Cue Diesel Gate

Volkswagens Diesel Emission Scandal Dieselgate |1
Volkswagens Diesel Emission Scandal Dieselgate

Ashleigh Cue
The University of North Texas
Dr. Fuse
12/7/15
Table of Contents:
Overview.. 4
Background. 5
Company Background... 5
Corporate Culture.. 6
Corporate Social Responsibility 7
The Emission Problem 8
Impact of Emissions and the Clean Air Act. 8
International Council on Clean Transportation ..9
Inquiry to Volkswagens Emissions.. 9
Volkswagens Response 10
Performance Over Sustainability 11
Timeline. 12
Public Response 13
News/Auto Industry Response. 13
Public Relations Response.. 13
General Publics Response... 14
Impact of Volkswagens Lie 15
Public Impact 15
Financial Impact... 15
Works Cited/References. 17
Abstract
Volkswagen, a German car company who prides itself on its sustainable cars, admitted to
using a defeat device in its diesel passenger cars that would allow its cars to pass emission tests.
Research on diesel cars discovered that Volkswagens cars were emitting 15 to 35 times the legal
NOx emissions.
Key Words:
Corporate Culture; Corporate Social Responsibility; Volkswagen Scandal; Dieselgate; Public
Relations; NOx Emissions
Overview
On September 18, 2015 the United States Environmental Protection Agency (EPA)
announced that Volkswagen had violated the Clean Air Act. The EPAs investigation into
Volkswagen revealed that the car company had been using a software algorithm, a defeat device,
to pass emissions test on their diesel cars (EPA, California Notify Volkswagen of Clean Air Act
Violations). It was a discrepancy between the laboratory emission tests and road tests. The road
test results showed NOx emissions to be 15 to 30 times the US legal limit (Jaynes, 2015).
Back in May 2014, the California Air Resources Board (CARB) and the EPA ordered
Volkswagen to look into the testing discrepancies. December of the same year, Volkswagen
claimed that it did look into the problem and found a software issue in some of their vehicles.
The auto company then recalled 500,000 cars. However, the CARB did not stop testing the
vehicles and once again brought up the emission discrepancies to the EPA on June 8, 2015
(Jaynes, 2015).
In the wake of the EPA announcement, Volkswagen decided to come clean about the
cheating and launched their own internal investigation. The internal investigation revealed more
than 11 million cars were affected by this software algorithm (Volkswagen says 11 million of
its cars have emissions test-beating software, 2015).
Volkswagens scandal, which some had nicknamed Dieselgate, is the biggest scandal
in the auto companys 78 years in business (Cremer, 2015b). Since the announcement, the
companys stocks took a hit and it may be facing criminal charges (Plumer, 2015). The company
has admitted to needing to change the way they manage their employees and build a corporate
culture that encourages open conversations with superiors (Cremer & Bergin, 2015).
Background
Company Background
Volkswagen Aktiengesellschaft was founded on May 28, 1937 in Berlin, Germany, under
the control of the Nazi party. At the time, the company was named Gesellschaft zur Vorbereitung
des Deut-schen Volkswagens mbH (Volkswagen Chronicle; Volkswagen is Founded). Later
that year, the company change its name to Volkswagenwerk. Volkswagenwerk translates as
People Car Plant, or The Peoples Car Company. (Volkswagen is Founded). The company
started building two manufacturing plants in 1938, one in Fallersleben, Germany and another in
Brunswick, Germany. In 1948 the company moved its headquarters from Berlin to Wolfsburg,
Germany (Volkswagen Chronicle).
During World War II, the company was reorganized to manufacture military vehicles,
instead of passenger cars. During this time, the company force more than 15,000 individuals
from concentration camps to work in the factories. After the war the company returned to
automotive manufacturing and started producing sedans under British administration (Bowler,
2015).
Over the next few decades, the British Military Government would appoint the
companys General Directors. In 1949, the British hand the Volkswagen works over to the State
of Lower Saxony with the understanding that they have control of and are under the supervision
of the federal German government (Volkswagen Chronicle).
In the mid-1950s Volkswagen broke into the European, American and African auto
markets. The Volkswagen Beetle was the bestselling automobile in that decade and the company
was considered Germanys most important automotive maker (Volkswagen Chronicle).
In August of 1960, the company changed its name to Volkswagenwerk

