, indeed, they emitted more (Jung et al., 2019). The company had installed a defeat device in its diesel vehicle, which would cheat emission tests. This incident resulted in the company losing up to a third of its market share due to heightened levels of social concern. Following the incident, the company conducted a voluntary recall of its diesel vehicles, and its CEO and other directors resigned.
Fact-Finding
The EPA found out that most Volkswagen vehicles sold in the US had a cheat device in diesel engines, which detected whenever emission tests were being carried out. The 'defeat device' changed the emission figures based on the vehicle performance to improve the test results. VW often sold its diesel vehicles in the US and had a huge marketing campaign, advertising for its low emission vehicles. In contrast, most of the vehicles sold by VW in the US and other parts of the world had a higher emission and were fitted with a cheat device to produce fake results even after an emission test was done.
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The ‘defeat devices’ were uncovered by an investigation that started when some professionals from an American university were conducting tests on diesel vehicles. The International Council on Clean Transportation (ICCT), a non-profit firm, attempted to present independent study to governmental organizations (Barth et al., 2019). The organization hired the university to conduct emission tests within these vehicles. At the time, Volkswagen had conducted promotions of its diesel vehicles as being the most sustainable vehicle models on the market due to their low emission (Bachmann et al., 2019). However, the research from the university indicated dramatically different outcomes from the claims of low emissions that Volkswagen had made. The VW diesel vehicles had a higher carbon emission, which was against the EPA guidelines.
Based on these findings, the EPA declared that Volkswagen operated against the Clean Air regulation through illegal program installation in its diesel cars to cheat emission tests. This software had allowed the firm's diesel vehicle to emit a considerably high level of toxic gases that were beyond existing regulations. Following this announcement, Volkswagen was targeted and investigated by bodies, such as the EPA, for the violation of the Clean Air Act (Barth et al., 2019). These investigations were focused on identifying the organizational employees who were aware of the incident. Once the public was aware of the errors that had been committed by the organization, the stock price of the firm started to fall by a third (Jung et al., 2019). The organization then admitted that about 11 million cars across the world had the device.
Issues
The incident often referred to as the "diesel dupe" by Volkswagen, occurred in the US, although other countries in the world got the alert regarding the issue. VW had sold thousands of vehicles in the US through a huge marketing campaign by convincing people that VW diesel vehicles had a low carbon emission. The ‘low emission’ narrative provided by the company was not true, since VW vehicle models had a higher carbon emission than permitted by the EPA. VW fixed their diesel vehicles with a cheat device that would manipulate the results of an emission test to show low figures than the actual performance of the vehicle. This ‘cheat’ by VW using the “defeat device” was identified after an investigation by EPA in September 2015.
The diesel emission incident was mainly caused by its poor leadership and no-failure culture. The organization’s CEO, Martin Winterkorn, was a demanding boss that did not allow any failures from his employees (Castille et al., 2018). Through his authoritarian management style, employees were forced to meet his goals at all costs. This style resulted in a culture that discouraged open dialogue and limited the existence of standards that could stop cheating and fraud. The Volkswagen diesel engine was developed internally, and its technology team was unable to meet the existing emissions standards. As opposed to fixing the issue, the CEO, along with other Volkswagen executives, covered the problem through the installation of the illegal software in 11 diesel-powered vehicles across the world (Eger et al., 2018).
This software was structured to make the vehicles manufactured appear safer than they were. VW used this cheat device to convince individuals in the US and other countries in the world that their diesel vehicles had low carbon emissions. VW tried to use the ‘low-emission’ narrative as a way of increasing its market share in the US, which would have helped the company make a lot of profit. Additionally, the ‘low emission’ narrative was a way of publicizing the company as ethical in issues regarding environmental protection. Initially, VW's management opposed these claims, which affected tens of thousands of vehicles around the world. Once the incident became publicly known, the company's CEOs and other top executives also stepped down. The head office was also raided during investigations in the firm.
Discussion
Following the incident, Volkswagen’s main challenge was establishing trust with its customers and stakeholders. To solve the problem that it faced, Volkswagen implemented two solutions. The first was to set apart more than 7 billion dollars towards fixing the cars to ensure that there would be compliance with pollution standards (Cavico et al., 2016). The second solution was to present public apologies while announcing a voluntary recall of the vehicles that had the defeat devices. This public apology was aimed at minimizing the effect that the incident had on the reputation of the firm. Despite the apology, the sales level continued to drop.
