Dieselgate — Heavy Fumes Exhausting the Volkswagen Group Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies

Dieselgate — Heavy Fumes Exhausting the Volkswagen Group Case Solution

Question 2

Volkswagen wanted to increase its market share in the United States as it was comparatively low and was also planning to become one of the biggest car company around the world. To achieve its aim, the company had to compete with Toyota and to do this they were required to use engines that were fuel efficient. The engineers at Volkswagen knew that the newly designed diesel motor will not be able to meet the American emission standards as they were comparatively strict.

In a meeting at the headquarters in Germany, executives of the company decided to install the illegal software that was able to detect the emission test and used to crank the pollution controls. The company used it to manipulate the U.S emission test by installing the software also termed as “defeat devices” in the engine of the car issued between the years 2009-2015. This software was capable of detecting the emission test conditions through the steering wheel, speed and the duration of the engine operations and barometric pressure, upon detecting the conditions it automatically allowed the Nitrogen Oxide emission controls to perform in full tilt in order to pass the test.

This was installed in approximately 11 million vehicles. The use of such engines were violates the clean air act and was of primary concern as they were releasing nitrogen oxides in environment leading to respiratory problems and smog in the environment.

The company manipulated the U.S emission test by installing the cheating software termed as “defeat devices” in the engine of the car issued between the years 2009-2015. The software was able to detect the emission test conditions through the steering wheel, speed and the duration of the engine operations and barometric pressure, upon detecting the conditions it automatically allow the nitrogen oxide emission controls to perform in full tilt in order to pass the test.

The company built a good reputation in the market over the years, engaging itself in such a fraud was a huge risk for the firm like Volkswagen, putting its reputation at stake by cheating on NOx on 11 million vehicles. The company engaged itself in such kind of fraud because of the fierce competition prevailing in the market aligned with the strict standards that were expensive to meet, drastically increasing the chances of miscount and fraud amongst the carmakers. The fact is undeniable that the increased market competition incorporated with tight controls can boost misconduct.

The major cause of the corporate misconduct on such a large scale was to stay competitive and to maintain its share in the market because meeting the Nitrogen Oxide standards is very costly for the carmakers. Additionally improvement in the emission will also tend to effect the engine efficiency negatively. It is impossible for the buyers to verity the Nitrogen Oxide emission, this provides the carmakers an opportunity to cheat on that dimension, so that they can remain competitive in engine performance and price.

In order to prevent any misconduct in future, instead of tightening the standards the authorities should focus on improving the enforcement and monitoring because the standard tightening increases the misconducts, the strict standard becomes more expensive as compared to the cost of being caught. Therefore, if a regulator wishes for the standards to work as they are presumed, they must increase the probability that an automaker will incur a penalty for cheating. This will make their monitoring capabilities much more improved.

A new and advanced emission test is required in order to reduce the chances of being deceived from the companies like Volkswagen. The regulators have to stay one step ahead of the industry in order to prevent any misconduct.

Question 3

Soon after the Volkswagen crisis, several strategies were undertaken by the company to restore its image and to regain the trust of its potential customers that was lost. The strategies that were adopted to cope up with the prevailing situation and to stop it from expanding are as follows:

After the scandal of Volkswagen went public, the company acknowledged all the allegations that were made on the company and apologized for its wrong behavior, publically. This was the smartest move made by the company. As there was no room left for denial.
In their official announcement; the top managers of the company tried to communicate the fact that the company is trying to take all the possible measures to compensate their customers and to regain their trust. The executive of the company also resigned from his position so that the company can take a fresh start. This may not help the company in a significant manner, as the customer will still hesitate in putting their trust over the company all over again, because of the image and scandal that is associated with the brand name itself and it is hard to believe that a limited number of people were involved in the plan of manipulating the software.
A new portal was launched by the company in order to provide a platform to its customer to provide their opinions. This step will eventually help the company in building a relationship with the customer. If a customer feels that his opinion is being valued by the company; it will motivate the customer in establishing a relationship of trust with the company on a new level than before.
In order to regain the trust of the customers, Volkswagen is providing financial compensation in order to save and retain its clients. It will provide a reward of $2000 to the current owners of Volkswagen, who will rent or buy and new hybrid or gasoline cars being produced by the company. It has also announced a good will package that includes; a $5000 Volkswagen prepaid visa and loyalty card and a $500 dealership card of Volkswagen with no charge for 3 years, hoping that this package of goodwill will help the company to regain the lost trust of its customer and to correct the mistakes made by them.
To deal with the biggest scandal that was the release of the enormous amount of Nitrogen Oxide in the environment, causing adverse health effects and respiratory issues; the company set-aside $7.3 million dollars to fix the cars in order to comply with the standards of prevention of environmental pollution. This may seems to be a large amount but in reality the amount is equal to the half of the company’s profits.

The company is facing a major issue and is taking every possible measure to re-establish the credibility of its stakeholders and customers. There are no fixed rules that can be followed when a company is going through a reputation issue. However a company can incorporate possible solutions by following the steps further that has already been taken by the company to overcome the issue that is being faced. The company can restart its business under a new name because the reputation of the company and its name has been brutally damaged. Rebranding will make it easier for the company to improve the brand image and speed up its efficiency and will eventually save the company. It can be expensive and risky but it will benefit the company by reducing the company’s negative image that has been created in the market........

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