Volkswagen group is one of the leading automakers in the world. Founded in 1937 by the German Labor Front, it has built a reputation for making quality passenger cars. Over the years, the company has made numerous efforts to manufacture cars that are conscious of the environment, especially in the contemporary world where everyone is struggling with the effects of global warming. In a bid to conform to the environmental protection regulations, the company embarked on a program to manufacture cars whose emissions did not contribute to increased concentration of greenhouse gases into the atmosphere (Ewing 19).
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All their cars were supposed to undergo laboratory tests in various markets concerning their environmental regulations. One of the countries that have shown strict adherence to its emission control programs in the United States. As a globally recognized automobile maker with enormous corporate, social, and ethical responsibilities, Volkswagen was expected to conform to the regulations set in the United States as one of its leading markets. However, the company’s reputation was highly compromised in 2015 following a discovery by the United States Environmental Protection Agency (EPA) that it had acted against the Clean Air Act (Ewing 27). According to EPA, Volkswagen had specially programmed the cars that it had presented to undergo the emission tests in a bid to meet the American standards, whereas the cars it released into the market did not have the same regulatory tool.
Summary of the Ethical Dilemma
The ethical dilemma that Volkswagen experienced was necessitated by claims that the automobile maker had cheated on the air pollution tests subjected by the United States. The company had intended to sell diesel cars in the United States. Interestingly, because they were aware of the emission regulations used in America, Volkswagen launched a marketing campaign where they presented their cars as having low emission levels (Hotten par.3). However, the American authorities had to test the cars first before being allowed into the market. The vehicles that the company sold in the American market between 2008 and 2015 did not meet the emissions standards that the American government had set. Volkswagen had installed the cars using for the emission test with special software that altered its emissions (Ewing 40).
The software played a crucial role in convincing the authorities that the cars were not emitting harmful gases into the atmosphere beyond unmanageable levels. However, some environmental researchers developed certain concerns with the car emissions after they were introduced to the market, forcing the government to conduct investigations into the matter. Their findings showed that the cars were emitting up to forty times beyond the allowed limits. This eventually led to the American government demanding explanations from Volkswagen about the anomalies, with which they admitted to having installed the test cars with special devices that were not fitted into the ones on the road. Some of the car models that EPA found to have violated the regulations include Jetta, Golf, and Passat (Ewing 48). On its part, Volkswagen responded to the allegations by admitting to having fitted the test cars with a defeat device that was not used on the ones that were on the road. This prompted other countries that a huge market for Volkswagen cars to start investigating them for regulatory violations.
The Reaction of Volkswagen
Volkswagen reacted to this scandal as soon as it was highlighted by media in the United States and other parts of the world. Senior management officials at the automobile maker responded to the shocking allegations with a lot of regret for their unethical behavior and breaking the trust of millions across the world, which they had done so much to earn over the years. Also, the company promised to look into the matter from within, coupled with the promise to give all their full cooperation to the regulators in a bid to clean up the mess. The scandal led the company’s Group Chief Executive Officer Martin Winterkorn to resign coupled with a third fall in the stock price (Ewing 88). The company’s management board further responded to the scandal by suspending senior members of the management team that included Heinz-Jakob Nuesser, who was the head of brand management at the time.
The heads of research and development for its Audi and Porsche affiliated brands were also suspended. Although the company’s officials had initially tried to claim that the analogies were caused by software irregularities, the later admitted to doing wrong and acting dishonestly much to the expense of their loyal customers who had shown a lot of faith in their cars (Hotten par.4). The group’s Chief Executive Officer for North America Michael Horn openly admitted that the company had acted against its values and the principle of the common good. In a bid to address the situation, the company launched a recall campaign aimed at rectifying the anomalies that had been detected.
