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The Volkswagen emissions scandal explained

The chief executive has quit after the firm admitted diesel cars were designed to cheat in tests. How did the ‘defeat device’ work and what damage was done?

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  • Published: 24 September 2015

The science behind the Volkswagen emissions scandal

  • Quirin Schiermeier  

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This article has been updated

Debacle has wide-ranging implications, but many already knew that diesel emissions tests were problematic.

volkswagen scandal 2015 case study

Revelations that Volkswagen, the world’s biggest car maker, rigged its emissions testing in the United States to circumvent regulations and boost its sales have sent shock waves through the car industry. On 22 September, the company admitted that it had used special software to lower emissions during laboratory tests of some of its diesel vehicles; on 23 September, its chief executive, Martin Winterkorn, resigned. And US car manufacturers will now face more stringent emissions tests, according to an announcement by the US Environmental Protection Agency (EPA) on 25 September.

The firm's admission suggests that about half a million cars on US roads and 11 million worldwide may be emitting substantially higher levels of nitric oxide and nitrogen dioxide (collectively known as nitrogen oxides or NO x ) than expected from lab tests. The implications for human health are unclear, and some think that the scandal could yet spread to other car makers. Experts have long been aware, however, that lab tests often greatly underestimate actual emissions from diesel cars.

How did the manipulations come to light?

Last year, the International Council on Clean Transportation (ICCT) in Washington DC contracted scientists from the Center for Alternative Fuels Engines and Emissions at West Virginia University in Morgantown to test emissions from three light-duty diesel vehicles under more-realistic conditions than are possible in the lab. To do so, the scientists fitted cars with a portable emissions measurement system to gather a continuous stream of data over a variety of US road types.

The tests found that the levels of NO x emitted by a Volkswagen Jetta were 15–35 times greater than dictated by the US standard (31 milligrams per kilometre), depending on road and driving conditions. Likewise, those for a Volkswagen Passat were 5–20 times greater. The BMW X5, however, remained at or below the standard except during rural uphill driving.

The findings prompted the US Environmental Protection Agency (EPA) to launch investigations into Volkswagen tests in the United States. The EPA also threatened to withdraw its approval for all Volkswagen diesel vehicles approved for sale there; Volkswagen responded by admitting that it had tricked emissions tests by using software that senses when the car is being tested, and switches on full emissions control.

Why are diesel emissions worrying?

Diesel exhaust is a major contributor to air pollution, especially in Europe, where diesel engines are much more popular than in the United States. Diesel emissions contain carbon monoxide and NO x , both of which have serious adverse health effects; Volkswagen’s manipulations concerned NO x , which is a precursor to ground-level ozone and can cause severe respiratory problems.

In London, where more than 3,000 deaths a year are attributable to air pollution, diesel road traffic is responsible for 40% of NO x emissions. Across the European Union, some 20% of the urban population is estimated to live in areas where nitrogen-dioxide concentrations exceed air-quality standards.

What problems with emissions testing were known before Volkswagen's admission?

Several studies have shown that on-road emissions of NO x from diesel passenger cars, including vehicles made by manufacturers other than Volkswagen, substantially exceed the levels measured in the laboratory. The results have raised concerns about the validity of current approval procedures, which car makers have to pass before they can put a new model on the market.

In 2011, scientists with the European Commission’s Joint Research Centre (JRC) in Ispra, Italy, reported that average on-road emissions of tested diesel vehicles exceed allowed limits by up to 14 times 1 . By contrast, NO x emissions of petrol vehicles stayed within the limits.

A year later, the JRC compared NO x emissions of a diesel passenger car that was made to comply with emissions standards due to be implemented in 2014 — called Euro 6 — with six older-type cars 2 . Thanks to its advanced catalytic converter, the new car type did perform considerably better, but on the road it still exceeded the existing emissions standard by about 260%.

And an analysis last October by the ICCT of real-world emissions by 15 modern diesel cars — twelve certified to the EU standard and three to the equivalent US standard — found that although some cars performed reasonably well, others had real-world emissions up to 25 times higher than the 80 milligrams per kilometre allowed by the Euro 6 regulation 3 . The average level of NO x emissions was about seven times higher than allowed in the EU.

Is Volkswagen alone in deploying software designed to circumvent tests?

No other manufacturers have been implicated, but some experts suspect that the use of so-called 'defeat devices' may be more widespread. "I for one find it difficult to believe that Volkswagen was the only brand to do it,” says Jos Dings, director of the Brussels-based non-governmental organization Transport & Environment. He cites a Transport & Environment study , released earlier this month, that found that Volkswagen was just one of many companies with diesel vehicles whose on-the-road emissions were above the limits. However, the study did not look for evidence of trickery, and was confined to Europe, where diesel emissions standards are less stringent.

What is happening now?

Even before the scandal erupted, Europe had put in place measures aimed at improving the quality of diesel emissions tests. By 2017, the European Commission plans to establish a 'Real Driving Emissions' procedure that mandates on-road emissions tests for all types of passenger vehicle. To ensure that vehicles meet the NO x emission limits on the road — and not just during lab conditions, which are open to manipulation — the procedure will make use of similar portable emissions measurement systems to those used by the JRC researchers.

