business ethics group assignment case study volkswagens emissons scandal

MINISTRY OF EDUCATION AND TRAINING NATIONAL ECONOMICS UNUVERSITY

BUSINESS ETHICS GROUP ASSIGNMENT Lecturer: Nguyen Bich Ngoc CASE STUDY: Volkswagen’s emissons scandal

Participants: Nguyen Mai Phuong ~ 11225252

- 11224344 - 11224672 - 11224748 Bui Pham Huyen My

Le Bao Ngoc Pham Hong Ngoc

Dam Thi Hong Phuc - 11225129

Class: International Business Management 64D School of Advanced Education Programs (AEP)

MINISTRY OF EDUCATION AND TRAINING NATIONAL ECONOMICS UNIVERSITY

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BUSINESS ETHICS GROUP ASSIGNMENT Lecturer: Nguyen Bich Ngoc CASE STUDY: Volkswagen’s emissions scandal

Participants: Nguyen Mai Phuong - 11225252 Bui Pham Huyen My - 11224344

Dam Thi Hong Phuc - 11225129

Class: International Business Management 64D School of Advanced Education Programs (AEP)

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2 The effectiveness of their response

PUBLIC’S RESPONSES TO VOLKSWAGEN EMISSIONS SCANDAL .0006 1 Customer’s mixed reaction to such a reliable, environmentally- commited

company

2 Shareholders’ reactions toward the scandal

3 Goverments’ responses to Volkswagen’s emission scandaÌS ««

REFERENCES

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ABSTRACT

The Volkswagen Group is one of the most prosperous automakers in the world The company was founded in 1937 by the German Labor Front, and since then it has gained recognition for making dependable cars that can be used on a daily basis The corporation has invested a lot in creating environmentally friendly cars over the years, which is crucial given since everyone in the modern world is dealing with the repercussions of global warming The corporation developed a plan to create cars whose emissions wouldn't increase the amount of greenhouse gases in the atmosphere in order to comply with environmental protection standards

In accordance with environmental regulations in various markets, all of their vehicles were required to be tested in laboratories The United States is a nation that has dedicated a great deal of effort to its emission control initiatives Since one of Volkswagen's most significant markets is the United States, the business was expected to abide with the laws there However, in 2015, the Environmental Protection Agency found that the corporation had broken the Clean Air Act, which had a significant negative impact on the company's reputation Volkswagen allegedly altered the software of the vehicles it brought to the emissions tests to make them consistent with American requirements, but that Volkswagen did not include this software in the production versions it sold to the general public This incident demonstrates how achieving profit in a short amount of time is harmful and how current business practices harm the environment

This report's goal is to analyze and pinpoint the key organizational behavior elements that may be to blame for the negative outcome Additionally, it explains the issues, examines the organization's reaction, and makes strong recommendations that future company leaders may find useful.

INTRODUCTION OF VOLKSWAGEN 1 Background

Volkswagen, one of the world's leading automotive manufacturers, has an illustrious history, rich with innovation and technological advancements Established in 1937, Volkswagen has grown from a modest German automaker to a global powerhouse, renowned for its iconic designs, reliability, and commitment to sustainability

The roots of Volkswagen can be traced back to the visionary leadership of Ferdinand Porsche, an accomplished engineer known for his groundbreaking work in the automotive industry In the early 1930s, Porsche developed the concept of a "people's car" or "Volkswagen" in German His idea was to create an affordable, reliable, and practical car that could be accessible to the masses This concept caught the attention of the German government, and in 1937, the state-owned Gesellschaft zur Vorbereitung des Deutschen Volkswagens mbH was founded, later known as Volkswagenwerk GmbH

Following the World War I, Volkswagen faced significant challenges in rebuilding its operations However, under the guidance of Major Ivan Hirst, a British Army officer, production resumed, and Volkswagen gradually regained its momentum The Beetle, with its robust construction and affordability, quickly gained popularity worldwide, becoming a symbol of post-war recovery and an icon of the "economic miracle" in West Germany In the ensuing years, Volkswagen expanded its product range, introducing new models

such as the Golf, Passat, and Polo, which further solidified its position in the global

automotive market The company's commitment to innovation and quality enabled it to thrive even in the face of fierce competition

Headquartered in Wolfsburg, Germany, Volkswagen operates manufacturing facilities and sales offices in various countries across the globe The company has established itself as a global leader in the automotive industry, consistently delivering vehicles that combine cutting-edge technology, superior performance, and environmental sustainability

In recent years, Volkswagen has made significant strides towards embracing electric mobility and reducing its environmental footprint The company's ID series, featuring electric vehicles powered by advanced battery technology, showcases its dedication to a greener future.