Aktiengesellschaft, which is still the official name of the company. It was during this same year,
that Volkswagen opened up the companys stocks. About 60% of the company would be sold as
stock to the people. The remaining 40% was to be equally divided between the German Federal
Government and the State of Lower Saxony (Volkswagen Chronicle).
The company continued to have success with its cars. By 1969, one of Volkswagens car
models, Audi, was so successful that the company decided that it should be an independent sales
organization. That same year Porsche added to the second independent sales organization
(Volkswagen Chronicle).
Today the Volkswagen Group consists of Volkswagen, Audi, Bentley, Bugatti,
Lamborghini, Porsche, SEAT and Skoda, as well as companies that manufacture motorcycles
and commercial vehicles (The Group). It was named the worlds biggest vehicle maker in
2015, surpassing Toyota (Cremer & Funakoshi, 2015).
Corporate Culture
Volkswagens core business values are: customer focus; top performance; creating value;
the ability to renew; respect; responsibility; and sustainability (Group Guiding Principles).
Their corporate culture focuses on four main areas: performance, leading by example, active
involvement, and social responsibility (Basic Principles). The company strives for long-term
growth, not short term success, believing everyone should profit from their success, including
society (Forging ahead with sustainability).
Corporate Social Responsibility (CSR) is a large part of the company. Volkswagen has
more than 200 projects that enhance economic and social structures, with emphasis on
sustainability and continuity. Volkswagen has been a part of the largest and most important CSR
initiatives in the world, Global Compact, since 2002 (Forging ahead with sustainability). The
Global Compact is the United Nations call to corporations to promote sustainability (What is
the UN Global Compact). It has 10 principles, but Volkswagen list four as a part of their CSR:
human rights, working standards environmental protection and combating corruption (Forging
ahead with sustainability).
In 2008, Volkswagen produced a mission statement on biological diversity. This
statement shows the companys support for biological diversity and environmental protection,
stating that it is a long established part of the business (Volkswagen publishes mission
statement on biodiversity).
Corporate Social Responsibility

Founded Community Trust, which promotes education and health in South Africa
(Responsibility knows no boundaries).
Has conducted training sessions that instruct drivers on how to conserve fuel in
Europe and Australia (Responsibility knows no boundaries).
Volkswagen started a campaign The Fun Theory to promote protecting the
environment by making it fun. Garbage cans, recycling bins, even stairs were
created into a fun entertaining game, which encouraged people to actually use
them (The Fun Theory).
Have started working on making their factories 25% more eco-friendly (Rogers,
2012).
Volkswagen actively promotes biological diversity (Volkswagen publishes

mission statement on biodiversity).
The Emission Problem:

Impact of Emissions and the Clean Air Act
Nitrogen oxide (NOx) is one of the pollutant that can harm not only the environment, but
human health as well. When NOx emissions enter the atmosphere they mix with water and other
compounds to form ground-level ozone. These pollutants can be carried with the wind and can
remain in the air for days or years (Human Health and Environmental Effects of Emissions
from Power Generation). These emissions contribute to smog; acidizing of lakes or streams;
damage ecosystems, both forests and coastal; and increases the degradation speed of buildings
and structures. Some of the health issues associated with NOx emissions are respiratory
symptoms, decreased lung function, inflammation of the lungs and other respiratory issues
(Human Health and Environmental Effects of Emissions from Power Generation).
The Clean Air Act was established by the Environmental Protection Agency to regulate
air emission, particularly ones that harm human health or welfare (Summary of the Clean Air
Act). In 1990, the Clean Air Act was revised and required periodic studies to determine is the
cost of the act outweighed the benefits. According to their studies, between 1970 and 1990, the
Clean Air Act has lowered of sulfur dioxide particles by 40%, nitrogen oxides by 30%, carbon
monoxide by 50% and lowered total suspended particles by 45% (Lockwood, 2012). The health
benefits from these lower emissions for the twenty years is believed to be about $5.6 trillion to
$49.4 trillion. Some of these health benefits are the reduction of about 184,000 premature deaths,
674 cases of chronic bronchitis and over 22 million sick days from work (Lockwood, 2012).
International Council on Clean Transportation

During 2013 and 2014, as a part of research project in collaboration with West Virginia
University, the International Council on Clean Transportation (ICCT) tested Volkswagen diesel
cars emission. They tested the cars using a dynamometer and with real-world nitrogen oxide
(NOx) emissions, where cars were driven from San Diego to Seattle. The findings showed a
discrepancy between the dynamometer tests and the real-world emissions. On the test drives, the
Volkswagen Jetta was producing NOx emissions 15 to 35 times the US legal amount (Jaynes,
2015).
Inquiry to Volkswagens Emissions

