Assessment 2
1
Table of Contents
Question 1 ....................................................................................................................................... 3
Question 2 ....................................................................................................................................... 4
Question 3 ....................................................................................................................................... 6
References ....................................................................................................................................... 8
2
Question 1
When Volkswagen's engine failed to meet the pollution regulations of numerous nations, the
company started deploying the defeat device in 2008. The corporation spent a lot of money
developing this brand-new diesel-powered engine. The business promoted its new cars in the
United States equipped with this engine as "clean diesel," which is better for the environment. The
Environmental Protection Agency (EPA) of the United States issued a violation notice to
Volkswagen of Germany in 2015. When tested in a controlled laboratory setting, the company's
automobiles passed emissions requirements, but they did not pass when tested in real-world
conditions. The cars' emissions systems detected levels of harmful gases on highways that were
40 times higher than the EPA's allowable threshold (Jung and Sharon, 2019). Volkswagen first
denied putting the "defeat device" in the engine software, but later acknowledged employing one
after being provided with proof by the EPA. The cars' power and performance were optimised to
meet emissions standards by software that could determine whether they were in a laboratory
setting.
Volkswagen has been in trouble for dodging emissions testing before, so this wasn't the first time.
The first automobiles to have their pollution control systems disabled by temperature sensors were
produced by the business in 1973. Volkswagen paid the EPA $120,000 to resolve the claims
against the company, but made no admission of guilt in the process. Winterkorn wasn't the only
high-level executive to leave the organisation recently. Volkswagen pled guilty to criminal charges
of deceiving the United States government and obstructing a federal investigation in January of
2017 (Odugu et al., 2022). In addition to the $15.3 billion settlement with U.S. officials, the
business agreed to pay a $2.8 billion criminal punishment and $1.5 billion in civil penalties. The
amount was the most ever paid out in a consumer class action lawsuit in the United States involving
a motor vehicle.
Volkswagen has budgeted €6.7 billion, which is comparable to £4.8 billion, to cover the expenses
involved with the recall of millions of vehicles all over the globe commencing at the beginning of
the next year. Late in the month of October, the business reported a quarterly loss of €2.5 billion
as a direct consequence of this situation. The corporation has not had a quarterly loss in the
previous 15 years prior to this one. On the other hand, it is very improbable that this will be the
ultimate financial repercussion of the situation. If a car is found to be in violation of the standards,
3
the Environmental Protection Agency (EPA) has the right to assess a maximum punishment of
around $18 billion, which is equivalent to $37,500 per vehicle (Bernard et al., 2019).
Question 2
Volkswagen
Individual Interest
Stakeholders
Management
The interplay between technological advancement and business demands
Employees
Technology development in imaging (TDI)
EU Regulators
In order to fight global warming, defining a legal framework that
encouraged dieselization and placed a focus on CO2 reduction was
necessary.
ACEA
Dedicated to bringing down carbon emissions with the EC, urging for more
diesel vehicles to be used in the fleet
Consumers
Dealers
Consumers favour diesel automobiles.
of As a component of the marketing activities concentrated in Europe
Vehicles
4
Media
The new environmentally friendly diesel engines have garnered positive
notice from the press around Europe.
Because of the impact that the Dieselgate scandal had on the market for diesel cars as well as the
legislation that limits their usage, it is essential for CSI research to incorporate stakeholder
ecosystem interactions. The fact that the Dieselgate affair took place is one way to illustrate this
point. The creation of value is a complex process that requires the participation of a large number
of partners. Because of this, there is a possibility that there will be an increase in supply in addition
to the increase in demand that is being experienced. The case study that was offered sheds light on
the significance of watchdog groups, non-governmental organisations, and individuals that expose
unethical activity by blowing the whistle on it (Zhang et al., 2021). The market changed in ways
that had an influence on the demand for diesel cars in general, and these changes did have an effect
on the demand for diesel automobiles. These happenings came about as a direct consequence of
the transactions that took place on the market. The organisation's management is the most
important stakeholder in the dieselgate incident, which occurred as a result of a failed device
strategy. This scandal was caused by the defeat of a device.
It has been hypothesised that technical innovation is the primary motivator behind business
strategy, economic growth, and the activity of competitive markets in industrialised countries. In
point of fact, firms that plan ahead like Volkswagen acknowledge its relevance as a vital part in
the process of preserving their advantage over their competitors. Volkswagen was able to move
diesel-powered vehicles from the periphery of the automotive industry into the industry's
mainstream by developing the TDI engine and giving it widespread distribution. It is not lost on
governments, who are aware of the relevance of innovation to economic growth and which employ
legislation to influence the method in which firms function and their overall strategy. In addition,
it is not lost on governments, who are conscious of the value of innovation to economic
development (Huemer, 2020). In addition, governments are aware of the importance of innovation
to the expansion of the economy, and they do not discount its significance. Volkswagen received
the advantages of the value that European politicians helped to construct by offering financial
5
incentives to vehicle manufacturers for the development of "clean" diesel engines that generated
lower levels of carbon emissions. These incentives led to the development of "clean" diesel
engines, which Volkswagen realised the benefits of. Executives in the automotive sector are under
a great deal of pressure to choose and create the most cutting-edge engine technology feasible,
which may be powered by petrol, diesel fuel, electricity, or any mix of these different types of
fuels and power sources. Although the majority of automakers engage in some kind of research
and development activity, the vast majority of these activities are focused on a single model in an
effort to achieve market monopolisation for that model (Chen, 2022).