Today, Volkswagen continues to innovate and shape the future of mobility With a diverse range of vehicles, including electric and hybrid models, it remains at the forefront of automotive technology The company's dedication to quality, safety, and sustainability, combined with its rich heritage and unwavering commitment to excellence, ensures that Volkswagen will continue to be a driving force in the automotive industry for years to

as the foundation for their works

2.2 Volkswagen’s core values

Sustainablity: Volkswagen claims sustainablity to be one of their core values Quoted from their official website: “ Every mile counts on the road to carbon neutrality We’re committed to increasing our use of renewable energy and reducing our carbon footprint.” Community: Volkswagen stated this core value as following: “ We see citizenship as a verb That’s why we aim to play an active role in making every community safer, smarter and more fun to live in each year

3 Some major products of Volkswagen

Volkswagen is a major player in the automotive industry, producing a wide range of products that have had significant impacts on the company and the industry as a whole Here are some of Volkswagen's major products and their impacts:

- Volkswagen Beetle - The Volkswagen Beetle is one of the most iconic vehicles in history, and it was Volkswagen's first major success It was introduced in 1938 and quickly became popular due to its unique styling and affordability Throughout the years, the Beetle has undergone many changes, but it remains an important part of Volkswagen's brand.

- Volkswagen Golf - The Golf is Volkswagen's best-selling model, having been produced since 1974 It is renowned for its performance, practicality, and safety features The Golf has won numerous awards over the years and is considered a benchmark for hatchbacks globally

- Volkswagen Passat - The Passat is another longtime Volkswagen success story, with production beginning in 1973 The Passat has undergone many changes and is now in its eighth generation It is known for its spacious interior, high-quality materials, and advanced technology

- Volkswagen Jetta - The Jetta is Volkswagen's second-best-selling model after the Golf It is a compact sedan that offers great value for money and excellent fuel efficiency The Jetta has been well-received, winning several awards for its reliability, driving experience, and overall quality

- Electric Vehicles - In recent years, Volkswagen has made significant strides in electric vehicle (EV) production, launching models such as the e-Golf and the ID series Volkswagen is committed to reducing carbon emissions and has set ambitious targets to become a leader in the EV market by 2025

Overall, Volkswagen's products have had a significant impact on the company and the automotive industry as a whole The Beetle helped establish Volkswagen as a major

automaker, while the Golf, Passat, and Jetta have all been incredibly successful models

Volkswagen's investments in electric vehicles represent a major shift towards sustainable transportation, and it will be interesting to see how the company adapts to this changing landscape in the years to come

4 Volkswagen’s brand representation

As one of the largest and most popular automobile manufacturers in the world, Volkswagen’s brand implementation has played an essential role in building the company’s name ever since the very initial phases Brand representation is the physical depiction of a brand’s identity and its consistent application across visual as well as spoken media This marketing tool is used to differentiate firms from other competitors and make it easier for them to connect with their target consumers For instance, with previously given information about its background, goals, core values and main product, the idea of Volkswagen would slowly form in readers’ mind However, to make their story much more

far-reaching and memorable worldwide, to fully illustrate their offerings, to inspire trust in the public, Volkswagen must come up with a brand representation

A logo is often considered the most important link between the product and the brand and stands for its values For Volkswagen, the brand logo composed of two German words, *V” for “Volks” and “W” for “Wagen” Simple as it seems, the logo fully conveys the company’s motto as well as its origin - to make affordable cars for everyone Therefore, throughout the years, Volkswagen has changed their design thirteenth times, but these two letters have remained the key element Choice of colors for the brand logo is also an interesting topic Depending on the nature of the marketing or branding campaign in question, the Volkswagen logo can appear in various colors However, the most common colors are blue and white which are often associated with purity, strength, vision, and reliability Moreover, the circle border around the monogram also resembles community and inclusion, as well as global growth Today, the Volkswagen logo is one of the well- known images in the world, and an incredibly memorable icon

environment, Volkswagen has adapted to this situation by adding a third aspects in marketing its vehicle — environmentally friendly This is a clever move of the brand to attract more audiences, but the question here is whether Volkswagen can truly fulfill their statement, as making good ethical decisions are just as important to business as mastering marketing.

