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Report on Volkswagen & Toyota Company

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Report focuses upon the Practices adopted by Company during its Conduct of Operations

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Introduction

Ethics are the moral beliefs or philosophies of an individual or group in relation to what is right and wrong. Business ethics is that branch of ethics which is related to study of business policies, practices, structure and corporate governance so as to ascertain that entity does not engage in any malpractice like bribery, stereotyping etc. For any business entity to ensure its sustenance in marketplace for long duration of time, it is necessary that business adopt ethical practices that do not cause any harm to mankind or environment. In the recent decades, practices concerned with conservation of environment and sustainable development have gained significance. The present report is based upon Volkswagen company which is the largest automaker by worldwide sales in 2016. This report focuses upon the practices adopted by the company during its conduct of operations. Volkswagen accepted that in ample number of its vehicles sold across the globe, a defeat device or software was fitted in the diesel engine (Mansouri, 2016).

This was done with the aim of enhancing vehicle performance so as to bring improvements in desired results. A company engaged in this practice so as to pretend that its vehicles follow emission standards and thus, entity carried out the emission test in lab and not on roads (Blackwelder and et. al., 2016). A similar incident happened in Toyota Company where the company concealed information about the flawed pedals of vehicles. In both the cases, the companies passed on the blame over software developers or engineers to escape prosecution. These incidents damaged the reputation of both companies. For any company to become a leader in industry or marketplace, it should possess good corporate image in market so that people can place trust in the company and buy the products manufactured by them. This report will explore main impacts of the Volkswagen scandal upon the different stakeholders and reputation of the company.

Analysis

“The emission scandal of Volkswagen lead to a slump in Workforce's Bonus”

According to Geir Moulson, when the test results in relation to the dishonest arrangement of defeat devices in vehicles manufactured by the company were revealed to public, sales of enterprise was largely affected. To deal with this situation, company decided to reduce the bonus of chief management of entity. This reflected that employees would no more be getting fair wages for carrying out operations within the premises of entity. Also, company publicly made a statement emphasizing upon the reduction in adherence with all those models that called for a fair remuneration for all employees of Volkswagen (Volkswagen says its managers' bonuses will be cut following the automaker's diesel emissions scandal, 2018). This meant that the rational solution for all parties involved in conduct of processes and activities in company was deliberated. Furthermore reduction in bonus was for the management board and also a group of executive positions assisting CEO to operate the company’s daily routine. The bonus of German equivalent of board of directors, supervisory of Volkswagen, would not be substantially reduced except the bonus of Volkswagen Chairman Hans Dieter Poetsch who was the Chief Financial Officer of company. This badly impacted the reputation of company in long run along with the management developing a feeling of being cheated upon by not paying them off properly.

“Volkswagen emissions cheating caused huge cost in relation to human health”

According to Noelle Eckley Selin, by the end of 2016, Volkswagen cars with defeat device produced additional toxic pollution to directly trigger premature death of roughly sixty individuals merely in the United States. In a span of next some years, a large number of Volkswagen diesel cars pumped out nitrogen oxide around forty times more than it was allowed by the Clean Air Act. Nitrogen oxide is a primary element of particulate and smog matter which cause diseases like heart disease, premature death, bronchitis, and respiratory and cardiovascular disease. Researchers have estimated that significant impacts of nitrogen oxide produced by Volkswagen cars endanger 60 human lives from 10 to 20 years prematurely (Krall and Peng, 2015). It is noted that excess of pollution from Volkswagen vehicles participated directly in thirty-one and thirty-four chronic bronchitis and admission of respiratory and heart cases respectively in the United States.US had to incur a huge amount to deal with the large scale sickness of people. Volkswagen was just left with the option to recall all the cars fitted with defeat device otherwise it would have caused many premature deaths (Volkswagen emissions cheating caused $100 million in health costs, according to analysis,2015). Furthermore, diesel cars of company added to the cost. Along with this, release of excessive nitrogen oxide in environment by Volkswagen diesel cars lead to a detrimental phenomenon acid rains. This phenomenon largely impacts the health of people along with having severe effects on nature and natural resource. With such detrimental impacts of the cars manufactured by company upon the environment, the global reputation of company had an adverse impact with company loosing its stake in market along with decline in its profitability.

“Volkswagen Defeat Devices led to a drop in sales of company”

According to Roger Parloff, the Volkswagen diesel scandal had resulted in crucial impact on Volkswagen group brands namely Audi and Skoda. Also, slump in sales of Volkswagen vehicles are far substantial thangroup brands. Volkswagen experienced its first drop in brand sales in 11 years as the company continued to cope with its emissions scandal. Sales of VW brand cars fell 4.8% in 2015 to 5.82 million cars from 6.12 million a year earlier (Ewing, 2017). Falling demand in China and US added to the losses as orders fell in December. VW has promised it will have a fix in the coming weeks for the millions of US cars with defeat devices that disguised emission levels in diesel cars. Sales began declining after the scandal came to light in September. Deliveries fell 5.3% in October, 2.4% in November and 7.9% in December compared with those months the previous year. The underperformance at VW's largest division by sales and revenue pulled down annual group deliveries by 2% to 9.93 million cars, the first drop in 13 years. Volkswagen’s profit tumbled nearly 20% at the start of this year as car sales continued to fall in the wake of the diesel emissions scandal (Hotten, 2015). The bad reputation of Volkswagen has affected its customer loyalty; therefore, costumers switch from Volkswagen to its competitors which lead to a noticeable drop in sales. Since 2002, for the first time, in 2015 sales of Volkswagen plunged world-wide substantially in virtue of deceptive scandal. The following figure represents that Volkswagen’s sales is continuously plunging in the United States. Also, company had to pay huge compensation after the emission scandal took place. (How VW Paid $25 Billion for 'Dieselgate', 2018).

