Essay: Volkswagen

Car manufacturers are some of the most powerful and influential businesses operating today. One such company is the automotive giant Volkswagen; the German firm is among the world’s largest and sells vehicles worldwide. With production facilities in 31 countries, their products are sold in 153 countries as of only a few years ago (Bowler). This kind of size is the result of decades of success that can be traced to much more humble beginnings. During the 1930’s the German government at the time set an ambitious goal for themselves. Following in the footsteps of the Ford Model T, their aim was to create an affordable car fit for the masses. Since car ownership was very low at the time, there solution was the “people’s car” for the average person (Bowler). Volkswagen prospered with their popular models and built a reputable brand image for themselves. Unfortunately, that would all unravel due to a recent scandal that rocked the company. For almost a decade Volkswagen violated the law by purposely cheating on emissions tests and marketing their cars as more environmentally friendly than they were. Volkswagen broke strict environmental standards for vehicle production and outright lied to their customers, that resulted in one of the largest corporate scandals in recent times.

 

Volkswagen didn’t just break the law overnight, the origin of why this happened can trace itself back to 2005, a time when the company was going through a lot of change and finances were tight. New standards were implemented on how diesel engines were manufactured and how much emissions they can produce. Through their own research and development, Volkswagen had difficulty making a successful technology to reduce emissions in diesel engines. At the time, Volkswagen was trying to rapidly expand in the United States and needed a solution fast. They looked to other car manufacturers for a partnership. Senior managers from Volkswagen met with their senior counterparts from rival German automaker Daimler to discuss a partnership (Rauwald). They were keen on accessing BlueTec, a technology that utilizes urea to reduce harmful emissions developed by Daimler subsidiary Mercedes-Benz. They found what they were looking for in BlueTec. An already established technology that did what they needed. However, BlueTec was about 1,000 euros to install in each car and this thwarted any possible deal (Rauwald). This marked the beginning of the end. The scandal originated from the top, when the deal didn’t materialize. Running out of time, upper management pushed employees to have another go at developing their own emissions software system, even if it meant achieving it through misleading (inaccurate) results. As stated in Managing Business Ethics, “behavior results from a number of factors, many of which can be influenced by managers and the organizations themselves” (Treviño xiv). The message sent by Volkswagen’s management put ethics to the side and allowed unethical practices to run throughout the company. Carol Adams from Durham University in the United Kingdom wrote about the scandal and similarly said, “Culture and the ethical tone are led from the top of the organization, by senior executives and board members” (Adams). By allowing employees to develop a solution by any means necessary, the company promoted the idea of cheating and allowed engineers to devise a plan in which cars could falsify their emissions statistics. Volkswagen’s senior officials are paid based on the performance of the company, thus having an incentive to manipulate the vehicles. Cheating helped quickly and easily increase sales and make more money for themselves (Adams). This blatant disregard for any ethical standards contributed to the tarnishing of the brand. The company culture lost its organizational ethics. Managing Business Ethics makes it clear, “The organizational culture expresses shared assumptions, values and beliefs and is manifested in many ways, including formal rules and policies” (Treviño 151). When news got out of the scandal, many top executives resigned from the company including the CEO, the research and development boss of subsidiary Audi and the head of engines at subsidiary Porsche being the most noteworthy (Dans). Their resignations and positions make it clear they were involved in the decisions to design the diesel engines in the way they did. It became an accepted unethical practice within the company. The decision tarnished the reputation built over all those years and resulted in much more than resignations within the company. Volkswagen had to face the full force of legal implications from what they did.