Question 3
When the controversy emerged in September of 2015, the senior officials at Volkswagen reacted
quickly, but their responses were not uniform. According to the Environmental Protection Agency
(EPA), Volkswagen allegedly withheld the facts from regulators for an entire year by claiming
software issues; nevertheless, executives from the firm finally confessed their involvement in the
scandal. Executives, on the other hand, were unable to come to a consensus as to whether just the
engineers were aware of the situation or if top management either failed to see warning signs or
actively promoted the cover-up. Volkswagen has committed to voluntarily bringing back all 11
million affected vehicles and modifying their diesel powertrains. This course of action is required
by law in a number of jurisdictions, including Germany (Jacobs and Kalbers, 2019).
According to a report published by the Federal Trade Commission in July 2020, Volkswagen has
paid out more than $9.5 billion in settlement funds. Because of the emissions scandal at
Volkswagen, it's possible that the company lost more than $30 billion.
As part of the plea deal that was negotiated in 2017, Volkswagen agreed to have the former US
prosecutor Larry Thompson supervise the business for the next three years and adopt
improvements that would make it easier for employees to report inappropriate behaviour.
Thompson managed to persuade Volkswagen to terminate a large number of executives who were
the focus of criminal investigations, despite resistance from the company. Volkswagen has also
made efforts to modify the hierarchical structure of the company by giving medium and lowerlevel managers more control and by establishing a process for workers to use to report unethical
or illegal behaviour. In the middle of the pandemic, Thompson is no longer keeping an eye on
Volkswagen's management since he has finished his task and turned in a report that lives up to
6
expectations (Yu and Ahbab, 2019). At this point, he is no longer monitoring the efforts of
Volkswagen's management to fulfil sales objectives and resolve difficulties with the supply chain.
Despite this, there are ongoing legal challenges brought against the firm in the United Kingdom
and other countries. Former German executives and engineers, including ex-CEO Martin
Winterkorn, are either now being prosecuted or will be prosecuted in the near future (Bernard et
al., 2019).
It is a good response from the company however the response was late and the customers had to
suffer for a prolonged period of time. Hence, from the next time onwards, the organisation should
make a decision by understanding the long term effects of the strategy.
As per the provided case study, it was an agency problem. The management of the organisation
made the defeated device strategy which made huge losses for the organisation as well as the
customers suffer. Hence, it can be considered as an agency problem (Schulz and Arnegger, 2021).
7
References
Bernard, Y., German, J., Kentroti, A. and Muncrief, R., 2019. Catching defeat devices: How
systematic vehicle testing can determine the presence of suspicious emissions control strategies.
Bernard, Y., German, J., Kentroti, A. and Muncrief, R., 2019. CATCHING DEFEAT DEVICES.
Chen, J.J., 2022. Volkswagen. In International Cases of Corporate Governance (pp. 45-65).
Singapore: Springer Nature Singapore.
Huemer, M., 2020. The Volkswagen Federal Court of Justice Ruling of 25 May 2020: A Landmark
Judgment for Consumers in the VW Diesel Scandal. Tidskrift utgiven av Juridiska föreningen i
Finland.
Jacobs, D. and Kalbers, L.P., 2019. The Volkswagen diesel emissions scandal and accountability.
The CPA Journal, 89(7), pp.16-21.
Jung, J.C. and Sharon, E., 2019. The Volkswagen emissions scandal and its aftermath. Global
business and organizational excellence, 38(4), pp.6-15.
Odugu, R.D., Duttagupta, A., Verma, S. and Kumar, T., 2022. How Volkswagen Used Marketing
to Regain Its Brand Image After the Cheating Emission Scandal: A Case Study. ECS Transactions,
107(1), p.12985.
Schulz, W.H. and Arnegger, B., 2021. The Volkswagen fraud in the context of economic theory.
International Journal of Management Practice, 14(6), pp.645-659.
Yu, M. and Ahbab, A., 2019. An Inquiry into How Company Culture Influenced the Volkswagen
2015 Emissions Scandal. Student Works.
Zhang, M., Atwal, G. and Kaiser, M., 2021. Corporate social irresponsibility and stakeholder
ecosystems: The case of Volkswagen Dieselgate scandal. Strategic Change, 30(1), pp.79-85.
8