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Volkswagen

In: Business and Management

Submitted By sweethyp
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How should a worldwide auto maker regain trust after brands disaster?
A case study on Volkswagen Group

Daniel HARMAN 620019565 dh325; Jeffery YIM 620022358 jy28;
Ka Ying MAN 640042125 km499; Wing Tim MAN 650052933 wm259;
YuPeng Huang 650003422 yh379; Zhihan GUO 650058943 zg234

Outline
Emissions scandal of Volkswagen Group and its importance
Reasons for comprehending the scandal
Analysis of the case
Implications for international enterprises
Recommendation
References

Emissions scandal of Volkswagen Group and its significance

Emissions scandal of Volkswagen Group





Pass emissions tests by cheating
Have to recall 11 million of carsestimated cost would be €6.5 billion Share price dropped from
€162.40 on Sep 18 to €106 on
Sep 22

Volkswagen AG VOW.DE (XETRA) in Euro

Source: Reuters (2015)

Reasons for comprehending the case

Source: Volkswagen (2014) Volkswagen Sustainability 2014 At A Glance, p34

Reasons for comprehending the scandal


United States is the second largest auto market



Volkswagen Group is the largest auto maker



Many international firms face brand crisis and should know how to renounce Analysis of the case

Institution based view
The leading perspective in international business suggests that


Firms’ performance is determined by the institutional frameworks to a great extent.

Institutional transitions


Fundamental and comprehensive change introduced to the rules of game that affect organizations



Create opportunities and challenges

Functions of institutions


Reducing uncertainty




Influence decision-making

Reducing potential opportunistic behavior


Enforce punishments

Formal Institutions (US & EU)


Nitrogen oxide pollutants emission above the United States standard up to 40 times

Formal Institutions (China)
Fact


Only 15% vehicles run on diesel, which are mainly trucks and buses

Reasons



Incentives on the use of new and cleaner energies
Strict control on the use of diesel cars

Result


Volkswagen Group does not produce diesel passenger cars in China

Informal Institutions


Culture and norms
○ Liberal contractualism



Ethics
○ Environmental concerns



Value
○ Transparency

Informal institutions
United States

Germany

China, PRC

Culture and norms:
Higher
Liberal Contractualism

Higher

Relatively lower

Ethic: environmental concerns More

More

Increasing

Values: Expectation to transparency Higher

Higher

Relatively lower

Based on the concept of cultural clusters, national cultures do not necessarily equal to organizational culture, regardless of the individual culture, there are flaws regarding the accuracy of this analysis and could be over generalized

Corporate social responsibility
Corporation has


obligations both economically and legally



responsibilities to society beyond these obligations

Volkswagen Group’s claimed results

Goals of Volkswagen Group (profit)


Leader in customer satisfaction (2018)



Group return on sales before tax >8% (2018)



Annual sales of more than 10 million vehicles (2018)

Goals of Volkswagen Group (people) (highlighted)


Top employer in the automotive sector (2018)



Provide excellent qualification within all the professional families) (ongoing). Strengthen dual vocational education and training internationally (2018)



Increase the proportion of women to 30% at all levels of management in the Volkswagen Group in Germany (in the long term)

Goals of Volkswagen Group (planet) (highlighted)


Reduce energy and water consumption, waste and emissions per unit produced across the Group by 25% (2018)



Be the market leader of electric mobility (2018)



Cut European new car fleet CO₂ emissions to 95 g CO₂/km
(2020)

Implications for international enterprises

Implications


Demonstrates the need for further regulation



Emphasises the importance of acting morally, if you “cheat” you’re likely to get caught, no matter how big the company is.
○ “Too big to fail” ideology



Scandal has yet to be fully resolved- further implications could arise in the future Implications for international enterprises
Formal institutions
● Having tough standards that car manufacturers are unable to meet
Informal institutions
● Organizational culture focuses too much on profit maximization
● Formal and informal institutions affect the firm's behaviors
● Failed to meet the expectations on both legal and cultural grounds

Recommendation

Measures taken
July
2015

3rd
Sept

Environmentalist
VW
questions confession 18th
Sept

20th
Sept

21st
Sept

22nd
Sept

23rd
Sept

24th
Sept

25th
Sept

7th
Oct

Authorities go public

Winterkorn
‘sorry’

Stock sinks

11-million vehicles affected

Winterkorn resigns EU urges probes New chief executive, US ban

CEO interview, announce plan Measures taken
July
2015

3rd
Sept

Environmentalist
VW
questions confession 18th
Sept

20th
Sept

21st
Sept

22nd
Sept

23rd
Sept

24th
Sept

25th
Sept

7th
Oct

Authorities go public

Winterkorn
‘sorry’

Stock sinks

11-million vehicles affected

Winterkorn resigns EU urges probes New chief executive, US ban

CEO interview, announce plan Launched an internal inquiry
Volkswagen admits to Carb and EPA that it deliberately installed the software in its cars

Measures taken
July
2015

3rd
Sept

Environmentalist
VW
questions confession 18th
Sept

20th
Sept

21st
Sept

22nd
Sept

23rd
Sept

24th
Sept

25th
Sept

7th
Oct

Authorities go public

Winterkorn
‘sorry’

Stock sinks

11-million vehicles affected

Winterkorn resigns EU urges probes New chief executive, US ban

CEO interview, announce plan Winterkorn offers “deepest apologies”
Admitted "broken the trust of our customers and the public", will “co-operate fully” , “will do everything to re-establish” that trust.

