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Case Code: BECG143
Case Length: 13 Pages 
Period: 2015-2016    
Pub Date: 2016
Teaching Note: Not Available
Organization : Volkswagen AG.
Industry : Automotive
Countries : US; Europe; Global 
Themes: Business Ethics  
/Responsible Leadership
Case Studies  
Business Strategy
Human Resource Management
IT and Systems
Leadership & Entrepreneurship

Volkswagen Emission Cheating Scandal: Matthias Müller’s Big Challenge

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Regular on-road testing in May 2014 led the California Air Resources Board (CARB) to investigate Volkswagen for a possible violation of state and federal vehicle emissions rules. Researchers at West Virginia University tested emissions from two Volkswagen models equipped with the 2-liter turbocharged 4-cylinder diesel engine. They found that when tested on the road, some cars of these two models emitted almost 40 times the permitted levels of nitrogen oxides and dioxides, together called NOx...

Business Ethics Case Studies | Case Study in Management, Operations, Strategies, Business Environment, Case Studies
Business Ethics Case Studies | Case Study in Management, Operations, Strategies, Business Environment, Case Studies
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In response to the outrage following these disclosures, Volkswagen admitted in September 2015 that millions of its cars were indeed fitted with the ‘defeat device’. It admitted that about 11 million of its diesel cars worldwide, including eight million in Europe, were equipped with software that could be used to cheat on emissions tests. (Refer to Exhibit V for Volkswagen’ Emission Scandal in Numbers) “We’ve totally screwed up,” said Michael Horn (Horn), Head of Volkswagen America. Announcing his resignation, Winterkorn said, “I am shocked by the events of the past few days. Above all, I am stunned that misconduct on such a scale was possible in the Volkswagen Group. I am doing this in the interests of the company even though I am not aware of any wrongdoing on my part.”...


Volkswagen’s credibility was largely affected by the scandal. Industry experts did not buy the theory that a scandal of this magnitude could have happened without the knowledge of Volkswagen’s top executives. They pointed out that Winterkorn, who had a reputation of taking an interest in the finer details of automobile design and manufacturing, had become chief executive in 2007. In 2009, when the deceiving software seemed to have been introduced, he was at the helm of research and development. Though, Winterkorn resigned, taking responsibility for the scandal, analysts were of the view that key questions would be who was responsible for the software being installed on the engines and how they had managed to cover it up for so long..


While industry experts and investors were worried about forthcoming litigation costs and penalties that Volkswagen could face, the company asserted that it would be able to bear the final costs of the scandal. It also made it clear that the scandal would not affect the company’s plan to invest in new technology nor would it have to sell off core assets. “Although the current situation is serious, this company will not be broken by it. We will not allow the crisis to paralyze us,” said Müller..


As of early 2016, Volkswagen was grappling with the fallout of the emission cheating scandal. The company postponed the publishing of its 2015 financial results as well as the annual shareholders’ meeting. The company also warned that the case with the US Department of Justice could take more time and the cost might be more than expected. “I’ve postponed our year-end financial results and the AGM to improve their quality, so that we can be even more confident and take even more care and diligence in establishing the figures. Then we’ll see if we have to make additional provisions, over and above the 6.7bn [euros],” commented Müller..


Exhibit I:Volkswagen Group’s Key Financials (2010-2014)
Exhibit II: Volkswagen Group’s Key Figures by Geography (2010-2014)
Exhibit III: Worldwide Annual Sales.
Exhibit IV: How Volkswagen Cheated on Emission Test.
Exhibit V: Volkswagen’ Emission Scandal in Numbers.
Exhibit VI: A “Clean Diesel” Feature in Volkswagen’s US Website in Early 2015.
Exhibit VII: Volkswagen’s Share Price.