Volkswagen set aside more than $18 billion to cater for the expenses that would be incurred throughout the campaign (Ewing 103). The scandal has dragged on since then, with the results of the investigations it had commissioned being released early in January this year. Volkswagen pleaded guilty to the charges they were accused of keeping the information about the defeat devices to themselves. In April this year, a federal judge ordered the company to pay a fine of $2.8 billion for cheating the American government (Ewing 105).
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Ethical Perspective of the Responses and Possible Alternatives
Although the actions of Volkswagen did not deserve any praise at all, how they responded to the scandal was very ethical. In such a situation, the only thing that such a reputable global company can do is to offer its sincere apologies to the people affected by their actions, as well as suspending and sacking all the employees responsible for the scandal (Hotten par.6). However, the company could have used alternative strategies in responding to the scandal. First, Volkswagen should not have admitted that they lied during the emission tests. The main reason for doing this is the need to save their reputation, image, and goodwill from the public.
They could have argued that they were not aware of the problem, but immediately offer to recall all the cars and make the necessary changes. This could have helped in making the public believe that they were not selfish or did not care about the welfare of their customers. The probable consequences of this response would be that it would have saved the company a lot of the money they paid as fines and goodwill to their customers. The second alternative response that Volkswagen could have given is that the testing process used by the American authorities was faulty. This would have provided them with good grounds for arguing their case given that all their cars had the same problem. However, this response would have serious negative financial consequences because the test would be done again in addition to re-engineering all the recalled cars at the company’s expense.
Effect on Stakeholders and their Relationships
Reports indicate that the emissions scandal by Volkswagen has had numerous negative effects on its stakeholders and those in the automobile industry as a whole. One of the major effects that hit the company as soon as the scandal was revealed was a significant drop in its stock prices. At the Frankfurt Stock Exchange, the company’s stock value lowered by 20% on the first day of trading following the pronouncement of the scandal (Ewing 173). This had a significant effect on other automakers such as BMW and Daimler, whose stock values fell by 4.9% and 5.8% respectively. At the time, Qatar was listed as one of the major shareholders in Volkswagen. Following the scandal, the Arab country lost almost $5 billion because of the lowered stock value (Ewing 175).
However, reports indicate that the emissions scandal provided an awakening call to other automakers across the world, as calls for managing the high levels of air pollution caused by car emissions gained momentum. Automakers that manufactured diesel cars were on high alert as investigations had established that diesel vehicles had emissions that exceeded the allowed limits (Hotten par.9). Therefore, makers of cars such as Volvo, Mercedes, Jeep, and Renault used the diesel emissions scandal to make the necessary changes. Experts in the automobile industry argue that the Volkswagen scandal could be easily be described as a blessing in disguise for the industry stakeholders because it has played a major role in creating the necessary awareness about the role that they can play in reducing the greenhouse effect.
Some industry stakeholders believe that conforming to emission regulations would hurt their business models, especially in terms of achieving their current sales. In particular, Renault argued that diesel cars would become less affordable because the cost that would be incurred in re-engineering the cars for compliance purposes would be extended to the consumer (Ewing 201). This would in turn lower their competitiveness in the contemporary market that is quickly embracing electric cars. This position has helped to bring the stakeholders together because they need to show their solidarity in addressing concerns affecting their industry.
All organizations have an ethical responsibility of promoting the common good through the products and services they offer. Volkswagen is a reputable global company that should act as a market leader about promoting ethical behavior. The diesel emissions scandal was a bad move that placed it in a big ethical dilemma that left its reputation highly compromised. The scandal is a clear manifestation that they are greedy and do not consider the welfare of their customers as long as they have met their sales target. Although the company has been making numerous efforts to restore its dignity, industry stakeholders have shown their solidarity with the German automaker because the scandal helped to highlight some of the loopholes that need to be sealed to develop the industry. In business, it is important to remain truthful and always strive to promote the common good.
Ewing, Jack. Faster, Higher, Farther: The Volkswagen Scandal. Independent Publishers, 2017.
Hotten, Russell. “Volkswagen: The Scandal Explained.” BBC News. 2015, Web.