To establish its credibility, there are several steps that the company can take. One of these solutions includes the re-branding of the firm. Over the last century, Volkswagen has established itself as a global brand and top manufacturer of automobiles (Castille et al., 2018). Establishing a new brand image is critical to enhancing the reputation of the company. The new brand image would provide a different perception of the manufacturer and the values of the services and its products provide.
Another solution would be to operate in collaboration with independent verification agencies. While the organization possesses its employee team that assesses emission by vehicles, the firm must also enter into partnerships with these agencies in order to rebuild its reputation. If the firm makes the decision to partner with these agencies, it will be able to restore its consumer trusts while gaining recognition and rewards from non-governmental organizations that focus on corporate social responsibility activities.
Lastly, the firm may post a bond that assures its consumers that it would no longer violate environmental regulations. Bonds are indicators of credibility, and through posting bonds, the firm can assure its consumers that it is committed to improving its sustainability practices.
Evaluation
The “diesel dupe” by VW resulted from poor management and the inability of the workers in the company to meet the carbon emission standards required by the EPA. The leaders in the company lacked morality and failed to apply ethics when releasing the vehicles knowing that they had a high carbon emission. The leaders went ahead and allowed the application of the “defeat device” that manipulated emission test results. The best solution for the organization is its re-branding alternative. As already identified, the company has developed a strong reputation in the last few decades. While a belief exists that the diesel emission incident will be forgotten, it has had a substantial impact on the reputation and brand perception of the firm. In order to regain consumer trust in its products and services, the organization should consider changing the branding of its firm through a new marketing approach or other steps such as increasing the quality of its products. Re-branding will increase the ability of the firm to elevate its efficiency programs while also saving its financial situations.
However, it essential to ensure that the re-branding process will be costly and highly risky. The process will be costly as it will require considerable investments in areas such as marketing, innovation, and research development. The risk associated with this alternative is that the reputation of the firm may not be elevated after the branding process. It is also essential to understand that the re-branding process not only has its focus on external changes within the firm but also internal changes within the organization. Volkswagen should also consider changing its corporate culture, business strategy, and leadership framework, which will be beneficial to the organization (Cavico et al., 2016). In its re-branding, the firm should be engaged in the development of a firm that has better corporate social responsibility practices.
Conclusion
In 2015, Volkswagen lost its credibility and trust by customers and stakeholders after authorities became aware of its fraudulent activities. The EPA discovered that the firm had installed illegal software and devices into its vehicles with the aim of cheating emission tests. This software had resulted in the manufacture and sale of a large number of vehicles with emission levels that were higher than existing standards. The main cause of this incident was the poor leadership style of the CEO, along with a hostile organizational culture. Due to the effect of the incident on the company's reputation, the recommended solution in re-branding. The re-branding process will include making changes to various aspects of the organization, such as its corporate strategy, leadership framework, and organizational objectives. By re-branding, the firm will be able to restore the consumer trust that was lost when its reputation was affected by the incident.
References
Bachmann, R., Ehrlich, G., Fan, Y., & Ruzic, D. (2019). Firms and collective reputation: a Study of the Volkswagen Emissions Scandal (No. w26117). National Bureau of Economic Research.
Barth, F., Eckert, C., Gatzert, N., & Scholz, H. (2019). Spillover effects from the Volkswagen emissions scandal: An analysis of stock, corporate bond, and credit default swap markets. Corporate Bond and Credit Default Swap Markets (March 17, 2019) .
Castille, C., & Fultz, A. (2018). How does collaborative cheating emerge? A case study of the Volkswagen emissions scandal. In Proceedings of the 51st Hawaii International Conference on System Sciences .
Cavico, F. J., & Mujtaba, B. G. (2016). Volkswagen emissions scandal: a global case study of legal, ethical, and practical consequences and recommendations for sustainable management. Global Journal of Research in Business & Management , 4 (2), 303-311.
Eger, T., & Schäfer, H. B. (2018). Reflections on the Volkswagen emissions scandal. https://www.law.ox.ac.uk/business-law-blog/blog/2018/03/reflections-volkswagen-emissions-scandal
Jung, J. C., & Sharon, E. (2019). The Volkswagen emissions scandal and its aftermath. Global Business and Organizational Excellence , 38 (4), 6-15.
