McDermott 1

Cian McDermott
CST 373: Ethics in Comms & Tech

10/2/2016
Volkswagen: Directing Attention Towards Automotive Fraud

I am a student in Kevin Cahill's class on the Ethics in Communications and Information

technology. Currently, I am enrolled in CSU Monterey Bay's two-year online program for those

majoring in Computer Science, which started in the Spring of 2016. I had started community

college in 2011 and had been completing many classes that were heavy in programming, math,

and science, to transfer to a university where I could graduate with a Bachelor Science degree,

and become part of the programming field. For this paper, we will be discussing the recent

incident in the past year involving the Volkswagen vehicle manufacturer. Before conducting

research, I had heard how the company had essentially "cheated" on their newer vehicles'

emissions test, making them out to be more eco-friendly than they were in reality. As a result,

they would be suffering from a rather serious lawsuit for false advertising and potentially

endangering the environment. Their irresponsible actions and lack of foresight would

permanently damage the company's reputation, as well as lose the trust of their consumers and

sponsors.

The Germany-based Volkswagen automotive company has a history that goes back into

the days of World War II. Volkswagen, originally called "Gesellschaft zur Vorbereitung des

Deutschen Volkswagens mbH," was established by Nazi Germany as part of Adolf Hitler's

"aim...to create a 'people's car'...costing no more than a motorbike to buy" in a time when very

little German citizens actually owned cars (Bowler, 2015). As a company based in Germany and

founded before the war, it should come to no surprise that, upon World War II, "the firm
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[switched] to making vehicles for the German army, using more than 15,000 slave labourers

from nearby concentration camps. It is a practice that is widespread among German firms during

the war" (Bowler, 2015). Despite this rather bleak footnote on the company's early history, recent

years have made it one of the most respective automotive companies worldwide. Unfortunately,

this scandal may have given it a worse reputation than it could have had for its practices back

then.

For the past few years, in part due to the concerns of global warming, car manufacturers

have been trying to make their vehicles more eco-friendly, such as with Hybrid cars. In order to

appeal to consumers, the Volkswagen automotive company decided to demonstrate their

vehicles' environmental friendliness with an engine that gives low emission ratings. However, in

September of 2015, it was discovered by the Environmental Protection Agency that "many VW

cars being sold in America had a 'defeat device'...in diesel engines that could detect when they

were being tested, changing the performance accordingly to improve results....Once on the roads,

the engines switched out of this test mode. The result? The engines emitted nitrogen oxide

pollutants up to 40 times above what is allowed in the US" (Hotten, 2015). In addition, VW has

been accused by the EPA of selling "420,000 cars in the US [alone]" on the premise of their low

emission, "modifying software on the 3 litre diesel engine engines fitted to some Porsche and

Audi...which affect at least 10,000 vehicles" (Hotten, 2016). According to an NPR report by

Glinton, the scandal was discovered thanks to a West Virginia University professor; the

researcher, Arvind Thiruvengadam, "[did] real-world testing of diesel vehicles" and was told that

"things were really low on the chassis, but [they didn't] see the same trend on the road" (Glinton,

2015).
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With such drastic results to the investigation being revealed, the general public, in

addition to the EPA, were furious. After the scandal was revealed, the American Volkswagen

chief executive, Michael Horn, admitted that they were at fault, and Chief executive Martin

Winterkorn resigned from his position and was replaced by Matthias Mueller as a result of

"[breaking] the trust of [their] customers and the public" (Hotten, 2016). In addition to the

company setting aside "6.7 [billion]" to cover the cost of recalling the millions of cars released

worldwide, "the EPA has the power to fine a company up to $37,500 for each vehicle that

breaches standards - a maximum fine of about $18 [billion]" (Hatton, 2016). This, however, does

not even cover the fines they will no doubt have to pay as a result of various lawsuits due to their

irresponsible actions.

