In 2015, Volkswagen shocked the globe with the "Dieselgate" scandal
In 2015, Volkswagen shocked the globe with its response, admitting to having violated the Clean Air Act concerning "clean diesel". A scandal that the US-based Environmental Protection Agency's (EPA) equate being similar to the Watergate scandal which forced the President of the US, Richard Nixon to resign back in the year 1974; terming it as the "Dieselgate." When the deceit was identified at first, the company's CEO, Martin Winterkorn, tried to cover up the scandal, when it recalled around 600,000 vehicles for readjustments, claiming they had technical problems.
Discovery of Emission Test Manipulation
However, following further investigations, it was established that Volkswagen had indeed fitted devices purposed to by-pass the emission tests. Moreover, through the company's CEO, Volkswagen admitted having sold over 11 million defective vehicles around the globe. The release of news about the scandal inherently tarnished the firm's reputation in the market, with decreased credibility.
Restoring Credibility Through Change in Organizational Culture
With the current situation, the only viable approach of countering the scandal and its effects by changing the organizational culture. Subsequently, the paper suggested three sustainable solutions to resolve the problems caused by the scandal. Rebranding, joining an independent verification agency, and posting a bond were all highlighted to be an effective means of restoring credibility to consumers. However, it was also established that rebranding was less likely to be implemented while posting a brand would be much costlier - it would imply that Volkswagen would have to sell one of its brands to secure a bond. Nonetheless, posting a bond and joining a verification agency was the most course of action recommended by the paper. To summarize, in the current situation, it was asserted that if the company can restore credibility to consumers, then sales would also gradually improve in the future. Otherwise, consumers would boycott Volkswagen's vehicles leading to decreased sales and thus the collapse of the firm.
Table of Contents
Table of Contents
Executive Summary
Executive Summary
Introduction
Introduction
Analysis of the Scandal
Analysis of the Scandal
Reputation of the Company
Reputation of the Company
Possible Solutions
Possible Solutions
Conclusion
Conclusion
Recommendations
Recommendations
References
. 12Introduction
In 2015, Volkswagen shocked the globe with the with its response, admitting to having violated the Clean Air Act concerning "clean diesel". In the response, the German-based international firm admitted having deliberately fitted a defeat device which was specifically designed to circumvent and render inoperative the components of the emission control system through the emission review tests. In the report, it was highlighted that Volkswagen sold around 600,000 diesel automobiles between 2009 to 2011, all of which were fitted with the device (Leggett, 2018). However, in a further investigation, the Environmental Protection Agency’s (EPA) found out that the number of defective vehicles was much higher, totalling to over 11 million cars sold around the world.
In 2014, December, Volkswagen voluntarily recalled back approximately 500,000 cars from the US market, citing a software glitch to be the underlying reason for the emission issues and subsequently applied a software patch. Nonetheless, the California Air Resources Board (CARB), continued to conduct independent tests on the vehicles where they noticed minimal improvements (Leggett 2018). Consequently, in July the following year, both EPA and CARB outcomes indicate that Volkswagen was not to be certified in 2016 unless they complied with the emission standards. Unable to assert the concerns from the tests, the company finally admitted having deliberately designed and fitted a defeat device to influence the emission test outcomes. The declaration further forced the current CEO, Martin Winterkorn, to be accountable for the current scandal and resigned.
These responses by Volkswagen paved the way for other sequential events. For example, the firm's head of operations in the US, Michael Horn, claimed that the scandal was instigated by a group of engineers who struggled to develop and meet the required diesel engine emission standard. Over time, it became clear that the claim was also a cover-up. Consequently, the firm was forced to offer a statement of facts by the US Department of Justice, a response that was publicly published. In the document, it was indicated that after struggling to develop a standardised and desired diesel engine, which would attain high performance with low emissions, according to the environmental regulatory ideals; the software engineers, developed a defeat mechanism which principally decreased the rate of emission through tests (Leggett 2018). However, in reality, the emission rates were far beyond the required legal limit allowed on roads (Siano, Vollero, Conte and Amabile 2017, p.29). The statement also clearly indicated that the company top officials, including the CEO, were perfectly aware of the incorporation of the defeat device on several occasions. They supported the use of the device, irrespective of multiple workers’ protests and the potential risks involved.
Before the scandal, the company appreciated an untarnished brand image and reputation over many years of success. However, the scandal came along with numerous hurdles and consequences which had to be overcome to re-established the previously well-known reputation and restore consumers, government, workers, regulators and the general public's confidence that the firm is indeed an environmentally friendly company. Therefore, this paper seeks to deliberate on the effect of the scandal on the company's reputation, as well as the possible recommendations aimed at restoring the previously celebrated brand image in the international marketplace.