Measures taken
July
2015

3rd
Sept

Environmentalist
VW
questions confession 18th
Sept

20th
Sept

21st
Sept

22nd
Sept

23rd
Sept

24th
Sept

25th
Sept

7th
Oct

Authorities go public

Winterkorn
‘sorry’

Stock sinks

11 million vehicles affected

Winterkorn resigns EU urges probes New chief executive, US ban

CEO interview, announce plan Found out 11 million vehicles equipped cheating software

Measures taken
July
2015

3rd
Sept

Environmentalist
VW
questions confession 18th
Sept

20th
Sept

21st
Sept

22nd
Sept

23rd
Sept

24th
Sept

25th
Sept

7th
Oct

Authorities go public

Winterkorn
‘sorry’

Stock sinks

11-million vehicles Winterkorn resigns EU urges probes New chief executive, US ban

CEO interview, announce plan CEO resigned

Measures taken
July
2015

3rd
Sept

18th
Sept

Environmentalist
VW
questions confession 20th
Sept

21st
Sept

22nd
Sept

23rd
Sept

24th
Sept

25th
Sept

7th
Oct

Authorities go public

Winterkorn
‘sorry’

Stock sinks

11-million vehicles Winterkorn resigns EU urges probes New chief executive, US ban

CEO interview, announce plan The new CEO promises to do everything to shed light on the affair and attempt to win back trust for the Volkswagen Group

Measures taken
July
2015

3rd
Sept

Environmentalist
VW
questions confession 18th
Sept

20th
Sept

21st
Sept

22nd
Sept

23rd
Sept

24th
Sept

25th
Sept

7th
Oct

Authorities go public

Winterkorn
‘sorry’

Stock sinks

11-million vehicles Winterkorn resigns EU urges probes New chief executive, US ban

CEO interview, announce plan Volkswagen Group announces plans to launch a recall in January of millions of cars
Hopes to have all of the vehicles repaired by the end of 2016

Measures taken

Europe: Recall 8.5m diesel cars across
“Give customers clarity with regard to the continued unrestricted use of the vehicles” (Will begin recalling cars in January)

Measures taken
US: Recall almost 500,000 cars
€6.5bn (£4.7bn) to cover costs
(Will begin recalling cars with EPA approval)

Europe: Recall 8.5m diesel cars across
“Give customers clarity with regard to the continued unrestricted use of the vehicles” (Will begin recalling cars in January)

Measures taken
US: Recall almost 500,000 cars
€6.5bn (£4.7bn) to cover costs
(Will begin recalling cars with EPA approval)

Internal inquiry

Europe: Recall 8.5m diesel cars across
“Give customers clarity with regard to the continued unrestricted use of the vehicles” (Will begin recalling cars in January)

Measures taken
US: Recall almost 500,000 cars
€6.5bn (£4.7bn) to cover costs

Europe: Recall 8.5m diesel cars across
“Give customers clarity with regard to the continued unrestricted use of the vehicles” (Will begin recalling cars in January)

(Will begin recalling cars with EPA approval)

Handle with transparency and urgency
Internal inquiry

Suggested reactive measures



Handle the issue with consistency
Learn from other examples, such as Toyota






Be accountable to the mistakes made
Reward loyalty
Celebrities endorsement for environmental issues
Cooperate with NGOs

Suggested proactive measures



Do more than the regulations
Electric drive for entire fleet





Larger budget for R&D
Ensure good communication both vertically and horizontally
Be honest and increase transparency

References

References











USA TODAY (2015) VM surpasses Toyota as world’s largest automaker in first half of 2015. USA TODAY.
Accessible from: http://www.usatoday.com/story/money/2015/07/28/volkswagen-surpasses-toyota-worldslargest-automaker-first-half-2015/30772509/
BBC (2015) Volkswagen: the scandal explained. Accessible from: http://www.bbc.co.uk/news/business34324772
Peng, M. and Meyer, K. (2011) International business. South-Western Cengage Learning.
The Wall Street Journal (2015) Why Volkswagen’s Problems Don’t Include China. Accessible from: http://blogs. wsj.com/chinarealtime/2015/09/28/why-volkswagens-problems-dont-include-china Volkswagen (2014) Volkswagen Group Sustainability 2014 At A Glance. Accessible from: http://www. volkswagenag.com/content/vwcorp/info_center/en/publications/2015/04/group-sustainability-report-2014.bin. html/binarystorageitem/file/Volkswagen_Sustainability_Report_2014.pdf
Yahoo Finance (2015) https://uk.finance.yahoo.com/echarts?s=VOW.DE#symbol=VOW.DE;range=1m http://mg.co.za/article/2015-09-28-timeline-of-events-in-vw-pollution-cheating-scandal Patel, P. C. (2009). Impact of Celebrity Endorsement on Brand Acceptance.ICFAI Journal of Consumer Behavior, 4
(1).

References



Toyota’s Toyoda Seeks to Rebuild Trust After Recalls Accessible from: http://www.bloomberg. com/news/articles/2010-07-09/toyota-focused-on-restoring-consumers-confidence-president-toyoda-says The man who discovered the Volkswagen emissions scandal Accessible from: http://www.bbc.co. uk/news/business-34519184

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