Volkswagen Emissions Scandal Case Study
The EPA announced allegations against Volkswagen AG (VW)of using a %feat device)n
482,000 of its cars since 2008 in order to make the cars test clean during emissions testing. The
EPA alleged that the company used software that activated full emissions controls only during
testing, but that the rest of the time the cars were running without the emissions controls required
under the Clean Air Act.
In 2014, a study performed by West Virginia University designed to test the nitrogen oxide
(NOx) emissions of several Volkswagen diesel cars while driving on the highway exposed the
companyàdeceit as the vehicles studied produced up to forty times the permitted amount of
NOx gasses. Several other research organizations uncovered the alleged devices in their testing
and referred the information to the EPA. When news of the WVU study reached VW executives
they adamantly denied any wrongdoing. VWàresponse to the crisis was led by Oliver Schmidt.
At the time, Schmidt worked as the General Manager in charge of the Environmental and
Engineering Office and his main responsibility was communicating and coordinating with the
EPA. For more than a year, Schmidt dismissed concerns with promises of recalls and simple
software fixes. Schmidt was well aware of the defeat device but continued to hide it.
Volkswagen eventually admitted that 11 million vehicles had software installed that allowed
emissions control systems to work only during emissions tests. VolkswagenàCEO resigned, and
there continued to be realignments and reappointments into 2016. The head of Volkswagen
North America, only in his position for three weeks, resigned. Initially, Volkswagen attributed
the emissions as `couple of software engineers7ho were fired due to the deception. However,
as more details of the scandal emerged, the story substantially changed.
In 2006, under the direction of CEO Bernd Pischetsrieder, VW created a 10-year plan to
triple US sales. The plan relied on the sales of ìean Diesel6ehicles. Clean diesel was based
on the fact that diesel engines produce little to no C02 and greenhouse gasses. Therefore, the use
of diesel engines may reduce the effects of climate change. However, diesel engines emit NOx
which is one of the primary causes of smog .
In order to create a clean diesel vehicle, VW placed tremendous pressure on employees. In 2007,
Martin Winterkorn took over the company as CEO. Winterkorn has been described as a
demanding boss who abhorred failure. Former executives have described his management style
as authoritarian and aimed at fostering a climate of fear.
However, it was not just executives who felt this growing pressure. Engineers faced the largest
challenge. As early as 2007, Wolfgang Hatz, a high-level VW supervisor was captured on video
saying, (e CARB standards [California Air Resources Board] is not realistic. We can do quite
a bit, and we will do quite a bit. But the impossible we cannot do. ollowing years of research,
the VW engineers concluded that the goal of creating a fuel-efficient clean diesel vehicle not
possible, and began installing the software.
In addition, VW set a goal to become the #1 car manufactured in the world. In 2013, CEO
Winterkorn told a group of journalists: : å won cut back. We will stay in the fast lane.nother VW officer acknowledged in his testimony before Congress that the cheating may have
been triggered by 2essure in the system to get resolutions and also in conjunction with cost
pressure as well. former car company engineer observed: `declared market penetration
goal several times the current status can cloud judgments.s meetings with the regulators continued, one VW engineer stepped forward. In a
meeting between CARB and VW on August 19th, 2015, Stuart Johnson, the head of VWÊEngineering and Environment Office in the Auburn Hills, MI, revealed the existence of a defeat
device. After Johnsonàadmission, the news of the defeat device was released to the public on
September 18th. Five days later, Winterkorn stepped down from the position CEO. German
prosecutors named Winterkorn as a suspect in their fraud investigation and have alleged that the
former CEO knew about the emissions issue earlier than his public statements indicated. In 2021
Winterkorn agreed to pay VW $14 million for his role in the scandal.
After news of the defeat device reached the general public, stock fell 1.9%. Additionally, the
EPA launched a full investigation accusing 39 individuals of fraud and 13 others of fraud and
false advertising. Schmidt was arrested later plead guilty stating, Rve learned that my superiors
that claimed to me to have not been involved earlier than me at VW knew about this for many,
many years. I must say I feel misused by my own company fter being sentenced to seven
years imprisonment Schmidt said, `accept responsibility for the wrongs I committed made
bad decisions and for that I am sorry. For a time, I was in denial that I personally did something
wrong. I justified my bad decisions by telling myself that I was obligated to stick to my
superiors)nstructions.–Wàinternal investigation revealed that it had es-men7ho lacked the courage to speak up
about issues and problems because of the driven culture. Though the deception was wrong,
employees were responding to management demands that left them with the impossible task of
meeting emission goals with no legal way to do so. In conducting the internal investigation of
how the %feat devices#ane to be, VW offered amnesty to any employee who came forward
with information. Employees who came forward were told that they would not suffer
repercussions such as being fired or held liable for any damages.
VW entered a guilty plea to criminal charges on the emissions falsification and agreed to pay a
$4.3 billion fine. VW also agreed to a $28 billion civil settlement for those who purchased the
emissions-deceptive cars.
Sources: Marianne Jennings, Business Ethics: Case Studies and Selected Readings 9th Ed.
(2018)
Kelsi Loudenslager, The Volkswagen Emissions Scandal, A Case Study (2020)
Additional reading:
https://www.justice.gov/opa/pr/volkswagen-spend-147-billion-settle-allegations-cheatingemissions-tests-and-deceiving
https://www.cnn.com/2021/06/09/business/volkswagen-martin-winterkorn-dieselgate/index.html
https://www.cpajournal.com/2019/07/22/9187/

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