Analysis of the Scandal
Reputation of the Company
Following the scandal, Volkswagen became the most targeted company by many regulatory investigation agencies in multiple countries and their markets; as prosecutors attempted to establish the number of people and how far the deceit news had spread. The scandal was widely debated and investigated leading economies such as Germany, US, UK, Italy, France, South Korea and Canada (Bachmann, Ehrlich and Ruzic 2017). An excellent example is how a newspaper in Germany labelled the scandal, as "the most expensive act of stupidity in the history of car industry" (Jung, Chilton and Valero 2017, p.1121). News of the scandal leaked all over the world, forcing Volkswagens stock prices to drop, particularly after the company admitted that over 11 million vehicles sold around the globe were defective; including other brands like Porsche and Audi models.
With a bid to remedy the prevailing situation, Volkswagen sets aside around $7.3 billion to facilitate fixation of the cars, to meet the required environmental standards. Although the amount seems to be hefted, it is only about half of Volkswagen’s yearly revenues and profits (Li, McMurray, Xue, Liu and Sy 2018, p.3175). Besides the ill reputation the company had recently attained, it was facing additional fines and penalties, summing to almost $30,000 per vehicle sold - that averages to around $18 billion one average (Jung, Chilton and Valero 2017, p.1120). Inherently, from every day's news release about the scandal, Volkswagen would not only suffer poor ratings from the general public, but its share prices also fell - this mostly affected the company's shareholders who had invested and trusted in the venture (Preston 2015, p.784).
Possible Solutions
The primary concern of Volkswagen was the problem of reestablishing credibility to its stakeholders and consumers. However, in such circumstances, there is no set course of action which companies should undertake when their organisational image and reputation is tarnished. Nonetheless, this paper can suggest viable solutions which can enable Volkswagen to regain its position in the marketplace. Fundamentally, the firm should implement numerous measures to counter the scandal and restore the credibility of the company. Nonetheless, the paper will only discuss three. After all, the worst possible scenario would entail consumers boycotting Volkswagen's vehicles which would substantially decrease sales and thus, collapse of the firm.
Basing on the argument that Volkswagen is a global firm and a leader in the car manufacturing industry, the company should purpose to rebrand and establish a new name. Instead of dwelling on the belief that the scandal will soon be forgotten, rebranding would be the most practical way of restoring the reputation tarnished. Re-branding would essentially enable the company to enhance efficiency and brand image easily, and potentially re-establish credibility in stakeholders (Nemeth and Carvalho 2017, p.35). Moreover, rebranding is a risky and expensive undertaking. Nevertheless, it is adequate in reducing the negative publicity provoked by the scandal. Additionally, re-branding would not only focus on the image and external factors but also internal aspects of the company, for instance, it would effectively re-adjust the company's organisational structure and leadership attitudes within the corporation.
What’s more, Volkswagen company is headed by a board of executives, comprised on nine bosses. The board of management, inherently oversee the supervisory board made up of 20 members together with key investors. Undeniably, the scandal involved most of these officials, who either overlooked the consequences of the scandal (wrong decisions) and later attempted to cover up the indignity by claiming it was just another technical issue. Accordingly, the paper can suggest that new officials, precisely the CEO should be replaced with a more competent leader who has a deeper understanding and knowledge in the significance of maintaining a strong corporate culture and credibility. Undoubtedly, the company needs to operate and thrive in a business environment where problems are not concealed but are rather openly debated and communicated. Reforms in the leadership and management panel would lease new life into the company, amending the business strategies and competitive positions.
Joining an Independent Verification Agency would also be a practical way of restoring the company's image in the marketplace. Although Volkswagen has its internal team of examiners, it should also collaborate with other external independent agencies as a way of rebuilding its reputation, credibility and trust in consumers and other involved stakeholders (Mansouri 2016, p.214). Independent agencies such as the World Business Council for Sustainable Development (WCSBD) or the Federal Trade Commission (FTC) are examples of organisations which could help a business to thrive in an environment aimed at creating a sustainable future for both the firm and the involved stakeholders. As such, partnering with independent groups not only restores the brand's image and credibility but also allows the firm to be recognised an organisation which complies with corporate social responsibility practices and policies (Nemeth and Carvalho 2017, p.35). Therefore, joining these international agencies will essentially give Volkswagen some sense of stronger credibility to consumers.
