Company Background
Volkswagen is a German car company which was originally founded in 1937 by the Nazi party. It was named the “People’s Car Company” and Hitlers envision for the company was to make speedy reliable cheap cars for the German people to get around their new country. Once World War II began the production halted for cars and shifted to make war supplies for the German war effort. Once Germany lost the war the Allies turned to Volkswagen to help create jobs for the German people and rebuild the country. It took a while for Volkswagen to shed the imagine of the “Nazi” car and gain popularity in the United States
Volkswagen Storage Facility
The Case
On September 18. 2015 Volkswagen had to recall a total of 482,000 cars in the United States because its diesel engine cars did not meet United States Environmental Protection Agency (EPA) guidelines
Volkswagen instead of developing their engines to meet these requirements took an alternate approach to make sure their cars pass the emissions tests. Instead they figure out a way to cheat the emissions test by developing software in their cars that had the ability to detect when the car was being tested for emissions which would then cut the power and performance of the engine to make sure the emissions were low. The cars were able to determine if they were being tested by knowing the wheel position, speed, air pressure and engine operation
Volkswagen stock fell 33% following the
release of the scandal and claims that they will try to regain the trust of
their customers and investors [4] . Volkswagen has made the promise to buy back
or pay to have all the affected cars to be fixed to meet current emission standards.
They will also be giving out compensation to customers in the United States
that they mislead into buying their “low emission” cars [5] . In Europe since the
emission regulations are not as strict as in the United States, they are adding
a small part into its engines that will reduce the emissions to meet European
standards [5] .
In response to the scandal being uncovered the current CEO at the time, Martin Winterkorn resigned within 5 days of the scandal going public and claims that he had no idea of the cheating of emissions while the former president of Porsche, Matthias Müller resumes the rule of CEO. Germany, The United States, Italy, France, and other countries launch investigations to find more about the scandals[2] . The United States Volkswagen
president Michael Horn, “says he feels personally deceived by the scandal and
finds it hard to believe that just two rogue engineers were at the root of the
furore” [2] .
As a result of the scandal diesel engine cars are losing popularity in Europe
and leading to a large switch from diesel engine cars to gasoline powered cars [4] .
In response to the scandal being uncovered the current CEO at the time, Martin Winterkorn resigned within 5 days of the scandal going public and claims that he had no idea of the cheating of emissions while the former president of Porsche, Matthias Müller resumes the rule of CEO. Germany, The United States, Italy, France, and other countries launch investigations to find more about the scandals
Volkswagen has openly
admitted to cheating the emissions tests and has to pay $14.7 billion
settlement which is more than 7 times higher than the next highest car company
settlement in history. That money is allocated towards for giving consumers
restitutions for deceiving them and also into addressing environmental harm
prevention [6] .
According to the EPA nitrogen oxide is a fine particulate matter that is ground
level ozone and can cause serious health issues that result in hospitalizations,
such as, increase in asthma attacks and other respiratory illnesses [6] .
One of the main reasons Volkswagen implemented this software and deceit was to make their fuel economy as high as possible which subsequently makes the emissions higher too[6] . The Federal Trade
Commission has filed a federal case against Volkswagen for false advertisement [6] . Currently, Martin
Winterkorn is facing trial in Germany and also has charges made against him in
the United States. Wolfgang Hatz the former Volkswagen development executive
and two other engineers are also being charged for their roles in developing
the emission cheating software [7] .
Also, the former president of Audi, Volkswagen luxury car line, is also on
trial for his role in the scandal. His trial is scheduled for 176 sessions up
to December 20, 2022 [7] .
