With the FTC recently releasing the final court summary on the case, Michael Toebe considers the controversy that tarnished the company’s reputation and for which Volkswagen has paid dearly. Has VW learned from the incident?
There are lessons to be learned from VW’s mistakes, which have resulted in severe financial penalties being meted out as punishment and corrective measures. Volkswagen’s reputation has been tarnished frequently in the media over the last four years due to its poor decision-making and irresponsibility.
Dieselgate, as the incident was known, was a blow to VW’s reputation. In 2015, the firm admitted to falsifying emissions testing on 11 million vehicles worldwide. The financial blow was heavy. The business has given American car owners a stunning $9.5 billion in the last four years.
The Federal Trade Commission (FTC) refers to this as the “biggest consumer redress program in U.S. history,” making it historically significant.
The needed repairs were thought undesirable, and the financial incentives and temptation to cheat became too high. As is frequent in emerging scandals and the reputation crisis that they accompany, leadership participated in careless decision-making instead of responding ethically.
Nevertheless, there is a different school of thought, according to Bret Hood, director of 21st Century Learning & Consulting and adjunct professor of corporate governance and ethics at the University of Virginia. “Some have argued that VW actively contemplated the risk versus the reward, but I would bet that they approached the issue as did Ford with the Pinto,” he says. He claims that we analyze the situation from a cost-benefit perspective and choose the one with the lowest cost. Because our automated System 1 minds are working in our subconscious to assist us generate a preset outcomein this example, sales volumewe never perform an objective review, which is where we fall short.
Even though it may seem like a dubious justification, Hood believes that there is another factor that is very likely at play. “There are a number of ethical models, such as the Rest Model, Kohlberg’s stages of moral development, and the Jones Moral Intensity model, but as Ann Tenbrunsel and Max Bazerman point out, most of the time, the decision-makers have not classified the dilemma as an ethical issue, he says. Daniel Kahneman’s research on System 1 (automatic) and System 2 (rational deliberation) thinking supports this view.
As history has often demonstrated, scandal is considerably more likely in situations like this, where governance and compliance will never be performed as skillfully as necessary. It is plausible to assume that moral bravery was either weak at VW or absent altogether.
In This Article...
What ethical transgressions did Volkswagen commit?
Volkswagen’s moral predicament was brought on by allegations that the automaker had cheated on air quality tests that were administered by the United States. The business sought to market diesel vehicles throughout the country. Interestingly, Volkswagen conducted a marketing effort where they claimed their cars had low emission levels since they were aware of the emission standards utilized in America (Hotten par.3). Before allowing the vehicles into the market, the American authorities had to evaluate them first. Between 2008 and 2015, the firm marketed cars on the American market that did not adhere to the requirements for emissions set by the American government. Volkswagen had installed specialized software that manipulated the emissions in the vehicles used for the emission test (Ewing 40).
The software was essential in persuading the regulators that the automobiles weren’t spewing out dangerous gases at quantities that were too high to handle. However, when cars were released into the market, certain environmental researchers began to have some reservations about the pollutants they were producing, which prompted the government to launch an investigation. Their research revealed that the vehicles were releasing up to forty times more than what was legal. As a result, Volkswagen eventually had to respond to an American government request for information about the abnormalities and admit fitting test vehicles with unique equipment that was not included in production vehicles. The Jetta, Golf, and Passat are a some of the car models that the EPA discovered to have broken the rules (Ewing 48). In response to the accusations, Volkswagen acknowledged fitting the test vehicles with a defeat device that wasn’t utilized on the vehicles that were on the road. Due to this, other nations that had a major market for Volkswagen vehicles began looking into them for possible regulatory infractions.
The Volkswagen emissions scandal: Why was it unethical?
Everyone has a right to a healthy environment, according to the Environment Quality Act, which is obviously violated by the affair. In essence, actions or processes that could harm the environment are forbidden by law, making Volkswagen’s activity unethical.
How did the Volkswagen scandal play out?
If you’ve forgotten the specifics, Volkswagen acknowledged installing “defeat devices” in millions of its diesel-powered vehicles in September 2015. The devices used software to detect when the vehicles were being tested for compliance with pollution regulations and then alter the engines to pass.
What moral dilemmas are raised by the Volkswagen Dieselgate scandal?
AUTHENTIC ACTIONS BY VOLKSWAGEN. Volkswagen has been charged with breaking rules pertaining to emissions in its vehicles. On 10.5 million of the company’s diesel vehicles, emission software has been fitted. These so-called “defeat devices” are able to tell if they have been tested.
What impact did the Volkswagen scandal have on consumers?
We discovered a decline in consumer preference for diesel cars. This force was detrimental to BMW and Mercedes-Benz because they kept selling these vehicles after the incident. According to our model, non-VW German automakers lost US$0.7 billion in sales as a result of this effect.
How did Volkswagen react to the controversy?
By installing a notice on their website on September 18, 2015, the US Environmental Protection Agency (EPA) informed the public that Volkswagen and Audi had violated the Clean Air Act “defeat mechanisms that let their vehicles pass inspections while emitting nitrogen dioxide at up to 40 times the legal limit.
The Volkswagen engineers had initially revealed to the EPA on September 3 that defeat devices had been put to 480,000 diesel cars in the USbut the news only reached the wider world on 18 September when the regulator, not Volkswagen, reported the issue.