In May of 2014, the California Air Resources Board (CARB) and the Environmental
Protection Agency (EPA) inquired about the Volkswagen Groups Emission. This inquiry was
not publicized. In December of the same year, Volkswagen claimed they had found the issue, a
software problem and recalled 500,000 cars to fix with a software update. However, the CARB
continued to investigate the vehicles in question and found that they were still violating US law
(Jaynes, 2015).
On June 8, 2015, CARB brought their findings to the EPA and Volkswagen. The EPA
wanted proof that Volkswagen had indeed found and solved the emission problem. The company
had initially tried to blame the problem on the inconsistency of tailpipe NOx levels, which was
not bought by the EPA. That is when the company came clean about the cheating. Volkswagen
had a defeat device or a software algorithm that cheated the emission control system on the
vehicles (Jaynes, 2015). A defeat device is a designed to defeat the emission control systems
V o l k s w a g e n s D i e s e l E m i s s i o n S c a n d a l D i e s e l g a t e | 10
that comply with the emission standards of the Clean Air Act (Clean Air Act Prohibits Defeat
Devices in Vehicles, Engines).
Volkswagens Response
Volkswagen decided to tell the truth to the EPA after the companys initial excuse failed
to appease the EPAs inquiry on the discrepancy of the emission tests. Following the
announcement, the companys CEO, Martin Winterkorn, took responsibility for the emission
cheating (Cremer, 2015b). However, states that he was not aware of any wrong doing on his part
(Kim, 2015). Later Volkswagen blamed engineers for the defeat device, stating that the corporate
heads had no knowledge (Puzzanghera & Hirsch, 2015).
Winterkorn apologized for breaking their customers and publics trust. In his statement
he told the public that Volkswagen will be cooperating with transparency and urgency in order to
be clear and open so the facts of the issue can be established (Bomey, 2015). Winterkorn also
resigned from his position as CEO of Volkswagen (Cremer, 2015b). Volkswagen also fired two
chiefs of research and development for Audi and Porsche, Ulrich Hackenberg and Wolfgang
Hatz (Cremer, 2015a). The company was going to fire Michael Horn, the CEO of Volkswagens
American branch, but after dealers rallied behind Horn, the company decided not to remove
Horn (Ramey, 2015). After Winterkorn resigned, the position of CEO of Volkswagen went to
Matthias Mueller. Matthias Mueller, 62, was the CEO of Porsche before being offered the
position (Makortoff & Pramuk, 2015). Mueller stated that his focus was first to restore customer
trust. He also state that Volkswagen will be developing and implementing the strictest
compliance and governance standards in the auto industry (Risen, 2015). The company has
vowed and is trying to regain the trust of its publics through open communication and
truthfulness (Bomey, 2015).
Mueller has developed a 5-point plan to deal with the crisis. The first point is to support
the customers affected by the scandal. Investigating and identifying the people responsible for
the defeat device is the second point. The third point is to give each region and brand more
autonomy. Point four may be one of the hardest, to change Volkswagens corporate culture, one
of openness and cooperation, while still maintaining their pursuit of perfection and social
responsibility. The last point is to push their 2018 strategy back to 2025 (Krok, 2015).
Now that Winterkorn is no longer the CEO of Volkswagen, many wonder if this scandal
is the result of his effect on the corporations culture. Winterkorn was a boss that did not accept
failure. A professor at the University of Duisburg-Essen stated people working at Volkswagen
talk about a special pressure there. However, Volkswagen has not admitted that this scandal was
a result of the companys corporate culture (Cremer & Bergin, 2015). Peter Henning, an expert
in the auto industry and white collar crime at Wayne State University, also stated that the need to
cheat probably came from a culture set at the higher levels. According to him, when mid-level
managers need to meet a sales target or a certain profitability that is when people start cutting
corners (Kimball, 2015).
Performance Over Sustainability

Part of Volkswagens corporate culture and corporate values is performance. Many have
speculated that the reason Volkswagen used a defeat device was because they knew that if they
made their cars according to code it would impact performance. Customers have come to expect
a certain level of performance from Volkswagen. However, Volkswagen also prides itself on its
sustainability and the companys social responsibility. Recently, Volkswagen received the title
world's most sustainable automotive group by RobecoSAM for the second year in a row (Kim,
2015). In this case, however, it seems like Volkswagen chose to pursue performance over
sustainability.
Timeline of Events
2002 - Volkswagen stated the largest corporate social responsibility initiatives to promote
sustainability (Forging ahead with sustainability).
2013-2014 - A research project by the International Council on Clean Transportation
(ICCT), in collaboration with West Virginia University, found that Volkswagens diesel
Jetta was producing 15 to 35 times the US legal amount of NOx emissions (Jaynes,
2015).
May 2014 - The California Board of Air Resources Board (CARB) and the
Environmental Protection Agency put in an inquiry to the Volkswagen Group about the
discrepancy in emissions. CARB continued to investigate the issue (Jaynes, 2015).
June 2015 - CARB went to the EPA and Volkswagen about the emission problem again.
This time the EPA wanted proof that Volkswagen had identified and fixed the problem.
After inquiring about the issue, Volkswagen admitted to using a defeat device (Jaynes,
2015).
September 2015 - The US government launches a criminal probe into Volkswagen
(Bomey, 2015). Volkswagens CEO, Martin Winterkorn, resigns from his position after
apologizing for the scandal. Matthias Mueller takes his place as CEO of Volkswagen
(Cremer, 2015b).
October 2015 - Matthias develops a 5-point program to deal with the emission scandal
(Krok, 2015).
Public Response
News/Auto Industry Response
Several news sources and magazines have issues stories about the scandal, some even
calling it Dieselgate. (Collins, 2015). In addition to all the media coverage, Volkswagen stocks
dropped 18.6%. The company could also be facing criminal charges from the US government
(Bomey, 2015). In addition, emission test have been conducted on several diesel cars made by
other car manufacturers. Shockingly many of these vehicles showed better emissions during lab
testing than on road emission and many produce more than the legal limit. Mercedes-Benz,
Honda, Mazda and Mitsubishi are a few of the different manufacturers that have diesel cars that
produce more emissions than is legal. For instance, some of Hondas 4x4 models produce 20x
the NOx limit. Unlike Volkswagen, however, there is no evidence of a defeat device in any of
these vehicles. It is suggested that the cars are being designed to have lower emissions in a lab
setting (Carrington, 2015). The EPA has decided to audit every make and model of passenger
diesel cars in response to this scandal (Risen, 2015)
Public Relations Response