Volkswagen Diesel Scandal Timeline
Stakeholders
Volkswagen has a lot of hurdles they have to face to come back from this scandal. They first need to gain the trust back from their consumers around the world and regain the trust of their shareholders. They also have to hurdle the huge legal fines and payouts to their customers and need to make that money back. They had to take a €20 billion loan out to keep the company afloat [2] . The executives,
engineers and marketers are all facing charges for creating false
advertisements and deceiving the public. The company has committed two billion
dollars into investing and working on electric vehicles which do not affect the
environment [6] . Costumers have been
given the option to sell their cars back to Volkswagen or have them fixed free
of charge and are also eligible for compensation from the company for the
deception.
Individualism
Individualism created by Milton Freedman states that a company’s sole purpose is to maximize profit for the company’s owner or shareholders under the law. This means companies should not donate money or give out bonuses to their employees and their communities. All the money that is made as a profit belongs to the owners and it is their choice on what to do with their money. A key part of individualism is that the company should maximize their profit under the law. This means they cannot cut corners and use banned toxic materials, illegal labor practices, and tax evasion.
Looking at the Volkswagen diesel scandal from an individualism point of view there is many ethical issues. The main one that arises is that Volkswagen was cheating the allowable emission laws that was set in place by the governments their cars are in. Volkswagen was found to be in violation in the United States of the Clean Air Act 1963, which was enacted to monitor and regulate emissions in the country. Instead of making the engines emit less emissions they tried to cheat the law and design a system that would detect when the car was being tested and cut the emissions for the test. Volkswagen also found to be in violation of the FTC Act which makes it so company advertisements cannot lie about their products. Despite initially this making the company a lot of money from the sale of these 8 million cars they actually ended up losing more money. Before the break of the Volkswagen scandal no other car company had paid more than $2 billion dollars in settlement issues[8] .
Volkswagen topped that by having to spend $14.7 billion dollars to pay restitutions
to consumers, fix the affected cars, and fines they have to pay to the
governments is substantially more than if they made the cars emissions legal
from the beginning. This is has also impacted further sales of Volkswagen cars.
Once the scandal broke Switzerland banned all sales of Volkswagen diesel cars
inhibiting the company’s profit margins in the country [2] .
After 2 months of the scandal being public Porsche’s sales and profits dropped
by 50% [2] .
The amount of money that was loss due to potential sales of cars and the amount
of money that Volkswagen is going to have to spend on reshaping their imagine
in the eyes of the public will exceed the amount of money they would have made
if they never got caught.
Volkswagen Clean Diesel Ad before the Scandal Broke
Utilitarianism
Utilitarianism would view this case as ethically wrong because it sacrificed a lot of individuals’ happiness. Utilitarianism business view is to maximize happiness for as many individuals as possible. Diving more deeply into that definition this happiness is long-term happiness and not just in the short term and it is not just talking about humans. This ethical standpoint includes any kind of living creature that can resemble some sort of happiness or normality of life. Volkswagen actions did not result in anyone’s long-term happiness. They also caused a market failure by affecting people who were not their customers. An externality is type of market failure that affects “parties who are not a part of the exchange between seller and buyer. Such parties are said to be external to the economic exchange”[9] .
Looking at the situation before the scandal dropped it seemed like there was no Utilitarian issues. Volkswagen was making money selling their new cars, customers where happy because they thought they were buying a low-emission cars and governments were happy that the cars were “meeting” the fuel emission standards. But Utilitarianism does not look at the short-term happiness it looks at the long-term happiness and once the scandal was finally reveled every single one of the previously listed parties were not happy. Volkswagen is not happy that they were caught and have to shell out $14.7 billion dollars, consumers were unhappy that they were lied to by the company, and government regulators were not happy that the cars were exceeding the up to 40 times the legal emissions. The stock holders of Volkswagen were also unhappy that their share prices dropped down 33%. Lastly all the living creatures on the planet that are affected by this excess fuel emissions are also in jeopardy by having their habitats ruined by climate change. Volkswagen externality of higher emissions being released into the environment affected the global climate which also affects them along with everyone else on the planet. Emissions are known to cause raspatory illnesses and send people to the hospital. These emissions guidelines and limits are set in place to help keep the climate livable and by Volkswagen cheating it they were essentially hurting themselves along with the everyone else.