There is one major question relating to the scandal that VW themselves have yet to

answer: what motivation did they have for going so far as to cheat these tests? The simple

answer would be money; according to Shelton from hybridCars.com, "over the last decade,

Volkswagen had been struggling to gain a solid footing in the U.S. diesel market. The perception

that diesel emitted more pollution than gasoline engines, tumultuous diesel fuel prices and the

cost of diesel technology proved challenging to overcome" (Shelton, 2015). Despite this

perception towards diesel fuel, there are companies that do manage to sell such cars thanks to

how they design their diesel engines. All VW had to do was convince the public that their cars

were just as low-emission as the rest, if not more. However, despite their "clean diesel"

advertisement strategy, their sales numbers dropped 22 percent in June 2014, and "the cost of

efficient diesel engines was chipping away at its profits" (Shelton, 2015). As much as they tried

to create a cost-effective method of marketing cleaner vehicles, the fact remains that the

development of more efficient technology takes money. Volkswagen made the assumption that
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they would go under before they managed to create a worthwhile profit from their line of clean

diesel vehicles, and resorted to a desperate and thoughtless move.

This scandal came to light due to the American EPA's intervention, but how did this

scandal get past the regulators in Europe, where VW's main branch is located? According to the

New York Times, "European regulators are notoriously more lax in their testing" and "the

trickery may not have been illegal in Europe, where auto manufacturers can apparently

determine engine settings for pollution testing, making sure their test cars will pass even if the

cars on the road never would" (The Editorial Board, 2016). If cheating these kinds of tests is

common practice in Europe, then this scandal raises even more outrage at foreign auto industries

as a whole. However, this scandal is based around the emitted nitrogen oxide, which "lead to

respiratory and cardiovascular illnesses, smog and acid rain, and cause premature deaths" and

how the auto industry has been lying about them (The Editorial Board, 2016). While these details

should be obvious, "VW and quite possibly other automakers seems unable to understand

that from the publics point of view, the problem was not so much cheating on tests as

concealing the threat that its cars posed to the health of the public" (The Editorial Board, 2016).

One could possibly take away from this is that, due to a lax approach to these environmental

safety tests, European auto makers are more ignorant to how big a concern environmental

pollution is to the general public. Matthias Mueller, Volkswagen's new chief executive, appears

earnest in trying to restore the company's reputation, but so long as VW sees the solution as

compensating their consumers, rather than trying to find a solution to the problem with their

high-emission engines, it may take too long for their reputation to recover.

Although this was a rather damning scandal, VW's emissions test was not the only

automotive scandal in the past year. Outside of Europe, the Japanese company Mitsubishi
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Motors admitted last April that they "had manipulated fuel economy tests affecting hundreds of

thousands of vehicles in Japan" by producing mileage results driving their cars downhill "and the

company admitted the flawed testing goes back a quarter century" (Mullen, 2016). Despite the

results not being as severe, Mitsubishi still "expects to post a net loss of 145 billion yen ($1.4

billion) for the current financial year" in addition to forcing two executives to resign and their

stock prices falling (Mullen, 2016). Although far from the extremely polluting nature of VW's

cars, their poor ethics seem to have brought to light many other cases where car manufacturers

have been committing fraud and lying to their consumers.

The public's reaction to the scandal has varied over time, both in intensity and the number

of people outraged. One article by the Harvard Business Review points out some analysses on

various Twitter responses related to Volkswagen, like after an article from The Guardian

"revealed that the scandal has affected 1.2 million Volkswagen diesel vehicles," which caused

the number of tweets to increase noticeably (Swaminatha & Mah, 2016). There were several

other instances where related tweets increased around the time of other articles which brought

new information to light. The amount of negative remarks towards Volkswagen was around its

highest at the beginning, around September 29 to October 7; these negative tweets began to

slowly die down until January 4, when "the U.S. Department of Justice filed a complaint against

the company" (Swaminath & Mah, 2016). If the media does have any bias towards this scandal,

it is definitely a negative one towards Volkswagen, and for good reason. Volkswagen could have

done irreparable damage to the environment as a result of their unethical actions.

Aside from the media, there are many people, the American E.P.A. and those who

purchased any of Volkswagen's recent vehicles being the biggest among them, who are

concerned about this issue. As stated earlier in this essay, their main concerns regarding this
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scandal lies in the fact that these cars' engines are far from being considered safe from the

environment, given the amount of pollution their engines produce compared to what is

considered legal for vehicles in the United States. Although the American E.P.A. and judicial

system are the most vocal in their disapproval of VW's actions, this scandal has even caused

recalls for their cars in other nations, so this scandal is far from isolated in the U.S. alone. Almost

every major group involved in this scandal are against Volkswagen due to their actions; the one

other group being Volkswagen themselves, who are trying to fix this issue in order to return to

their customers' good graces. However, their missteps in several actions to improve Public

Relations only exacerbated problems. These missteps began with former executive Winterkorn

underplaying their involvement by referring to their cheating as "the mistakes of a few people"

and resigning while claiming "I am not aware of any wrongdoing on my part" (Joshi & Hakim,

2016). Some time later, they tried to appease their customers with $1000 incentives, but then

British executive Willis states that "British VW owners, and those in other European countries,

will not receive such good-will payments" (Joshi & Hakim, 2016). Overall, this scandal has dealt

a serious wound to their reputation, so they are not likely to recover from this for several years,

whether or not they get their act together in regards to appeasing the vocal dissenters.

