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Managing Emission Scandal Crisis at Volkswagen

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1 Briefly describe Volkswagen's emissions scandal and provide background on the company and automobile industry.

2 Do you think Volkswagen's brand reputation was severely damaged by the emissions scandal? How about its brand equity? Discuss what brand equity is, and how Volkswagen's brand equity will be impacted.

3 How should Volkswagen handle the emissions scandal in an ethical way? Discuss the related ethical issues from both consumer and brand manager perspectives.

4 What can you learn from this case? What suggestions could you offer to Volkswagen's top management?

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Please find notes, ideas and assistance addressing all the questions that will help you develop your solution. Best Wishes.

In September 2015, Environmental Protection Agency had found that the diesel engine vehicles of Volkswagen were found to have a defeat device that cheated on the emission levels when testing was done wherein the software installed in the vehicles were found to detect test scenarios such as air pressure, speed, engine operations and position of steering wheel speed (Hotten, 2015: Dec. 10). The findings covered around 482,000 cars of the company only in United States of America and included popular brands of the company including Audi, Jetta, Passat, Golf and Beetle (Hotten, 2015: Dec. 10). The Environmental protection Agency found that the vehicles of the company had nitrogen oxide pollutant levels that were 40 times more than the acceptable levels in United States of America (Hotten, 2015: Dec. 10). This is contradictory to the claims made by the company in its advertising campaign. The advertising campaign of the company claimed that the cars of Volkswagen had significantly lower emission levels (Hotten, 2015: Dec. 10).

Volkswagen admitted in October 2015 that its 11 million vehicles had a software that cheated during the emissions testing showing lower pollutant emissions as compared to the actual emissions due to which its top engineers were suspended as the Germans were investigating Volkswagen's research and development and diesel engine development team (Boston & Houston-Waesch, 2015: Oct. 16). As a result, the company had announced recall of 8.5 million vehicles from Europe and 500,000 cars in United States of America (Hotten, 2015: Dec. 10). Besides this recall which will cost the company $7 billion, an additional amount needs to be paid by Volkswagen for which the company has set aside $7.6 billion (Ewing, 2016: Apr. 21). Martin Winterkorn, the Ex-Chief Executive Officer resigned from the company's position and stated that "the company had breached trust of its customers and the public" (Hotten, 2015: Dec. 10). The stock of the company has plunged more than 50% for which there was a scepticism that whether it will be improved or not (La Monica, 2015: Sept. 23).

The scandal was a result of the pressure in 2007 on the company that resulted the company abandoning the pollution control system developed by Bosch and Mercedes-Benz and Volkswagen developing its own internal technology (Hakim, Kessler and Ewing, 2015: Sept. 26). Since this time, the company had a pressure on performance in United States of America and competing with leading players Toyota and General Motors (Hakim, Kessler and Ewing, 2015: Sept. 26). In April 2016, the company reportedly closed a deal with the authorities of United States of America to make a settlement by paying $5,000 to each affected customer whose vehicle was found to have the cheating device (Cremer, 2016: Apr. 20). In March 2016, around 278 investors decided to join in a class action lawsuit against the German company Volkswagen for $3.57 billion in damages due to erosion of the share price of the company as a result of the emission scandal which was joined in May 2016 by Norway Oil Fund which is holding funds worth $750 million wherein the company lost $599 million in share price in third quarter of 2015 as a result of the scandal (Chopping, 2016: May 16).

Volkswagen and the automobile industry
Volkswagen is the second largest car manufacturer in the world followed by Toyota who is the market leader with a sale of 10.15 million vehicles as compared to Volkswagen 9.93 million vehicles in 2015 (Wahid, 2016: Jan. 27). Volkswagen is a stronger brand in the market with an admiration of the company known for its world class German Engineering (Hakim, Kessler and Ewing, 2015: Sept. 26). In United States of America, General Motors is the market leader with a market share of 16.9% for the months Jan.- April 2016 followed by Ford Motors with 15.6% market share followed by Toyota Motor Corp with 13.9% market share (The Wall Street Journal, 2016: May, 3). The market leader among total car segment is Toyota Motor Corp. with 6.8% market share followed by Nissan with 5.3% market share and General Motors with ...

Solution Summary

The solution provides guidance on emission scandal crisis at Volkswagen, its impact on company's brand equity and providing suggestive solutions.