Volkswagen Case

Solution (Step #3):

1. Write at least two best solutions you can imagine to solve theproblem statement. What are the best two scenarios that would make this situation better?

2. List the Strengths, Weaknesses, Opportunities and Threats (SWOT Analysis) of each of the two solutions proposed.

3. Provide a rationale for each of the strengths, weaknesses, opportunities and threats listed and by using relevantcitations or quotations from the text and other resources for support.

Choice (Step #4):

1. Write a clear statement that reflects your choice for change, empowerment, transformation and/or solution for the problem you have identified.

2. The Choice statement can be the best choice from Step #3 above or a synthesis of all three solutions you considered.

3. The choice is a short statement like the problem statement. You should make your arguments in the Solution section and not the Choice section.

Operation (Step #5):

1. Write an operational goal for the choice you selected.

2. Develop four to six specific action steps (enabling steps that will help facilitate and institutionalize the choice you made).

Volkswagen Case

German businesses, industries and municipalities exercise and adhere to sustainability practices. In addition, the German culture has evolved to include sustainable practices. For over 50 years, Germany has enacted national, state, and local laws geared toward environmental and socially responsible policies, which has resulted in Germany being one of the worlds best examples of sustainable country (Buehler, Jungjohann, Keeley & Mehling, 2011). Hence, theworld was shocked when it was announced in September 2015 that the U.S. Environmental Protection Agency (EPA) announced theydiscovered Volkswagen deceived consumers and many governments into thinking several of its models (VW Jetta, Beetle, Golf, Passat, and Audi A3) had acceptable emissions levels when in fact these vehicles were releasing toxic emissions at rates over 40 times higher than required standards allowed.

For a company that made such an explicit commitment to environmental awareness and sustainability, the accusation by the U.S. Environmental Protection Agency (EPA) in September 2015 that Volkswagen (VW) had installed sophisticated software nearly500,000 U.S. vehicles to cheat on emissions test was the beginning of a true corporate catastrophe.

In VWs 2014 Sustainability Report, reviewed by consulting firm PricewaterhouseCoopers, the word environment was mentioned 335 times over 156 glossy pagesan average of twice per page. VW, the worlds largest automaker, had built its reputation on cleaner burning diesel engines that were allegedly better for the long-term sustainability of the planet, attracting tens of thousands of environmentally conscious customers in the process.

The initial estimate of 500,000 cars quickly proved to be far removed from the truth, when VW admitted to discrepancies affecting 11 million vehicles worldwide. VWs Chief Executive Martin Winterkorn resigned in the wake of the growing scandal, and VW announced that it would be setting aside over $7 billion to manage the situation, warning that the final figure could be much higher.

The software, as VW admitted, was designed specifically for the Type EA 189 diesel engines installed in four-cylinder versions of the VW Jetta, Beetle, Golf, Passat, and Audi A3, vehicles that accounted for over 25 percent of the companys global sales. Its purpose was to trick regulators into believing that the engines complied with all current emissions standards while, as was soon discovered, actually emitting harmful pollutants, specifically nitrogen oxide, at rates of over 40 times the required standards.

As the case progressed and further evidence was discovered, any potential defense argument of a miscalculation or computer error was quickly dismissed in the face of hard data that the software was purposely-built for task. While VW continued to refer to the issue as discrepancies and deviations in their frequent communications to stakeholders and the media, the U.S. Department of Justice (DOJ) announced that it was opening a criminal probe into VWs actions related to what the DOJ termed defeat devices. The potential criminal penalties, over and above anticipated EPA fines of up to $37,500 per vehiclea maximum fine of $18 billion made the announcement of a $7 billion set-aside seem naively optimistic at best.

The response from financial markets was swift and severe, with a stunning 17 percent drop in share price for VW on the day of the announcement, wiping out almost $15 billion in corporate value in a day. The prompt departure of Martin Winterkorn was followed by the immediate appointment of Matthias Muller, the chief executive of Porsche, who promised maximum transparency during the upcoming investigations and stated: My most urgent task is to win back trust.

By January 2016, less than four months after the scandal broke, the sincerity of Mullers commitment was already being questioned by DOJ investigators. While VW claimed to be actively complying with German regulators under the confines of strict German privacy laws, the company was citing the same privacy laws for its inability to comply with information requests from U. S. regulators. Citing Germanys Federal Data Protection Act, which limits access to data, particularly outside the European Union. VW took the position that it was still committed to maximum transparency but was obligated to abide by the laws of its home country.

VWs most vocal critics argue that while Muller may be concerned about winning back the trust of VW customers, the companys action will have far-reaching consequences for sustainability and corporate social responsibility. British Petroleum, for example, made an explicit commitment to changing BP to mean Beyond Petroleum before the reputation of the company was irreparable damaged by the Deepwater Horizon oil spill in the Gulf of Mexico. It is argued that VWs deliberate actions to hide emissions of a pollutant that has an impact on atmospheric warning of 300 times that of carbon dioxide will make it much harder for investors and consumers to believe any company that states it is committed to environmental sustainability.

In the six months following the EPA announcement, the situation had not improved for VW. Since the defeat device was designed to beat emissions test while maintaining the fuel efficiency that VW marketed so aggressively, there no software solution to the problem. The vehicles do not meet emissions standards, which means that buyers will have to be compensated for an outcome that has yet to be decided. Should buyers receive financial compensation or a replacement vehicle? What about EPA fines and DOJ penalties? All of that remains to be resolved in what will most likely be a lengthy series of lawsuits.

In March 2016, VW failed to meet a court deadline to present a plan to resolve the scandal. The presiding judge gave the company an extension until late April, but expectations among all interested parties were that the extension would be missed, leading to a civil trial.

In the light of its commitment to sustainability and corporate social responsibility what would you do to restore confidence in VW in the global marketplace and begin to fix the issues at hand if you were the current CEO, Matthias Muller to save VW?