The Volkswagen scandal and its consequences.

| Albert Vilario Alonso | LinkedIn

23/9/15 14:18

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Albert Vilario Alonso

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The Volkswagen scandal and its consequences.

Sep 23, 2015

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Note: This article was first published in spanish and can be found here.
This past Friday, news shook society and the global automotive industry: the
American agency EPA (Environmental Protection Agency) made public that
Volkswagen (VW hereinafter) was falsifying the results of pollutant
emissions of several of its cars with diesel engines sold in the US between
2008 and 2015.
The method used was that the software detected when the vehicle was ongoing
analysis of pollutants and then put the vehicle into operation in what we could
call "low emissions profile." And when the car was running again in "normal
mode its pollutant emissions were between 10 and 40 times higher than
allowed.
During a period of one year, VW's explanation to the EPA on the difference
between pollutant levels in testing and on the open road was explained as a

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technical problem rather than a deliberate act of deception. Only when

the EPA threatened to ban the marketing of Volkswagen and Audi models of 2016
the german company admitted the deception.
In summary, since the scandal was uncovered, the following has happened:
- Sales of VW diesel vehicles in the US have been stopped.
- The market capitalization of VW has dropped almost 35% in two days, which
is about 26,450 million euros.
- The head of VW in the US, Michael Horn, acknowledges that "we have
screwed it up", that they have been dishonest with and their clients and the
EPA, that they're going to fix all the cars, that what happened is "strongly against
our values", that they are commited to restoring trust in the brand and that "well
pay what we have to pay. "
- Initially VW recognized that the number of affected vehicles in the US was
500,000 but later VW has said that it could be 11 million cars worldwide.
- Several countries like France, Italy or South Korea have announced
investigations to determine whether fraud has also happened in those
countries.
- VW has set aside 6,500 million euros to cover the cost of adaptation of the
affected vehicles to meet pollution standards and to cover other expenses while
in the US only they could be facing fines of 16,070 million euros.
- German chancellor, Angela Merkel, has demanded to VW "full transparency".
"Nice" landscape the one that VW is facing, isnt it?
VW, one of many companies that are proud of their Corporate Social
Responsibility and then "they screw it up". And not accidentally or because of
imponderables, no. "They screw it up" on purpose. They lie and cheat, directly.
They take their clients, administrations, agencies and society in general by
morons.
According to the Spanish web of VW, VWs CSR tells us that "the commitment

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to sustainability, the environment and society are the core values of the Corporate
Social Responsibility of Volkswagen-Audi Spain". Within that CSR they
emphasize the "Think Blue" program that "gives priority to environmental
protection and sustainable driving. Join more efficient technologies and nature.
That's Think Blue. Reduce, compensate and contribute . And with this motto the
three basic premises of the philosophy of Volkswagen on sustainable mobility are
collected.
I invite the reader to visit the website of Think Blue and investigate the link
between what is said there and what the company was actually doing. I certainly
do not see that link. I think you could put it as a clear example of what is not
making a CSR aligned with the business (well, yes theorically speaking, of
course, but not in reality).
I do not know, obviously, what were the exact words that had been said between
those who decided to carry out this fraud, but certainly could be something like
"Dont worry, nobody is going to realize" or "Overall, what could
happen if the faking is discovered? We know who we need to talk to
and how to shut them if they discover something", or some similar
sentence.
It is too early to know what the responsibilities are in this case and who
are the specific culprits, but when problems regarding ethical issues happen,
who have stained hands are often at the very top of the corporate pyramid, so I
doubt it was something widely known, and I think that probably just some
directors, a development department and some engineers and technicians would
know about the software that distorted the pollution emitted by those cars. Did
they know all the economic and reputational risks that the company was facing if
the fake was discovered? Did they care?
Therefore, assuming that fraud was known to few, how far can we blame the
VW brand and its global organization of this fraud? I always say that
organizations are not socially responsible or irresponsible, is all the people who
work there who are responsible or not, and then whether or not that
responsibility permeates the organization to a greater or lesser degree. The
clearance of responsibilities will give us an idea of whether VW is more or less
socially responsible "as a whole".
As for the consequences of this fraud I would state that is difficult to define