Kantianism
Someone who follows Kantianism business practices would see Volkswagens actions of appealing to consumers affection towards cleaner energy as a violation of Kantianism. Kantianism’s base is to not use people as a mere means and to respect people’s rationality. Every business’s goal is to sell people their products or services and use them as a means for profit and Kantianism has no issue of this. Kantianism has a specific formula of humanity which dictates if a company is acting ethically, which is a person must always be treated as an end and never a mere means. The key word in the definition for Kantianism is “mere” which in the context of the definition means not to take advantage of people of people and respect their rationality. Kantianism focuses on making sure companies are profiting by treating their customers with respect and dignity.
Volkswagen clearly did not meet these values for Kantianism because of how they cheated the emissions tests and lied to consumers about how clean their diesel cars ran. Volkswagen had a huge campaign in the United States and other countries that advertised their new diesel cars as low emission cars that would help with the rising concern of climate change. The affects of climate change can be evidently and clearly seen in the past few years with the record number of natural disasters and high temperature recordings. This has caused a high alarm in the majority of people who all want to see climate changed stopped and hopefully reversed. Volkswagen saw this concern that most people had as a means of profiting and started to make cars that had “low” emissions which would help with climate control. This idea is completely viable in the eyes of a Kantian thinker if that’s what actually happened. But, instead of actually developing the low emission cars they decided to cheat the emission and still said their cars were fuel efficient. They were able to trick government officials and costumers for years selling these cars under that false pretense. This deception and appeal to their concern for the climate makes the customers of Volkswagen a mere means for the company to profit.
Virtue Theory
Virtue theory focuses mainly on the company’s character and how they went about conducting their business. According to virtue theory the 4 cardinal virtues that a company must posses are courage, honesty, temperance and justice. Where courage is risk-taking and standing for the right ideas and actions, honesty is treating employees, customers and other companies the way you said you would, temperance is having reasonable expectations for your company and lastly justice means hard work, and fair practices. These 4 cardinal virtues are a must have in Virtue theory meaning that all 4 have to be present. The Volkswagen company did not exhibit any of these virtues while they were lying and cheating the environment.
The company did not exhibit courage because they did not stand up for the right and lawful thing to help the environment. Instead of following the law which was put in place to help the environment and benefit every living creature on it they decided to put profit over doing the right thing. They also did not exhibit honesty because they created a large advertisement campaign that evolved around how low emission their diesel cars were when they really were not. Volkswagen did not have the virtue of temperance because they did not have reasonable expectations for their company. History tells us that companies rarely ever get away without having their scandals released. There is always bound to be a whistle blower or someone who stumbles upon the scandal. With Volkswagen selling millions of these cars with the “cheat device” and new changing emission testing practices they were bound to be caught. Their expectations to keep their actual emissions hidden forever is unreasonable and unethical. Lastly, Volkswagen did not exhibit the virtue of justice. Instead of actually working hard and making their cars low emissions they instead took a shortcut that involved minimal hard work. They also did not exhibit fair practices for cheating their customers and attempting to cheat the government emission regulations.
Justified Ethics Evaluation
Volkswagen acted unethically in my own opinion. As someone who is going into the engineering field this is a prime example of unethical engineering practices. While reading about the case I have to admit I was fascinated how easy and smart their cheat system worked and for how long they were able to implement it. You have to appreciate the ingenuity that they put into making their cars despite the ethical issues. But while reading about this I kept thinking if they had such ingenuity and capable of designing such a simple and affective device what they were capable of doing if they actually attempted to make a low emission car. Volkswagen clearly broke all 4 business ethical theories and the fact they have admitted to their faults and not try to deny any of the allegations shows that they also know they were unethical.
