Volkswagen Emission Scandal Case Study
MURAT SAKAOĞLU – MMBA 2015-17
0053498
MGMT512 – CORPORATE GOVERNANCE EXAM – I
Volkswagen Emission Scandal
In September 2015, World, especially U.S, was shocked by the emission scandal of No.1 car maker
Volkswagen emission scandal. Company had to recall approximately 500.000 cars in US and lots of
them from Europe, South Korea etc. It got lost approximately 2 billion dollars just because of this
scandal. The cost of the Company’s reputation loss and other governmental sanctions are plus.
For any automotive company, they need to get official approval from the state to be able to start selling
their products. Emission tests are hard to pass and crucial for car makers due to that strict rules and
low carbon output targets …show more content…
In 2015, it is detected that the emission software of the
car understands that the emission drive cycle is being performed in that particular moment and
arranges all parameters like injection time, pressures, urea spraying amount to meet the requirements
for passing the test. It is also detected that in real life driving, car releases approximately 40 times
higher than the regulation limit. This was an obvious cheating of state regulations and naturally laws.
After two days of recalling the diesel cars, the CEO of the VW Group, Martin Winterkorn made a speech
and said their ‘deeply sorry’ about the scandal. Then the company appointed Matthias Müller as CEO
of the company and blamed a few engineers and technicians for that scandal.
VW group faced a lot of investigations from all over the world as a result of this scandal. These ones
are civil, criminal and administrative actions. According to VW’s 2015 Annual Report, the cost of this
cheating is about $18.4 billion for legal costs, risks and liabilities in addition to car recalls. The stock
prices fell approximately %40 and naturally brought reputational losses as …show more content…
Naturally, the company and the board should
be aggressive and hungry for growth especially in U.S market. The small diesel engines are the best
way to dominate the market by showing low pollution as an advertisement material. In this
environment; short-term incentives, not being transparent and lack of auditing are the first corporate
governance issues come to my mind.
Now the company is trying to get back to normal and gaining the trust of customers and investors
again. Recalling of the cars, fixing them, new electrical model announcements and aiming to be
industrial leader are the major external actions could be taken by the company. In my opinion these
will be sufficient for the customers. But to convince investors and gain trust of them; there are major
actions which should be taken internally. Because company culture is a big determinant behind that
scandal. VW had an authoritarian and pivotal company culture and this needs to be changed.
An U.S law firm announced that VW has started an internal investigation and tried to find the
0053498
MGMT512 – CORPORATE GOVERNANCE EXAM – I
Volkswagen Emission Scandal
In September 2015, World, especially U.S, was shocked by the emission scandal of No.1 car maker
Volkswagen emission scandal. Company had to recall approximately 500.000 cars in US and lots of
them from Europe, South Korea etc. It got lost approximately 2 billion dollars just because of this
scandal. The cost of the Company’s reputation loss and other governmental sanctions are plus.
For any automotive company, they need to get official approval from the state to be able to start selling
their products. Emission tests are hard to pass and crucial for car makers due to that strict rules and
low carbon output targets …show more content…
In 2015, it is detected that the emission software of the
car understands that the emission drive cycle is being performed in that particular moment and
arranges all parameters like injection time, pressures, urea spraying amount to meet the requirements
for passing the test. It is also detected that in real life driving, car releases approximately 40 times
higher than the regulation limit. This was an obvious cheating of state regulations and naturally laws.
After two days of recalling the diesel cars, the CEO of the VW Group, Martin Winterkorn made a speech
and said their ‘deeply sorry’ about the scandal. Then the company appointed Matthias Müller as CEO
of the company and blamed a few engineers and technicians for that scandal.
VW group faced a lot of investigations from all over the world as a result of this scandal. These ones
are civil, criminal and administrative actions. According to VW’s 2015 Annual Report, the cost of this
cheating is about $18.4 billion for legal costs, risks and liabilities in addition to car recalls. The stock
prices fell approximately %40 and naturally brought reputational losses as …show more content…
Naturally, the company and the board should
be aggressive and hungry for growth especially in U.S market. The small diesel engines are the best
way to dominate the market by showing low pollution as an advertisement material. In this
environment; short-term incentives, not being transparent and lack of auditing are the first corporate
governance issues come to my mind.
Now the company is trying to get back to normal and gaining the trust of customers and investors
again. Recalling of the cars, fixing them, new electrical model announcements and aiming to be
industrial leader are the major external actions could be taken by the company. In my opinion these
will be sufficient for the customers. But to convince investors and gain trust of them; there are major
actions which should be taken internally. Because company culture is a big determinant behind that
scandal. VW had an authoritarian and pivotal company culture and this needs to be changed.
An U.S law firm announced that VW has started an internal investigation and tried to find the