1. E N G I N E E R I N G A D I S A S T E R
"DIESELGATE"
Abbie O'Brien, Liz Starr, Morgan Iversen, Adam Nunez
2. "Volkswagen you might not have
broken your employees's hearts,
but you most certainly have broken
over 11 million of your customer's
hearts, shameful"
- Francis O Sullivan
3. Headquartered in Wolfsburg,
Germany & founded in 1937
Originally owned by the German
Labour Front
1950s: more than half of the
passenger cars produced in
Germany were Volkswagens
Sales in the U.S. lagged due to the
car’s small size, unusual rounded
appearance and the company’s
historical connection to Nazi
Germany
Mid-1950s: Volkswagen of America,
established
1960: VW denationalized and sold
60% of stock to the public
2015: VW was the world’s largest car
manufacturer by volume after
surpassing Toyota
VOLKSWAGEN:
A BRIEF HISTORY
4. GERMAN
BU SINESS
CULTURE
Germany: one of the world's leading
exporters
Hierarchical decision-making
Those in positions of power emphasize
punctuality and are assertive and refrain
from sugarcoating criticisms
German business culture contains the
following values: formal, inflexible,
professional, punctual, blunt and fair
"This is North Korea minus the labor
camps” – Der Spiegel, 2013
7. S E P T E M B E R 1 9 , 2 0 1 5
VW was issued a formal
citation from the EPA for using
“defeat devices” to trick and
cheat environmental
emissions tests
During a test, it was
discovered that Volkswagen
low emissions vehicles
released abnormally high
levels of toxic gas
8. Devices installed into VW's diesel vehicles that could alter the performance
of the vehicle by sensing when it was under testing conditions,
subsequently changing the vehicle’s performance to produce false
emissions results in an effort to pass U.S. emissions tests
DEFEAT DEVICES
9. Timeline
Early 2006:
VW wanted to increase
the already low US
market share by
introducing fuel-
efficient diesel
engines to compete
with Toyota.
Nov. 2006:
Meeting where illegal
software idea was
formulated.
May 2014:
VW product
troubleshooter warns top
managers in memo that
regulators may
investigate legitimacy of
the diesel engines but it's
likely Winterkorn
ignored or did not read
memo
2013:
A team from West Virginia
wins grant to test whether
diesel cars produce more
emissions in tests versus on
roads and discover VW
emits far more poisonous
gas than allowed.
Spring 2015:
VW recalls diesel
vehicles in the US-
saying a simple
software fix will
work.
Spring 2014:
VW execs and
engineers try to cover
up illegal software by
feeding the regulators
false and misleading
data, the company
later admits to this in
plea agreement.
Sep. 3, 2015:
VW expresses
and admits that
their diesel cars
have the defect
device.
Sep. 18, 2015:
Volkswagen
recalls 481,000
diesel cars
10. Timeline
Sep. 19, 2015:
Public learns of
fraud after VW is
given a formal
notice of EPA
violation
Sep. 23, 2015:
Winterkorn
resigns- blames
wrongdoing on a
small group of
engineers.
June 2016:
VW agrees to a
$14.7 billion
settlement in US
to deal with civil
complaints and
consumer
lawsuits.
Sep 2016:
VW engineer pleads
guilty in the US to
conspiring to
defraud regulators
and owners.
Jan 2017:
- $4.3 billion fine
- US prosecutes
6 former VW
execs
VW pays $21
billion overall
- 37 people
involved in the
scandal
March 2017:
German prosecutors
raid offices of Audi
which escalates
investigation into the
company's
wrongdoing.
August 25, 2017:
James Liang, VW
engineer, is
sentenced to 40
months in prison,
(first VW
employee to go to
jail)
May 3, 2018:
Martin Winterkorn,
former CEO of VW,
charged with fraud and
conspiracy in the U.S.
June 18, 2018:
Rupert Stadler,
CEO of Audi
(owned by VW)
is arrested in
Germany due to
links to diesel
emissions
scandal.
13. Consumer Response
Although VW claims that customer satisfaction is a top
priority, consumers felt betrayed after the emissions
scandal came to light.
Initiatives to win back consumer trust:
Dealer reimbursements
“Goodwill Packages”
Buy back of all the vehicles
manipulated with defeat devices
“My most urgent task is to win back trust for the
Volkswagen Group – by leaving no stone unturned and
with maximum transparency.”
- Matthias Muller, CEO
14. Media Response
Initially, VW was silent.
Only post was the apology response from CEO Martin
Winterkorn. The video calls the emissions scandal, “the
mistakes of a few people.”
“It’s a shame for VW and it’s a shame for corporate
America.”
- Robert Dreebin, angry customer
September 27: VW updated FAQ page, informing customers
on questions such as: Is my vehicle safe to drive? This
response was the only one given to the public on the scandal.
Complaints from customers came from social media accounts.
Hashtags like #BuyBackMyTDI, #VWCares, and #VWGate
appeared
15. Economic Impact
VW's market capitalization dropped 40% within 2 days
Costs for potential lawsuits, more research to meet
emissions requirements, and the impact on the brand’s
reputation add up for VW
“Volkswagen brand sales worldwide rose to a record
6.23 million cars in 2017, with demand in the United
States growing for the first time since 2013"
VW’s total damages are $21 billion as of January 2017
VW is knocked down one notch on Moody’s Investors Service
(measures anticipated investor loss)
17. Competition w/ American
Companies
Toyota Prius changed the way Americans bought cars
Engineers + executives saw need to increase share/ break into the
American market -> Decided it was necessary to build a low emission
diesel engine to compete with the Prius
Executives + engineers learned America had stricter limitations on
what could be considered “low-emission." Desperate to dominate the
American market, VW proposed an illegal software to perform
differently under testing conditions
Later claimed insufficient “time frame and budget” to make their engine
fit within American standards
18. The Scandal Made in
Germany
November 2006 meeting in Germany was where initial idea of
cheating the environmental tests + creating illegal software took
place
Most of the blame fell on German CEO, Winterkorn + discord was in
Germany
May 2014: VW troubleshooter attempted to pass on info regarding
impending investigation to higher level executives, but was denied
due to Germany's climate of fear in business
Because of the strict culture, no ideas were shared -> difficult to
believe Winterkorn had no involvement in the scandal. VW admitted
their wrongdoing by apologizing but insisting they did not lie or
deceive any customers
20. CEO Mark Winterkorn releases apology video on September
22, 2015
The next day Winterkorn resigns and VW appoints Matthias
Müller as the new CEO
New company goal “Winning back trust for Volkswagen”
“Goodwill Package” for consumers affected by scandal
3 years of roadside assistance and $1,000 in monetary rewards
Used to repair brand loyalty
Transform 2025+
New strategic plan shifting focus to maximizing profitability
VW reached a settlement with the EPA in December 2016
VW paid the largest criminal fine ever levied on an
automaker in January 2017
Totaled more than $4.3 billion
21. CONCLUSION
Volkswagen own company culture and the German business
culture was a reason why this case worked out the way it did
Scandal showed the effects of deception and how the
inappropriate handling of a scandal can damage a company