The three ethical frameworks I will be using to analyze VW's actions will be Self

Interest, Cultural Relativism, and Utilitarianism. The Self Interest Perspective states that a

business has only one responsibility: "to use its resources and engage in activities designed to

increase its profits so long as it stays within the rules of the game...without deception or fraud"

(Cahill). From this perspective, one can clearly define VW's actions as unethical, as they have

committed fraud. They had purposely programmed their cars to appear environmentally friendly

while being tested, in order to hide their product's severe pollution. All the while, the company
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had been advertising their cars as low-emission and environmentally friendly, not only lying to

their loyal customers, but the environmental agency as well.

According to Cultural Relativism, "ethical judgment [is based] on societal norms, or the

law" (Cahill). As stated in the second and third paragraphs of this paper, their cars' engines have

been producing pollutants several times over the U.S.'s legal limit, and as a result, the E.P.A.

exercised their right to fine Volkswagen for their actions. When pressed about the scandal, the

company tried to pass the buck by claiming that using methods like their defeat device are not

strictly illegal in European testing. "A month later, German regulators, however, say the devices

constitute illegal cheating on emissions in Europe, too" (Joshi & Hakim, 2016). Whether or not it

is considered illegal in Europe, the fact remains that they tried to sell polluting machines in

countries that have strict guidelines about how much toxic emissions a vehicle can produce. The

actions of the government agency, as well as the response from the general public, brings very

little doubt that what VW did was unethical based on Cultural Relativism.

So far, these ethical frameworks have deemed Volkswagen's actions as unethical based

on a business and legal perspective. Utilitarianism claims a decision is considered wrong "when

a decision harms the greatest number of people involved" (Cahill). From a broad perspective, the

air pollution caused by their vehicles so far could only harm everyone in the long term. If their

engines produce forty times more pollution than what is considered legal in our country, then

imagine the possible damage if the programming of their engines were not discovered.

According to Roose, a Guardian analysis stated that roughly one million tonnes of nitrogen oxide

would be produced annually worldwide if this scandal was not discovered, and expands on this

to state "Volkswagen introduced as much pollution to the atmosphere as if it had built 25 exact

replicas of Western Europes largest power plant, and let them all run around the clock, invisible
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to regulators and the public" (Roose, 2015). There is no other way to put this other than that

Volkswagen could have caused irreparable damage to our atmosphere if left alone. Even if we do

not consider the long term, there are immediate concerns due to secondhand exposure to the

produced emissions. After all, the nitrogen oxide produced by diesel engines "lead to respiratory

and cardiovascular illnesses, smog and acid rain, and cause premature deaths" (The Editorial

Board, 2016). From my research so far, it is extremely difficult to claim that what Volkswagen

has done can be considered ethical in any way. Analysis from three different perspectives could

not produce any leeway to say that their actions are anywhere close to being in the right.

The Volkswagen emission scandal has drawn attention from everyone for months since

its discovery, and their reputation is sure to suffer in the years to come. The damage to their

reputation is so bad that so far, "the carmaker's shares have fallen by about a third since the

scandal broke" (Hotten, 2016). In addition, this scandal has brought attention to other

manufacturers based in Europe; "Ford, BMW and Renault-Nissan have said they did not use

'defeat devices', while other firms have either not commented or simply stated that they comply

with the law," but Hotten points out that, according to the SMMT (United Kingdom's Society of

Motor Manufacturers and Traders), the emissions testing performed in Europe is "outdated and is

seeking...a new emissions test that embraces new testing technologies and is more representative

of on-road conditions" (Hotten, 2016). If there is anything positive one could say about the

scandal, it is that it seems to have convinced people to step up on regulating protocol on testing.