The actions Volkswagen took after the scandal broke are ethically justified. The CEO left and the head of design and the engineers that designed the cheat device in the cars are also gone from the company and are on trial. In the United States they followed what the government said and set up a website where customers could sell back their cars or get the money to have it fixed. They also sent out restitutions to their customers for their false advertising practices. They have also started to rebrand their company to focus on emissions and shifted a large majority of their development focus over to electric vehicles which produce no emissions.
Action Plan
With the notable affects of weather patterns changing climate change has become a large concern for many people and governments. In an effort to profit off of these concerns Volkswagen marketed their diesel engine cars as low emission emitting vehicles that will help slow climate change. Instead of actually making their cars low emission they created software that would detect when the cars emissions were getting tested and cut the engine performance and power so the emissions were in the allowable range. For years they were able to keep this façade up until finally it was discovered in 2015. The first step that Volkswagen should do is to apologize and recall all the cars that do not meet emission standards. Recognizing their mistake, they should cooperate with any government investigation and go along with whatever punishment is picked. Internally the company should fire and report all the individuals who were a part of the scandal from the engineers, marketers, and upper level management who knew. They should then come out with a new statement saying they apologize once more and address what they are going to do to regain the trust of governments and their customers. They should also say they are going to focus their energy on actually making low emission cars and donate money to environmental organizations that are trying to fight climate change.
Following
this action plan Volkswagen will take full responsibility for what they have
done and will show that they are working to fix their mistakes to help regain
trust. Their engineering teams will show their ingenuity by actually designing
low emission cars and their marketing team will show complete transparency in
the company to help regain the trust of customers. By taking responsibility and
working towards helping the environment Volkswagen will fix the vast majority
of their ethical issues.
References
One of the main reasons Volkswagen implemented this software and deceit was to make their fuel economy as high as possible which subsequently makes the emissions higher too
Volkswagen Diesel Scandal Timeline
Stakeholders
Volkswagen has a lot of hurdles they have to face to come back from this scandal. They first need to gain the trust back from their consumers around the world and regain the trust of their shareholders. They also have to hurdle the huge legal fines and payouts to their customers and need to make that money back. They had to take a €20 billion loan out to keep the company afloat
Individualism
Individualism created by Milton Freedman states that a company’s sole purpose is to maximize profit for the company’s owner or shareholders under the law. This means companies should not donate money or give out bonuses to their employees and their communities. All the money that is made as a profit belongs to the owners and it is their choice on what to do with their money. A key part of individualism is that the company should maximize their profit under the law. This means they cannot cut corners and use banned toxic materials, illegal labor practices, and tax evasion.
Looking at the Volkswagen diesel scandal from an individualism point of view there is many ethical issues. The main one that arises is that Volkswagen was cheating the allowable emission laws that was set in place by the governments their cars are in. Volkswagen was found to be in violation in the United States of the Clean Air Act 1963, which was enacted to monitor and regulate emissions in the country. Instead of making the engines emit less emissions they tried to cheat the law and design a system that would detect when the car was being tested and cut the emissions for the test. Volkswagen also found to be in violation of the FTC Act which makes it so company advertisements cannot lie about their products. Despite initially this making the company a lot of money from the sale of these 8 million cars they actually ended up losing more money. Before the break of the Volkswagen scandal no other car company had paid more than $2 billion dollars in settlement issues
Volkswagen Clean Diesel Ad before the Scandal Broke
Utilitarianism
Utilitarianism would view this case as ethically wrong because it sacrificed a lot of individuals’ happiness. Utilitarianism business view is to maximize happiness for as many individuals as possible. Diving more deeply into that definition this happiness is long-term happiness and not just in the short term and it is not just talking about humans. This ethical standpoint includes any kind of living creature that can resemble some sort of happiness or normality of life. Volkswagen actions did not result in anyone’s long-term happiness. They also caused a market failure by affecting people who were not their customers. An externality is type of market failure that affects “parties who are not a part of the exchange between seller and buyer. Such parties are said to be external to the economic exchange”
Looking at the situation before the scandal dropped it seemed like there was no Utilitarian issues. Volkswagen was making money selling their new cars, customers where happy because they thought they were buying a low-emission cars and governments were happy that the cars were “meeting” the fuel emission standards. But Utilitarianism does not look at the short-term happiness it looks at the long-term happiness and once the scandal was finally reveled every single one of the previously listed parties were not happy. Volkswagen is not happy that they were caught and have to shell out $14.7 billion dollars, consumers were unhappy that they were lied to by the company, and government regulators were not happy that the cars were exceeding the up to 40 times the legal emissions. The stock holders of Volkswagen were also unhappy that their share prices dropped down 33%. Lastly all the living creatures on the planet that are affected by this excess fuel emissions are also in jeopardy by having their habitats ruined by climate change. Volkswagen externality of higher emissions being released into the environment affected the global climate which also affects them along with everyone else on the planet. Emissions are known to cause raspatory illnesses and send people to the hospital. These emissions guidelines and limits are set in place to help keep the climate livable and by Volkswagen cheating it they were essentially hurting themselves along with the everyone else.