What Volkswagen did was illegal because they violated the EPA’s Clean Air Act by producing cars that made more pollutants than allowed. As seen within Managing Business Ethics, “ethics and legal compliance are closely tied to maintenance of the firm’s reputation and brand value” (Treviño 208). In the same fashion their ethical decisions tarnished their reputation, their legal decisions did too. Now the brand will be associated less for being the “people’s car” and more for being the car maker that through their illegal activities, drastically reduced the brand value and reputation they had created. They circumvented the law by equipping a “defeat device” within the vehicle’s engine software. The EPA concluded both Volkswagen and Audi cars cheated on pollution rules by using software to make the cars seem much cleaner than they were (Mearian). The engineers who developed this made it very elaborate and put great effort into their work. Not only did it take a very long time for anyone to realize what they did, the scale at which they broke the law is massive. Upwards of 11 million vehicles are compromised with the illegal software enabled (Mearian). These cars are all equipped with the “defeat device” that made their engines appear to be environmentally friendly in government emissions tests. Furthermore, the vehicles conducted tests with no problems but polluted the air at a significantly higher rate while in the real world. According to an EPA statement, “This results in cars that meet emissions standards in the laboratory or testing station, but during normal operation, emit nitrogen oxides, or NOx, at up to 40 times the standard” (Mearian). Volkswagen failed to correctly label the amount of pollution their cars created and tried to pass them off by hiding their wrongdoings for years. Instead of accepting the higher production cost per vehicle or spending more time in research and development, Volkswagen used an expedient and unlawful solution to try and bolster their sales. In the first chapter of Managing Business Ethics it says the law is, “reflecting society’s minimum norms and standards of business conduct” (Treviño 21). Volkswagen purposely and knowingly broke the societal norms associated with business conduct and eventually got caught doing so. Not only did they get caught but other companies who helped Volkswagen got punished too. German component manufacturer Bosch helped in producing the software needed to falsify the emissions statistics. In an attempted to alleviate any tarnishing of Bosch’s brand, the company opted for a settlement. They agreed to pay $327.5 million dollars in the United States with affected Volkswagen owners getting $350 each and owners of the higher end marques Porsche and Audi getting $1,500 each (McGee). This amount of money Bosch had to set aside pales in comparison to what Volkswagen had to pay. In a New York Times article from spring 2016, the first sentence reads, “Volkswagen reported a record loss for 2015 on Friday as it set aside more than $18 billion to cover the cost of fines, legal claims and recalls in the United States and other countries related to diesel emissions cheating” (Ewing). This loss was the cost for breaking the law. For most global companies, that amount of money is just a fantasy. Luckily for Volkswagen, the money in their coffers covered what they needed to pay and although it’s a steep fine, the brand isn’t going anywhere anytime soon. Unfortunately, the brand will have to live with this event and the consequences of this blunder.

The Volkswagen scandal is a failure of corporate social responsibility and it hurt themselves. Before the incident, Volkswagen had the benefit of being respected for the cars it made and was trusted as a brand. Managing Business Ethics uses an excerpt from Business Week saying, “business has a huge stake in the way the rest of society perceives its ethical standards” (Treviño 334). Social responsibility is closes linked to business ethics and ethical standards and Volkswagen failed in up keeping their social responsivities. Volkswagen has been undertaking an ambitious plan in recent years of becoming the world’s largest automaker. This vision has been included in their annual report for several recent years. In the 2012 annual report, the headline is a quote from company chairman Prof. Dr. Martin Winterkorn, “Our pursuit of innovation and perfection and our responsible approach will help to make us the world’s leading automaker by 2018 – both economically and ecologically.” (Volkswagen Aktiengesellschaft). This scandal completely goes against those words and Winterkorn allowed the scandal to occur under his control. Volkswagen did
not protect the environment in what they did and it disrupted the lives of millions of customers who needed to take their cars in for recall. This break both pillars of corporate social responsibility, making environmentally sound decisions and making products that provide betterment to customers. In addition, the company used the cheating software as an advantage to sell their vehicles and boost profits in an irresponsible way. Managing Business Ethics takes a quote from economist Milton Freidman that says the management of a company should, “make as much money as possible while conforming to the basic rules of society, both those embodied in the law and those embodied in ethical custom” (Treviño 326). Volkswagen made money conforming to neither of these practices and lost touch of the social responsibility a company had operating today. The result of Volkswagen’s failure to adhere to corporate social responsibility even led to the arrest of Volkswagen emissions compliance executive Oliver Schmidt by the Federal Bureau of Investigation (Goldman). Corporate social responsibility is tied to ethical and legal decisions made by a company. Regrettably for Volkswagen, their cheating backfired and undermined this integral part of business ethics.

For an industrial titan like Volkswagen, this scandal will not destroy their company or cause them to go bankrupt, even though it has cost them an exorbitant amount of money. The people they have lost will in due time, be replaced and things will go on, except they will never quite be the same. In all the decades Volkswagen has been selling products, through good times and bad, this is one of the worst moments in their long history. Volkswagen knowingly committed crimes and the company’s management allowed development and production to continue without thinking there would be such adverse consequences. The scandal will be remembered for years to come and should serve as a lesson to people who believe unethical practices and being above the law is an acceptable practice. They are not and Volkswagen can attest to this.