If this could bring to light other evidence of cheating from other auto companies, it could prevent

future incidents that could speed up global warming or other consequences of air pollution.

It is apparent the reveal that Volkswagen cheated during their cars' emissions test has

affected the automotive industry as a whole. In addition, this scandal will affect Germany's
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economy, because "making quality cars is central to the country's reputation as a manufacturing

and export powerhouse. The auto industry accounts for about 20% of exports, and employs

775,000 people directly" (Thompson & Kottasova, 2015).Although not as drastic a drop as

Volkswagen, other manufacturers' stock values had declined in response to the scandal.

According to CNN Money, "The scandal dragged down shares in other carmakers on fear the

fallout could affect the wider industry. Daimler (DDAIF), the maker of Mercedes-Benz, fell 7%,

while BMW (BAMXY) lost 6%" (Thompson & Kottasova, 2015). Even if they had nothing to do

with Volkswagen's deprecating catastrophe, paranoia is leaving other manufacturers to suffer

from VW's mistake. They should take solace in the fact, however, that they are not suffering as

badly as VW itself. Although BMW and Daimler did indeed suffer some fallout, over the period

between July and October of last year, VW's preferred stock only had a positive net gain of

4.63%, while Daimler's rose15.66% and BMW's 10.52% (Geiger, 2015).

Since the entire auto industry has been pulled into media attention due to this scandal,

they have their own opinions on how Volkswagen should make amends. Although VW's plan to

set aside money in order to recall their vehicles and fix them is a good start, the other companies

believe it would be better to "pour those resources into speedier development of zero

emissions vehicles" (Bjornstad, 2016). It would be more costly on VW's end to do this, but in

the big game, this is better for restoring the company's reputation than their previous plan. In

addition, these companies also believe VW should invest in making sure actual zero-emission

vehicles hit the market within five year, so "it forces VW to do more than they have had to do,

and the air quality benefits all the more" (Bjornstad, 2016). Although the vehicles released

before the discovery of this scandal have already done some damage, VW should focus on

making sure their cars cause no more than they already have. Both these suggestions could surely
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restore VW's reputation, but it is up to the company's executives whether or not they will follow

their competitors' advice.

As far as the company's reputation is concerned, Jake Fisher from Consumer Reports has

said that "no one wants to buy a car from a company that's going to lie to you" and that it brings

doubt into the performance of an actual low-emission car VW could produce: "We have doubts

on whether or not they're going to continue to get the good fuel economy that they get. We have

doubts whether or not they're going to drive as nicely. Will they be slower? Will there be other

problems? Obviously, they made the decision for a reason" (Glinton, 2015). Although this

scandal has damaged their reputation, the company has at least put some effort into fixing their

mistake. "Consumers are willing to forgive in time. It's just, how long will the financial impact

last?...while the rest of the industry enjoys record sales and is innovating and hunkering down for

the next recession, Volkswagen is likely to be trying to fix its self-inflicted wound" (Glinton,

2016). There is no telling how long Volkswagen will bear the stigma of an auto dealer that lied

about being low-emission, but as management should change over time, their efforts, as well as

consumers' opinion on the company, should improve over time.

Thanks to my research into the Volkswagen scandal, I now have a better understanding

of how this scandal was discovered and the ramifications of the company's actions. Overall, my

opinion has stayed the same: the company's actions were unethical and they should be punished

to the furthest extent of the law for potential damage to the environment. As stated earlier, this

scandal has brought to light a lack of integrity in European automotive companies' emissions

test, and calls for renewed testing protocol to make sure similar "cheat devices" are discovered

before being released to the public. In addition, we as consumers should be aware that the trust
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between us and the manufacturers is something they value. If they commit actions that could

cause a loss in trust, it our responsibility to remind them we do not appreciate being lied to.
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References

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Performance. Retrieved from https://www.bellperformance.com/blog/volkswagens-

competitors-weigh-in-on-emissions-cheating-scandal

Bowler, T. (2015). Volkswagen: From the Third Reich to emissions scandal. BBC News.
Retrieved

from http://www.bbc.com/news/business-34358783
Cahill, K. "Ethical Frameworks." Date unknown, .pdf file

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from

http://www.nytimes.com/2016/02/17/opinion/beyond-the-emissions-test-at-vw.html?_r=0
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Wall
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scandal-is-a-new-low-in-corporate-malfeasance/

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