Kantianism
Someone who follows Kantianism business practices would see Volkswagens actions of appealing to consumers affection towards cleaner energy as a violation of Kantianism. Kantianism’s base is to not use people as a mere means and to respect people’s rationality. Every business’s goal is to sell people their products or services and use them as a means for profit and Kantianism has no issue of this. Kantianism has a specific formula of humanity which dictates if a company is acting ethically, which is a person must always be treated as an end and never a mere means. The key word in the definition for Kantianism is “mere” which in the context of the definition means not to take advantage of people of people and respect their rationality. Kantianism focuses on making sure companies are profiting by treating their customers with respect and dignity.
Volkswagen clearly did not meet these values for Kantianism because of how they cheated the emissions tests and lied to consumers about how clean their diesel cars ran. Volkswagen had a huge campaign in the United States and other countries that advertised their new diesel cars as low emission cars that would help with the rising concern of climate change. The affects of climate change can be evidently and clearly seen in the past few years with the record number of natural disasters and high temperature recordings. This has caused a high alarm in the majority of people who all want to see climate changed stopped and hopefully reversed. Volkswagen saw this concern that most people had as a means of profiting and started to make cars that had “low” emissions which would help with climate control. This idea is completely viable in the eyes of a Kantian thinker if that’s what actually happened. But, instead of actually developing the low emission cars they decided to cheat the emission and still said their cars were fuel efficient. They were able to trick government officials and costumers for years selling these cars under that false pretense. This deception and appeal to their concern for the climate makes the customers of Volkswagen a mere means for the company to profit.
Virtue Theory
Virtue theory focuses mainly on the company’s character and how they went about conducting their business. According to virtue theory the 4 cardinal virtues that a company must posses are courage, honesty, temperance and justice. Where courage is risk-taking and standing for the right ideas and actions, honesty is treating employees, customers and other companies the way you said you would, temperance is having reasonable expectations for your company and lastly justice means hard work, and fair practices. These 4 cardinal virtues are a must have in Virtue theory meaning that all 4 have to be present. The Volkswagen company did not exhibit any of these virtues while they were lying and cheating the environment.
The company did not exhibit courage because they did not stand up for the right and lawful thing to help the environment. Instead of following the law which was put in place to help the environment and benefit every living creature on it they decided to put profit over doing the right thing. They also did not exhibit honesty because they created a large advertisement campaign that evolved around how low emission their diesel cars were when they really were not. Volkswagen did not have the virtue of temperance because they did not have reasonable expectations for their company. History tells us that companies rarely ever get away without having their scandals released. There is always bound to be a whistle blower or someone who stumbles upon the scandal. With Volkswagen selling millions of these cars with the “cheat device” and new changing emission testing practices they were bound to be caught. Their expectations to keep their actual emissions hidden forever is unreasonable and unethical. Lastly, Volkswagen did not exhibit the virtue of justice. Instead of actually working hard and making their cars low emissions they instead took a shortcut that involved minimal hard work. They also did not exhibit fair practices for cheating their customers and attempting to cheat the government emission regulations.