VOLKSWAGEN?S EMISSIONS SCANDAL,

1 Background

1.1 Environmental standards

Over the last few decades, the sustainability and conservation of the environment have been taken much more seriously and has become a worrying problem in society Environmental protection and conservation organizations have been struggling dealing with severe cases in environmental pollution and globalization One of the significant causes of this situation is the harmful and mortal effects of nitrogen oxide (NOx) Nitrogen oxide (NOx) is produced when oxygen and nitrogen from the air interact during a high-temperature combustion event In nature, NOx is produced by lightning, and to a small extent, by microbial processes in soils This harmful substance can also be found in car exhaust NOx emission levels from the 2.0-liter vehicles with defeat devices were LÔ — 40 times higher than emission standards NOx emissions levels from the 3.0-liter vehicles were up to nine times higher than the emission standards

On one hand, NOx is concerning environmentalists as NOx pollution contributes to destructive consequences such as ground-level ozone and acid rain On the other hand, exposure of humans to these pollutants has been linked with a range of serious health effects, including increased asthma attacks and other respiratory illnesses that can be serious enough to send people to the hospital Exposure to ozone and particulate matter have also been associated with premature death due to respiratory-related or cardiovascular-related effects Children, the elderly, and people with pre-existing respiratory disease are particularly at risk for health effects of these pollutants Therefore, restricting the emission of NOx is a crucial mission for every country with a view to protecting the environment as well as the health of people

The environmental standards throughout the world varied in both restriction and focus European emissions standards focused on reducing the effects of global warming by limiting greenhouse gases Therefore, in these locations, a diesel engine is a suitable solution On the contrary, environmental regulations in the US’s aim is to clean air Especially in large cities, controlling emissions from automobiles is an important means of reducing air pollution, The Environmental Protection Agency’s Clean Air Act (EPA), since its creation in 1970, has been under a congressional mandate to promulgate regulations designed to reduce automobile emissions In 1990, Congress enacted new emissions laws

known as Tier 1 standards and required the EPA to review whether further reductions were necessary and technologically feasible to help states meet the NAAQS In 2000, the EPA finally issued more stringent Tier 2 standards, including for NOx and PM, which were phased in gradually in automobiles and were in full force beginning with model year 2007 Thus, the new emissions requirements were designed to protect people’s health; they developed over time, giving automobile manufacturers both ample notice and time to comply; and they were based on available technology In other words, they were necessary, reasonable, and achievable This standard set the bar high for Volkswagen engineers to create a diesel engine that was low maintenance, low weight, and clean These environmental standards exacerbated the need to find a middle ground between NOx emissions and maintenance requirements Unfortunately, the company decided to pursue its ambition of becoming the leading automobile manufacturer in the world and ignore environmental protection, which was an act of unethical behavior in business

1.2 Volkswagen

In December 2007, under the leadership of then-CEO Martin Winterkorn, the Volkswagen group unveiled "Strategy 2018" which is an extremely audacious growth goal The following four strategic objectives were the main emphasis of this plan, which focused on propelling Volkswagen to the top of the worldwide auto market

Volkswagen intends to become the globe pioneer in customer satisfaction and quality by implementing smart ideas and technology

° Volkswagen goal is to boost unit sales to more than 10 million vehicles annually, and in particular, the company aims to increase its market share in the key emerging regions

Volkswagen strives to achieve a stable return on sales before tax of at least 8% in order to guarantee the Group's sound financial position and flexibility even during challenging market conditions

Volkswagen aspires to be the best employer across all brands, organizations, and areas This is required to establish a world-class team

"Strategy 2018" has the ultimate target of "positioning the Volkswagen Group as a global economic and environmental leader and the best automobile manufacturer in the world by

2018" In a 2013 interview with Forbes, Winterkorn stated that the company's objective was to become "the world's most profitable, fascinating, and sustainable automobile manufacturer" by 2018, emphasizing the importance of having the most satisfied customers and staff in the industry Volkswagen was well on its way to meeting these targets until recently, having sold over ten million vehicles in 2014, more than half of which were ascribed to the Volkswagen Passenger Cars brand However, the success was fleeting Toyota officially announced its sales figures for the first three quarters of 2015 on October 26, 2015; Volkswagen had slipped behind

2 Volkswagen’s emission cheating fall-out

Volkswagen's emission cheating scandal unfolded in 2015, shaking the automotive industry to its core The revelation that the German automaker had installed software in its diesel engines to cheat emissions tests shocked the world and led to recalls of millions of vehicles and billions of dollars in fines The scandal not only damaged Volkswagen's reputation but also raised questions about the entire industry's ethics and commitment to environmental regulations Today, the Volkswagen scandal remains a cautionary tale about the consequences of corporate fraud and the importance of transparency and accountability

- September 18, 2015: The U.S Environmental Protection Agency (EPA) accuses VOLKSWAGEN Volkswagen of using software on nearly 500,000 diesel cars in the U.S to cheat emissions tests The "defeat device" allowed the cars to emit up to 40 times the legal limit of nitrogen oxides (NOx) during normal driving

- September 22, 2015: Volkswagen admits to installing illegal software on its diesel cars and announces a recall of affected vehicles.

