Volkswagen’s Emission Scandal

Volkswagen’s Emission Scandal by: Jason Chow Sep 23, 2015

TOPICS: Competition, Government Regulation, Business Ethics, Social Responsibility

SUMMARY: By now you’ve heard the CEO of Volkswagen is being replaced after the company admitted it used software to circumvent emissions tests on its diesel vehicles. The cars have more emissions than allowed. The value of cars dropped and owners may find performance and fuel efficiency affected by fixes to the problem. Another important aspect of this story is how it affects the diesel category in the car industry. European rivals are trying to show their engines meet standards in Europe. Other carmakers may face probes into diesel emissions. Europe developed diesel cars that were increasingly popular with drivers because of lower fuel costs. Renault and Peugeot rely on diesel for about half of new car sales. Although they are not sold in the U.S., Fiat also sells diesel cars. The popularity of diesel cars was declining in Europe because of emissions. Newly proposed standards would cost companies more money. The scandal will affect rivals because regulators will look more closely at the technology and consumer may become more wary about diesel.

CLASSROOM APPLICATION: Sometimes a company faces a competitive threat from a rival that increasing its market share. Other times the threat is from a rival that calls into question the viability of the market segment or causes regulators to take a closer look because of problems. Automakers in Europe face increased scrutiny because Volkswagen used software to rig emissions tests. The problem is primarily in the U.S. market with emission standards Volkswagen met because the software apparently detected when a test was occurring and had the vehicle respond differently. The mistakes rivals make can affect your company because it can raise questions or lead to changes in regulations. This isn’t something a company can anticipate, but it can represent a challenge to overcome.

QUESTIONS:  1. How did Volkswagen rig the emission tests? 2. Evaluate the effect on competitors in Europe from these revelations about Volkswagen. 3. Discuss the consequences thus far for the company. 4. Why do you think a company would take the kinds of risks Volkswagen took when it rigged the diesel emissions software? 5. How would you feel right now if you had recently purchased a new VW with the diesel engine emission problems?