Posting a bond would also be an appropriate way to assure consumers that such a scandal will not occur in the future - it is an effective way of regaining consumers' trust. Inherently, bonds are known to signify credibility, implying that in case any fraud is experienced again in the foreseeable future, the company will pay out an obligation to the European Commissions and the Automotive Industry. Additionally, the bond will also motivate regulators to become more thorough and stricter concerning their audits. Moreover, the bond should be set at a much higher price, a sum which would significantly cost the company. This way, consumers will understand that Volkswagen sincerely regrets deceiving consumers.
Conclusion
After a group of engineers struggled to attain the required standard, while developing diesel engines, they resorted to designing a device which would bypass the emission tests. Subsequently, the company sold millions of vehicles fitted with the device around the worlds. The EPA soon discovered the deceit and soon, the scandal was revealed to the public. Essentially, this fact cause the scandal - far-reaching repercussions were however encountered after the company's CEO tried to cover up the scandal, terming it as a technical glitch. Eventually, it was discovered that the scandal was not only mere deceit but a cover-up that involved most of the company's top officials who overlooked its worker's protests and consequences of the wrong decision. From the analysis undertaken, it was established that the scandal substantially tarnished the brand's image, leading to reduced sales and a drop in stock markets. Furthermore, the company incurred additional costs from the move to recall all defective vehicles, fines and penalties.
All in all, with a bid to remedy the current situation, the paper has suggested the possible solutions which would essentially assist in restoring credibility to consumers and thus regaining the previously celebrated brand image and reputation in the international markets. The proposed course of actions includes posting a bond, rebranding and collaborating with independent verification agencies. All these solutions are attainable and viable, are believed would effectively allow the company to regain its status in the industry and marketplace.
Recommendations
In the current situation, Volkswagen should concentrate all of its resources and efforts into re-establishing the tarnished brand image and credibility to consumers. Considering the discussed analysis and the possible highlighted solutions, the paper recommends the following three solutions: posting a bond, joining an independent verification agency and re-branding. The company may as well choose to re-brand, however, this option is highly unlikely to be implemented. However, collaborating with independent verification agencies is a much more feasible and attainable course of action, that the company is in a position to accomplish. The last recommended option would be posting a bond. The alternative would mean that the company would have to sell one of its brands to raise the monetary value to post a brand. Undoubtedly it is the costliest option, which might be a practical approach in restoring the brand image. Nonetheless, it would be the company's last resort.
Nonetheless, a combination of the two last recommendations would be the most effective way and approach to resolving the issue of tarnished brand image in the marketplace. If consumers' credibility and trust are regained in the brand, then sales would slowly follow. Moreover, from the consumers' standpoint, it can be asserted that they are currently contemplating on purchasing less costly vehicles from Volkswagen's stock, as they tend to have faith that the firm will undertake the required course of action aimed at mediating the scandal and its effects on the brand. Otherwise, it is unlikely that the company will experience sales returns as recorded before the scandal. On the other hand, if the company shows the consumers and stakeholders that it regrets deceiving them, and is doing everything in its position to alleviate the situation; then it would most likely regain its status in the global automotive industry and markets.
References
Bachmann, R., Ehrlich, G. and Ruzic, D., 2017. DP12504 Firms and Collective Reputation: the Volkswagen Emissions Scandal as a Case Study.
Jung, K., Chilton, K. and Valero, J.N., 2017. Uncovering stakeholders in public-private relations on social media: a case study of the 2015 Volkswagen scandal. Quality " Quantity, 51(3), pp. 1113-1131.
Leggett, T., 2018. How VW tried to cover up the emissions scandal. [online] BBC News. Available at: <https://www.bbc.com/news/business-44005844>[Accessed Dec. 16, 2018].
Li, L., McMurray, A., Xue, J., Liu, Z. and Sy, M., 2018. Industry-wide corporate fraud: The truth behind the Volkswagen scandal. Journal of Cleaner Production, 172, pp. 3167-3175.
Mansouri, N., 2016. A case study of Volkswagen unethical practice in diesel emission test. International Journal of Science and Engineering Applications, 5(4), pp. 211-216.
Nemeth, K. and Carvalho, J.M., 2017. “Dieselgate” and Consumer Law: Repercussions of the Volkswagen scandal in the European Union. Journal of European Consumer and Market Law, 6(1), pp. 35-35.
Preston, B., 2015. Volkswagen scandal tarnishes hard-won US reputation as green company. The Guardian, 25, pp. 377-414.
Siano, A., Vollero, A., Conte, F. and Amabile, S., 2017. “More than words”: Expanding the taxonomy of greenwashing after the Volkswagen scandal. Journal of Business Research, 71, pp. 27-37.