- June 28, 2016: VW reaches a $14.7 billion settkement with the U.S government and car owners, in which the company agrees to buy back or repair affected vehicles and pay compensation to owners.- October 2, 2015: Volkswagen says that up to 11 million diesel cars worldwide could be affected by the emissions cheating

- November 4, 2015: Volkswagen reports a loss of €3.5 billion ($3.9 billion) for Q3 2015 due to costs related to the scandal

- January 4, 2016: The U.S Department of Justice files a lawsuit against Volkswagen seeking billions of dollars in penalties

- March 10, 2017: VOLKSWAGENVolkswagen agrees to pay $4.3 billion in fines and plead guilty to charges related to the emissions cheating

- May 2018: Former Volkswagen CEO Martin Winterkorn is indicted in the U.S on charges of conspiracy and wire fraud

- September 29, 2017: Volkswagen confirms that it will pay more than $30 billion in fines and other costs related to the scandal

- December 6, 2019: German prosecutors charge former Volkswagen CEO Martin Winterkorn with fraud over his role in the scandal

- April 15, 2020: A Germany court orders Volkswagen to pay €830 million ($912 million) in damages to customers who brought cars with the illegal software in Germany - September 2020: VW agrees to pay over $6 billion to settle a class-action lawsuit brought by US car owners Volkswagen’s executives are charged with fraud and other crimes in Germany.- July 13, 2020: Volkswagen reaches a settlement with tens of thousands of affected U.S customers, agreeing to buy back or fix affected cars and pay compensation - March 5, 2021: VOLKSWAGENVolkswagen announces that it will pay €288 million

($340 million) to settle a German investor lawsuit over the scandal

2.2 Participants in Volswagen’s emission test scandal

Initially, it was reported that nine managers were suspended for their involvement in the deception According to Volkswagen's chairman, one of the reasons why this group was involved in the unethical scandal is due to a mindset in some departments that fails to

comply with the rules (Goodman, McGrath, & Leah, 2015) In October 2015, Volkswagen

CEO told United States lawmakers that a small group of software engineers embedded the

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device in cars for unknown reasons The CEO was uncertain about the exact number of engineers involved and stated that this scandal was not a corporate decision (Boston,

Varnholt, & Sloat, 2015)

Later, Jones Day, an external investigator of Volkswagen, conducted an internal investigation and revealed that fifty staff members, mostly in Wolfsburg, confessed that they were entirely aware of the emission scandal activities It was also learned that although some Volkswagen engineers and technicians informed their supervisors about emission rigging activities in 2011, the supervisors ignored the alert (Boston, Varnholt, & Sloat, 2015)

In November 2015, it was revealed that the number of managers, technicians, and engineers

involved in the emission test scandal to operate the defeat device was significant There were various levels of involvement in this scandal One person could write the codes of the defeat device program, but implementing this program to function with the engine and other elements required more employees to be involved (Goodman, McGrath, & Leah, 2015) Moreover, according to Bode, Volkswagen junior positions were not included in the cheating test, while it was later declared that a considerable number of managerial and non-managerial rank and file workers were involved in the diesel emission scandal The suspended managerial group consisted of nine managers from the supervisory board, quality control and assurance, engine designers, plant managers, and managers of sub- companies such as Porsche and Audi The EPA added that approximately one hundred

million lines of codes were included in each car, and the defeat device was embedded

amongst millions of codes, making it challenging to detect In addition, there is a possibility that a third-party programmer had written the codes for the cheating program (Boston,

Varnholt, & Sloat, 2015)

2.3 Reason for rigging emission test

In September, Martin Winterkom resigned as Volkswagen’s CEO and denied that he was aware of the diesel scandal Many people believed that the scandal resulted from a technological defiency that prompted Volkswagen to cheat on emission tests (Boston,

Varnholt & Sloat,2015) In December, Hans-Dieter Potsch, the chairman of Volkswagen,

admitted publicly that a group of Volkswagen engineers had made the decision to rig the diesel emission test in 2005 when the United States EPA imposed the toughest emission standards on the automobile industry The main reason for this decision at that time was

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