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an order of importance, but I will use the monetary scale and how easy or difficult
is to make tangible the damage done (or still to be made), and taking into account
that this is an issue that is not going to be solved in a short period of time so that
the cost can finally be quite different.
First ,and though VW is a company with great benefits, the fact of having to face
(initially quantified) fines of 16,000 million euros and the cost of
repair/adaptation of vehicles could put the company in financial trouble in
short or medium term. That regardless of complaints, especially in the US where
VW vehicle owners could denounce the brand individually or collectively. Because
we must not lose sight of one thing, which is that users have been sold a vehicle
with some premises of pollution that are not the real thing, which is already
reportable, but we will have to see what the performance of these cars will be
when they are adapted/fixed. Will they consume more fuel? Will the performance
be lower? Will the engines last the same period of time? Will they breakdown
more? Besides compensation, will the owners want their vehicles to be
repurchased by VW?. Good questions will surely come out to light soon as the
case progresses. Nor we should discard fines from other agencies from other
countries or the European Union if their legislation see it as possible.
I do not know exactly which part of the capitalization of VW is attributable to its
corporate reputation, but for sure it will be calculated how that reputation will
fall in both positions in the reputation rankings and in euros. Today the VW
Group is the second most reputed brand of Germany and the fourteenth in the
world by the Reputation Institute Reptrak Index. That reputation will definitely
receive a great blow by the loss of confidence that not only their current
customers but the whole society will experience for a fraud of this caliber. Surely
it would have been worse for VW that instead of an environmental direct impact
and indirectly on the health of people, there had been accidents resulting in death
of the vehicle users and third parties involved, because in general society
perceives direct deaths as more serious consequences. And probably is not just
going to be affected VW of that loss of trust and reputation, but it is possible that
even the automotive industry in general will be affected, and even what we might
call the Germany brand" since VW is one of the largest industries in that country,
and a standard of its technology and its way of working. That loss of reputation
will decrease the capitalization of VW and also will make their future sales to
potential customers decrease ostensibly, especially to those who are more
conscious about the environment, sustainability and CSR.

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Another consequence of this fraud is the impact that pollution from those vehicles
that have not complied with the law in terms of emissions has had on the
environment and the health of people. Surely, when the total number of
vehicles involved and how much they have polluted is known, the relevant
calculations will be made. But if we start from the premise that the vehicles were
allegedly issuing between 10 and 40 times more pollutants than allowed, we can
get the idea that the impact will be important even if there are only 11 million
vehicles affected. Will allegations be presented from entities, NGOs, groups of
patients, etc. against VW based on that environmental impact? I would not
discard it at all.
As a final consequence to consider, I think that if all that happens, people will
obviously also be affected, and those are the VW workers and also those who work
in its value chain. If sales drop, fewer cars are manufactured, there are needed
fewer workers, fewer supplies, fewer carriers, fewer vendors, etc. . The equation is
clear. Unfortunately this scandal will end with the jobs of many people
and not only in Germany.
Finally, it is appropriate to comment that this is certainly not the first scandal
or fraud in the automobile industry, and sure it wont be the last. As
another example, Toyota had security problems in 2009 that led to the deaths of
people caused by problems in vehicles that were known in advance, which along
with other problems that happenned later affected badly the reputation of the
Japanese company.
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In both cases, problems are caused by decisions completely out of ethics,

Pulse
The Volkswagen scandal and its
consequences.
Albert Vilario Alonso

and that also demonstrates that beyond cultures and ways of thinking, the
picaresque and the lack of accountability, rigor and transparency can
happen everywhere. Because getting carried away by the typical stereotypes ...
who would say that German or Japanese companies were engaged in cheating as
if they were businesses located in the southern Europe? Those southern Europe
companies that many times are looked at with disdain and over the shoulder

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Lets hope that the situation will be solved in the best way for all the parts
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and that other organizations take careful account of the example not to
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