Justified Ethics Evaluation
Volkswagen acted unethically in my own opinion. As someone who is going into the engineering field this is a prime example of unethical engineering practices. While reading about the case I have to admit I was fascinated how easy and smart their cheat system worked and for how long they were able to implement it. You have to appreciate the ingenuity that they put into making their cars despite the ethical issues. But while reading about this I kept thinking if they had such ingenuity and capable of designing such a simple and affective device what they were capable of doing if they actually attempted to make a low emission car. Volkswagen clearly broke all 4 business ethical theories and the fact they have admitted to their faults and not try to deny any of the allegations shows that they also know they were unethical.
The actions Volkswagen took after the scandal broke are ethically justified. The CEO left and the head of design and the engineers that designed the cheat device in the cars are also gone from the company and are on trial. In the United States they followed what the government said and set up a website where customers could sell back their cars or get the money to have it fixed. They also sent out restitutions to their customers for their false advertising practices. They have also started to rebrand their company to focus on emissions and shifted a large majority of their development focus over to electric vehicles which produce no emissions.
Action Plan
With the notable affects of weather patterns changing climate change has become a large concern for many people and governments. In an effort to profit off of these concerns Volkswagen marketed their diesel engine cars as low emission emitting vehicles that will help slow climate change. Instead of actually making their cars low emission they created software that would detect when the cars emissions were getting tested and cut the engine performance and power so the emissions were in the allowable range. For years they were able to keep this façade up until finally it was discovered in 2015. The first step that Volkswagen should do is to apologize and recall all the cars that do not meet emission standards. Recognizing their mistake, they should cooperate with any government investigation and go along with whatever punishment is picked. Internally the company should fire and report all the individuals who were a part of the scandal from the engineers, marketers, and upper level management who knew. They should then come out with a new statement saying they apologize once more and address what they are going to do to regain the trust of governments and their customers. They should also say they are going to focus their energy on actually making low emission cars and donate money to environmental organizations that are trying to fight climate change.
Volkswagen current company statement for 2020 is, “to offer attractive, safe and environmentally sound vehicles which can compete in an increasingly tough market and set world standards in their respective class.” This current statement addresses the environmental issues with their cars and how they are working on fixing that. The issue with this statement is that it makes it seem as if they are trying to forgot or not address their scandal. A better statement would be, “We have dedicated our time and money towards helping the environment and delivering what we originally promised, safe and environmentally friendly vehicles” This new statement acknowledges the scandal and shows that the company’s main goal is help the environment and regain the trust of their consumers by making good on their word. The new Volkswagen core values should be ingenuity, responsibility and trust. Their ingenuity should be focused towards actually making their cars low emission instead of designing a system to cheat emission tests. They can take responsibility for what they did to the environment and work on actually helping it. Lastly, they need to regain the trust of their customers which can be done by donating and helping environmental organizations and designing zero or low emission cars. To help regain credibility and trust Volkswagen should allow for a 3rd party organization to vigorously test random cars for emissions to make sure they comply with local laws.
The main people responsible for the scandal have all left the company and are facing criminal charges. The Volkswagen president at the time, Martin Winterkorn, head of the designing department, the engineers responsible, the American president of Volkswagen and others are either facing trial or already convicted and in jail for what they did. The marketing and engineering teams got Volkswagen into this mess and both of them are crucial for getting the company out of this hole. The engineering team needs to set all their effort into designing clean efficient cars and the marketing team needs to start a campaign showing that the company has cleaned up and all the good that they have to done to help the environment.
References
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J. E. K. R. a. D.
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Bartlett, "Guide to the Volkswagen Emissions Recall," Consumer
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"Former Audi
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