Public relation critics are disappointed with Volkswagens crisis management. Many
believe the company is communicating too slowly. The slow release of information keeps the
story on the front pages and keeps eroding at Volkswagens reputation. Many state it would have
been better to provide more detail and all at once (Garcia, 2015). Volkswagens websites news
most recent story for nearly a week after the scandal was their ranking as the worlds most
sustainable carmaker. It took six days later for the news section to be updated with a brief
apology (Colvin, 2015)
General Public Response

Many Volkswagen drivers feel ripped off by the company. One driver had thought
about buying a Toyota Prius Hybrid prior to buying his diesel Volkswagen, but did not like how
the Prius drove. He opted for the diesel Volkswagen because it performed better. Now he worries
that the fix will hinder the performance he enjoyed (Mouawad & Jensen, 2015).
Shortly after news about the scandal hit the news, car owners started tweeting their
concerns and disappointment on Twitter. Paula Dixon tweeted about her concern about the
impact the fixes would have on her cars performance, stating, I sincerely hope that
#Volkswagen plans to pay me for the lost value in my A3 after they retrofit it to run slower and
get worse mileage (2015). Doug Cook, another Twitter user, tweeted this message:
/@Volkswagen: I do not want to drive a polluting car. I loved my new Golf TDI, but now I feel
sick. I'm angry and I want my money back. (2015). These two users share concerns that are
similar to other upset car owners. However, with the initial upset dying down, many car owners
are just wanting to know what will happen to their diesel cars and are waiting for information
from Volkswagen about the situation (Lazarus, 2015).
Impact of Volkswagens Lie

Public Impact
Since the news of Volkswagens defeat device, studies have been conducted to determine
the human cost of Volkswagen's lie. According to a study conducted by the open-access journal,
Environmental Research Letters, the 500,000 American cars affected by the defeat device has
led to about 60 premature deaths in America. In addition the research shows that if these cars are
not dealt with the number could increase another 140, making a total of 200 premature deaths.
According to the study, Dieselgate could cost Americans approximately $910 million dollars.
Since Volkswagen started manufacturing the cars with the defeat deceive, the pollution cost of
these cars is around $450 million dollars (Meyer, 2015).
Financial Impact
By September Volkswagens stocks dropped 18.6%. In addition, they were facing fines
and costs of recalling cars (Bomey, 2015). By November, the companys stocks had dropped
25% compared to the previous year (Davies, 2015). Volkswagen has set aside $7.3 billion dollars
to cover the cost of the recalls, which trashes the profit forecast for the year (Thompson &
Kottasova, 2015). They could be facing an EPA fine of up to $37,500 dollars per vehicle, which
would add up to about $18 billion dollars. However, news analysts do not expect the EPA give
Volkswagen a fine of that magnitude (Bomey, 2015). Volkswagen may also be facing fines from
other countries around the world (Pop, 2015). This scandal has cost Volkswagen 40% of its
value in just two days (Colvin, 2015). Volkswagen has also set forth a Goodwill program for
current American car owners affected by the scandal. The car owners will receive $1,000 dollars
in compensation under this program, which could cost Volkswagen a total of $500 million
dollars (Fisher, 2015).
In addition, the German car company may have to sell off some of their luxury brands in
order to pay the $21 billion dollar credit line that was supplied by banks if it cannot find another
way to pay of the one-year loan (Schuetze, 2015). Volkswagen hopes to overcome this issue by
taking a new approach to sustainability. They plan on shifting their focus away from diesel to
electric and hybrid cars. The company plans to make the Volkswagen Phaeton, a purely electric
vehicle currently still in development, the flagship for the brand (Golson, 2015).
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