Volkswagen Defeat Device Scandal

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According to industry experts, VW’s had an overriding desire to beat Toyota and become the largest and leading automobile company in the world. To become number one, it was essential for the company to increase its market share in the US market, where emission norms were far more stringent than in Europe. To gain market share in the US, VW planned to launch a fuel-efficient powerful diesel car (Refer to Exhibit II for car manufactures US market share in 2014). To accomplish this, the company decided sometime in 2005 to develop the ‘EA 189’, a new powerful fuel-efficient diesel engine which would comply with US emission laws.... ..

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Experts stated that German companies had corporate governance issues and VW had been exceptionally bad on CG for a long time although it published detailed corporate governance report annually. Volkswagen had a two-tiered board system – management board and supervisory board – like other German companies. In VW, the management board consisted of various executives who looked after the day-to-day operations of the company whereas the supervisory board appointed and monitored the management board and approved critical decisions on management. Executives were not allowed to sit in on the supervisory board...


Germany had a poor record in whistleblower protections and it did very little to ensure protection for whistleblowers. Research published in September 2015 showed that Germany had the least effective protection norms for whistleblowers among G20 countries....


Apart from removing its CEO and various other employees, VW decided to cooperate with different investigations by various agencies. It also planned to improve its control mechanisms. Hans Dieter Pötsch, Chairman of the Supervisory Board at VW, said, “We will tighten up procedures, define responsibilities more clearly and make better use of IT to monitor processes.” VW also appointed Jones Day, a law firm, for internal investigation...


Exhibit I:Scandals in Automobile Industry

Exhibit II:Car Manufacturers Market Share in U.S. in 2014

Exhibit III:Volkswagen’s Car with Defeat Device

Exhibit IV:Volkswagen Models with Defeat Devices

Exhibit V:Percentage Yield on Volkswagen Bond (Maturing January 2020)

Exhibit VI:VW’s Share Price Movement on Frankfurt Stock Exchange

Exhibit VII:Auto Parts Suppliers Affected by VW Scandal