On September 22, Volkswagen released a video statement in response to the controversy from Martin Winterkorn, who was the company’s then-CEO. Winterkorn reaffirmed Volkswagen’s commitment to working with the appropriate agencies and organizations on any investigations, and he described the company’s determination to “make every effort to undo the harm this has brought about and offered an apology. The declaration concluded with the pledge to “Do everything you can to be as transparent and open as possible.
On September 23, Winterkorn announced his resignation, claiming that Volkswagen “needs a fresh start” overall and that “the process of explanation and transparency must continue. It was also indicated at the conclusion of the declaration that he was “a lack of knowledge of any wrongdoing on his part.
Volkswagen acknowledged on the same day that an astounding 11 million vehicles (worldwide) had defeat devices installed instead of the 500,000 previously reported, and that this practice had been adopted widely for several years.
On November 2, the EPA announced that it had discovered a second defeat device in the other Volkswagen Group automobiles, specifically in Audi, Porsche, and VW 3-litre diesel cars, which has an impact on an additional 85,000 vehicles. In a brief and snappy statement, VW denied installing any software that would change the emissions characteristics.
On November 4, Volkswagen reversed course and acknowledged a third emissions issue: 800,000 vehicles had misrepresented their carbon dioxide levels. The firm said it was allocating $2 billion to address the issue. Despite their dedication to finding a solution, VW executives were only forced to divulge crucial information after being pressed.
Financial Times quotes Bernstein Research analyst Max Warburton as saying, “The press releases from Volkswagen almost seem to be written with the intention of enraging more investors and maybe authorities with their cryptic language.
Audi’s own about-face, in which they acknowledged on November 23 that their 3-liter cars contained an unlawful defeat device, made the problem even worse.
Matthias Mller, the new CEO of Volkswagen, visited the US in January 2016 and spoke with NPR, “VW certainly lied, but we didn’t. Mller had to phone NPR again and change his comments as a result of the backlash.
Concerning what did VW lie?
In 2014, the California Air Resources Board (CARB) requested a research on emissions differences between European and US vehicle models from the International Council on Clean Transportation (ICCT), which compiled information on 15 vehicles from three sources. Five scientists from the West Virginia University Center for Alternative Fuels Engines and Emissions (CAFEE) were among those hired for this project. Using a Japanese on-board emission testing system, they discovered extra emissions on two out of three diesel vehicles while conducting live road tests. [32] [33]
Two other sources of data were also purchased by ICCT. Portable Emissions Measurement Systems (PEMS), created by a number of people in the middle to late 1990s and released in May 2014, were used to generate the new road testing data and the purchased data. [34] [35] [36]
Regulators in several nations started looking into Volkswagen,[37] and in the days following the disclosure, the stock price of the company dropped by a third in value. Martin Winterkorn, the CEO of the Volkswagen Group, resigned, while Heinz-Jakob Neusser, Ulrich Hackenberg, and Wolfgang Hatz, the heads of Audi research and development, were suspended. In April 2016, Volkswagen announced intentions to repair the impacted vehicles as part of a recall effort and allocate 16.2 billion euros (or US$18.32 billion at April 2016 exchange rates)[38] to fixing the emissions problems. Volkswagen entered a plea of guilty in January 2017 and signed an agreed Statement of Facts that based on the findings of an investigation the company had commissioned from US attorneys Jones Day. The declaration explained how engineers created the defeat devices because diesel models needed them to pass US emissions tests and purposefully tried to hide their use. [39] A US federal judge imposed a $2.8 billion criminal fine on Volkswagen in April 2017 for “rigging diesel-powered vehicles to cheat on regulatory emissions testing.” The “extraordinary” plea agreement confirmed Volkswagen’s accepted punishment. [40] On May 3, 2018, Winterkorn was accused of fraud and conspiracy in the US. [15] As of 1 June 2020[update], fines, penalties, financial settlements, and repurchase costs incurred by VW as a result of the scandal totaled $33.3 billion. [41] The majority of the affected vehicles are located in the European Union and the United States, where a number of legal and governmental actions are currently being taken to ensure that Volkswagen has fairly compensated the owners, as it did in the United States, even though it is still legal for them to be driven there.
The controversy increased public knowledge of the greater pollution levels released by all diesel-powered vehicles from a wide range of auto manufacturers, which, when driven in actual traffic, exceeded legal emission limits. Investigations into other diesel emissions issues have begun as a result of a study by ICCT and ADAC that revealed the highest deviations came from Volvo, Renault, Jeep, Hyundai, Citron, and Fiat[42][43][44]. It was brought up that software-controlled machinery was often susceptible to fraud and that one solution would be to make the program available for public inspection. [45][46][47]
Which rules did Volkswagen violate?
In January 2017, Volkswagen consented to enter a guilty plea and pay $4.3 billion in criminal and civil fines.
Volkswagen was the subject of a criminal investigation by the U.S. Department of Justice for conspiracy, obstructing justice, and entering goods by false pretenses. Due to the improper importation of the impacted automobiles, the manufacturer and U.S. Customs and Border Protection have resolved civil fraud claims. (19)
In accordance with that decision, Volkswagen entered a plea agreement in March 2017 to federal charges of conspiring to deceive the United States, committing wire fraud, violating the Clean Air Act, obstructing justice, and bringing in goods using false declarations. The business must pay a criminal fine of $2.8 billion as part of the plea agreement in addition to the $1.5 in civil penalties it already committed to in January. (20)
A federal grand jury charged six Volkswagen executives and staff members for their roles in the conspiracy in January as well.
(21) The attorneys general of 42 states, the District of Columbia, and Puerto Rico are each conducting their own criminal investigations into the firm.
(22)