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This report shall discuss the issues about the Volkswagen Emission Scandal 2015. The purpose of this report is to critically analyse the product, revenue and ownership of Volkswagen. This report shall also address the events, for which the company is being criticised and its impact on the economic performance of the company. Brief research shall be conducted on how the events were resolved. Lastly, the report will conclude and make some recommendations as to the issues that the company faced and its outcome based on the secondary sources of data collection.
Volkswagen was fined with £ 1.2 billion as the Environmental Protection Agency observed that the cars sold in America had a software installed in it to cheat the emission test (Nasr 2017).
Products, revenue and ownership of Volkswagen
Volkswagen is known to sell passenger car under the brands like Bentely, Audi, Bugatti, Porsche, Lamborghini, Skoda, SEAT and Volkswagen marques. It also sells motorcycles under the brands like Ducati and commercial vehicles of Volkswagen (Forbes.com 2015). It is one of world’s largest manufacturers of automobile which has a net worth of more than $75 billion as per the report of 2017. In the fiscal year of 2017, the group’s revenue has increased by almost 6.2% year on year up to € 230.7 billion for the volume related factors. In the year 2017, the sales revenue for Volkswagen’s passenger cars were estimated to be 188,405, while the sales revenue for the commercial vehicles were 35,200(Topham et al. 2015).
The Volkswagen Group is the owner of some well famous vehicle brands. It has a majority share in Audi, Porsche and Scania. Volkswagen solely owns the Skoda Auto, Ducati and Lamborghini. The group chooses the car brands very wisely as some of the most recognised car brands are owned by them.
Events for which the company is being criticised
Volkswagen has been criticised for the Volkswagen Emission Scandal 2015. It admitted that their 11 million vehicles was installed with a software that was used to fraud on the emission test of the cars. The software was able to sense when the car was being tested for emission test. The software activated an equipment which can reduce emission while it was undergoing the test. It then turned the emission up when it is on-road driving. When the scandal was emerged in 2015, thousands of cars were recall to test across the world (bbc.com 2016). Volkswagen group admitted to pay £12.3 billion for settlement in America for this scandal. In 2018, a lawsuit was brought against the group which was represented by more than 55,000 owners for the Dieselgate Scandal (Krall and Peng 2015).
Impact of the event on the Volkswagen’s Economic performance
Drop on the sales
The Volkswagen group faced a 20% tumble in its profit at the starting of 2016, after its Emission Scandal. The car sales fall down and affected their economic performance after the scandal. The company said that the revenues turned down up to 3.4% for the decline in the sales of the vehicles. The group revenue faced a fall up to 5% in the year 2016, compared to the previous year. The Volkswagen group faced a 20% tumble in its profit at the starting of 2016, after its Emission Scandal. The car sales fall down and affected their economic performance after the scandal (Burki 2015). The company said that the revenues turned down up to 3.4% for the decline in the sales of the vehicles. The group revenue faced a fall up to 5% in the year 2016, compared to the previous year.
Drop in the shares
This unethical practices of Volkswagen has led to a notifiable slump in their share value. Immediate after the scandal was revealed, the share market showed reaction as the share price dropped by almost one third( Gomez 2016). The emission scandal has wiped down billions of dollars from Volkswagen values.
The Emission Scandal has put an impact over its economic performance. As provided in the appendix 1, the table 1 represents that the scandal resulted in a fall of end-of-day stock price of up to 33 percent within the following two days of the scandal.
The group faced a fall in the volume sales in the month of October. The cost of fixing the alleged vehicles, the government fines and the private settlements has caused billions of losses to the company. It has also affected the future sales for the fall in the perception of the customers. Volkswagen ended up spending almost $9.5 billion for the emission scandal (Blackwelder et al. 2016).
How the events were resolved and how they have affected the long term value of Volkswagen
To win back the faith and trust of the customer the group really left no stone unturned. They had conducted an internal investigation. They recalled millions of cars from across the world. The company had set aside €6.7 billion to cover the costs (Mansouri 2016). In US the Volkswagen Group recalled for 482,000 of its cars as the result of the emission scandal. While the number was 8.5 million in Europe, 1.2 million in UK and 2.4 million in Germany. The company experienced their first quarterly loss for 15 years in October of €2.5 billion (Ewing 2015). It has not only resulted in the economic loss, but the long term value of Volkswagen also. According to the survey conducted by a shopping site, more than 21 percent among the 400 TDI owners said that, they would not buy another Volkswagen.
For this purpose, the secondary data collection method was chosen to collect data based on this scandal. In preparing this report, the use of the scientific approach has helped in ensuring data accuracy in respect of the scandal. The use of deductive approach has helped to relate the data with the existing data and information in a way to analyse its impact on the economic performance of the organisation. As per a recent report based on Volkswagen Emission Scandal, it has been observed that the incident has reportedly reduced 30 million USD of the share of this company. It has also resulted to the resignation of the CEO. The defeat device was used to evade the emission test by not breaking any regulations (Schiermeier 2015). The devices were used in 25 percent of the Volkswagen vehicles all over the world. The company has received a backlash for this scandal against their reliability, environmental analysis responsibility and their economic performance.
As per the case study description on this scandal, VW Group of American Inc on the very date of this scandal, declared an immediate stop-sale of 4 cylinder in their dealer inventory. Table 2 in the appendix represents the storyline of this scandal.
It has been identified that Volkswagen had told the environmental regulator that the emission level difference at the testing time and on open road were just a technical error. Volkswagen admitted about the tampering of emission result in the testing only after EPA threatened them to withhold their approval on the Volkswagen and Audi models in 2016.
The installation of defeat software in the diesel cars and Volkswagen Emission Scandal was an attempt to falsify or manipulate the results of emission test had affected the public and mainly the car owners all over the world. The scandal has not only affected the reputation of the company itself but it has also left a footprint on the environment. The emission level has highly affected the people living in the exposed environment. However the company has taken numerous efforts to repair the situation and gain the trust of the damaged relationship with their stakeholders who has been affected by this case. The company had withdrawn their diesel vehicles also from the market in order to compensate the allegation. The company has really worked hard with their marketing effort since then by recalling the affected vehicles that are already present on road. For this unethical and illegal practice, the company had paid paid hefty of fines.
The situation could have been avoided if there was a collaboration between the CEO, senior executives and the workers. From the above argument, it can be recommended that the ethics, morality and legal consequences should be communicated by the employers to the workers properly, in order to avoid this kind of phenomenon. In modern business model the connectivity between mechanical engineering skills with the environmental protections and information technology is highly required. In the recent business environment, no manager or employee could be sufficient enough to identify and master every necessary information within an organisation. There should be an open communication and collaboration between the employees as they possess different levels of knowledge. They should be willing enough to accept the opinion of the other experts to achieve the success. It is also important that employees in an organisation, all the way down from the CEO to workers, feels free to share their opinion. To a company like Volkswagen, information exchanging will help to avoid this kind of consequences.