“The emission scandal created Hassel for Volkswagen Dealers”

When diesel emission lab tests took place and results came in front of an audience, a package of specific programs with the purpose of assisting retailers to cope with Volkswagen rigging in diesel emission test was provided to Volkswagen dealers. The program included specific amount of money in form of sales bonus, incentives,or subsidy injected to dealership network struggling with lower sales and profit. The sale of Volkswagen diesel cars, which includes just above 20 percentages of total sales, was stopped (Jung, Chilton and Valero, 2017). Therefore, dealers were still suffering from thin profit and sluggish sales. The amount of loan varied based upon dealer’svolume and reached to the highest amount of ten thousand dollars. Volkswagen crisis grew significantly and affected the brand name whilst dealers were not permitted to sell diesel vehicles. Thus dealers were concerned in relation to the sufficiency of funds. A dealer of the company Steve Kalafer in New Jersey said that the given fund will be utilized to cover the store’s operating costs and to boost marketing budget. Kalafer added that millions of dollars have been expended to strengthen this brand, but the scandal is an international deception; therefore, Volkswagen customers, employees, and investment of dealers have been affected. The concern of employees was about their job security. Another Volkswagen dealer in the east coast came up with a viewpoint saying that dealers of Volkswagen in the United States are not making money or just breaking even (US Volkswagen Dealers Want VW to Pay,2018.). The other dealer of Volkswagen Bill Wallace in Stuart pointed that overall customer traffic has reduced significantly and also it is critical to convert shoppers to sales. General Manager of Volkswagen Tom Backer in New York came up with the view that a proportion of funds will be utilized primarily to close deals with the owner of diesels cars who are unwilling to get into Volkswagen gasoline cars, whilst the rest of discretionary fund will be given to sales workforces with the purpose of improving their satisfaction and motivation.

Conclusion

From the above report, it can be concluded that Volkswagen's public announcement of fitting of defeat devices adversely impacted the reputation of entity. It can be analysed that the diesel scandal in which the company was involved lead to a decline in sales of company for the first time in last 11 years. Also, consequently, the share prices of enterprise fell down significantly. It can also be observed that to deal with the loss that happened to Volkswagen, company announced the cutting down of bonus of chief management of entity. Furthermore, the diesel emission lead to a detrimental impact on human health and caused acid rains which is a threat for the environment. Along with that, it can be concluded that company need to take measures to deal with the damage to reputation of company.

Recommendation

To deal with the loss to corporate image and position, the company can consider three possible solutions. These are, namely, restarting under a new name, joining an independent verification agency or setting up a bond. Volkswagen should implement as many measures possible to tackle with the complex situations that company landed in as a result of the scandal. In the last 60 years, Volkswagen has become a global brand and have a high stake in the market that has been challenged after the scandal. Thus, a company can consider the possibility of restarting the entity under a new name. If the process is carried out, this would lead to enhancement of the public image of the company as this will make it easier to speed up efficiency programs and potentially save the company from losses. Even though the company has its own internal team for examining the emissions of vehicles yet the company can now consider teaming up with other independent verification agencies to regain the trust and belief of consumers along with improving its reputation in the market. A company can also consider posting a bond that assures the public that the similar situation would not take place in future again. This would lead to building up the lost image of company and regaining the credibility of public and also the government. The bond would need a huge finance to be made so that customers can be assured that company truly regrets about cheating with the emission standards and misleading the public as well as law. Volkswagen is a big name in automation industry and company can consider the option of selling any of its brands to collect funds for the bond.

References

Books and Journals

  • Blackwelder, M. and et. al., 2016. The Volkswagen Scandal.
  • Crête, R., 2016. The Volkswagen scandal from the viewpoint of corporate governance. European Journal of Risk Regulation. 7(1). pp.25-31.
  • Ewing, J., 2017. Faster, Higher, Farther: The Inside Story of the Volkswagen Scandal. Random House.
  • Hotten, R., 2015. Volkswagen: The scandal explained. BBC news10.
  • Jung, K., Chilton, K. and Valero, J. N., 2017. Uncovering stakeholders in public–private relations on social media: a case study of the 2015 Volkswagen scandal. Quality & Quantity. 51(3). pp.1113-1131.
  • Krall, J. R. and Peng, R. D., 2015. The Volkswagen scandal: Deception, driving and deaths. Significance. 12(6). pp.12-15.
  • Mansouri, N., 2016. A case study of Volkswagen unethical practice in diesel emission test. International Journal of Science and Engineering Applications. 5(4). pp.211-216.
  • Online
  • How VW Paid $25 Billion for 'Dieselgate'. 2018.  [Online]. Available Through: <http://fortune.com/2018/02/06/volkswagen-vw-emissions-scandal-penalties/>.
  • US Volkswagen Dealers Want VW to Pay. 2018.  [Online]. Available Through: <https://247wallst.com/autos/2016/03/22/us-volkswagen-dealers-want-vw-to-pay/>.
  • Volkswagen emissions cheating caused $100 million in health costs, according to analysis. 2015.  
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