In the wake of the scandal, the US EPA's announcement on 25 September addressed the need for updating emissions testing standards. The agency said that all new diesel vehicles may now undergo tests "for the purposes of investigating a potential defeat device" (See: EPA letter to manufacturers ). The agency refused to elaborate on how exactly they plan to check for defeat devices. “[Automakers] only need to know we’ll be keeping their vehicles a little bit longer, and driving them a little bit more,” said Christopher Grundler, a director at the EPA, in a press conference. The agency will use the same portable emissions-measurement systems that flagged the VW cheat to spot-check light-duty diesel vehicles that are currently on the road.

Until now, the agency has required such testing only for heavy-duty diesel vehicles, which account for the vast majority of highway pollution: diesel cars, by contrast, account for only around 1% of the US car fleet, and just 0.2% of highway NO x emissions, says Grundler.

Will that solve the problem?

The proposed change could greatly improve the level of emissions from new cars, and experts hope that it will prompt manufacturers to make cars that meet the required standards. However, some details regarding future testing conditions have yet to be worked out. Car makers would prefer on-road testing conditions to be narrowly specified, including the driving speeds and road gradients. But experts caution that for emissions tests to be meaningful they need to be as broad as possible. 

What does the scandal mean for the future of diesel in cars?

Diesel vehicles tend to have a smaller carbon footprint than their petrol-powered counterparts and have been touted as a strategy for mitigating global warming. And as the BMW X5 demonstrates, diesel cars can genuinely keep emissions within existing limits. But analysts say that Volkswagen's misbehaviour might result in higher pollution limits, which would in turn up the research and investment costs for car makers. The scandal might also make it difficult to credibly promote the idea that diesel is reconcilable with attempts to reduce air pollution.

Change history

25 september 2015.

The article has been updated with the EPA's announcement of its stricter testing policy.

30 September 2015

The article has been updated following Volkwagen’s announcement that more than 1 million cars in the UK are fitted with the emissions testing software.

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Weiss, M. et al. Atmos. Environ. 62 , 657–665 (2012).

International Council on Clean Transportation. Real-world exhaust emissions from modern diesel cars (ICCT, 2014); available at http://go.nature.com/jojlrb

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How Volkswagen’s ‘Defeat Devices’ Worked

By GUILBERT GATES , JACK EWING , KARL RUSSELL and DEREK WATKINS UPDATED March 16, 2017

Volkswagen admitted that 11 million of its vehicles were equipped with software that was used to cheat on emissions tests. This is how the technology works and what it now means for vehicle owners. Related Article

How Did the System Work?

The software sensed when the car was being tested and then activated equipment that reduced emissions, United States officials said. But the software turned the equipment down during regular driving, increasing emissions far above legal limits, most likely to save fuel or to improve the car’s torque and acceleration. The software was modified to adjust components such as catalytic converters or valves used to recycle some of the exhaust gasses. The components are meant to reduce emissions of nitrogen oxide, a pollutant that can cause emphysema, bronchitis and other respiratory diseases .

Exhaust system of a Volkswagen Golf

Volkswagen has used two basic types of technology to reduce emissions of nitrogen oxides from diesel engines, by either trapping the pollutants or treating them with urea. The first type is shown here.

Main computer

Engine control module

Diesel oxidation

catalytic converter

Oxygen sensor

H 2 S catalytic

Diesel particulate filter

Exhaust valve

Temperature sensors

Engine control

H 2 S catalytic converter

Main computer

Nitrogen oxide trap

This system traps nitrogen oxides, reducing toxic emissions. But the engine must regularly use more fuel to allow the trap to work. The car’s computer could save fuel by allowing more pollutants to pass through the exhaust system. Saving fuel is one potential reason that Volkswagen’s software could have been altered to make cars pollute more, according to researchers at the International Council on Clean Transportation.

The Emissions Tests That Led to the Discovery of VW’s Cheating

The on-road testing in May 2014 that led the California Air Resources Board to investigate Volkswagen was conducted by researchers at West Virginia University. They tested emissions from two VW models equipped with the 2-liter turbocharged 4-cylinder diesel engine. The researchers found that when tested on the road, some cars emitted almost 40 times the permitted levels of nitrogen oxides.

Average emissions of nitrogen oxides in on-road testing

GRAMS OF NITROGEN OXIDES PER KILOMETER

2011 Volkswagen Jetta

15 times limit

URBAN (LOS ANGELES)

URBAN (SAN DIEGO)

RURAL (UP AND DOWNHILL)

2012 Volkswagen Passat

9 times limit

.04 grams/kilometer

Average emissions

of nitrogen oxides

in on-road testing

GRAMS OF NITROGEN OXIDES

PER KILOMETER

Which Cars Are Affected?

The Environmental Protection Agency said in September 2015 that it would order Volkswagen to recall seven of its American car models with affected engines, which amount to nearly 600,000 vehicles. The vast majority of the cars — about 8.5 million — are in Europe and include Skoda and Seat cars not sold in the United States. The rest of the vehicles are scattered around Asia, Africa and South America, where diesels account for a relatively small percentage of cars sold.

volkswagen scandal 2015 case study

The E.P.A. said on November 2015 that it had found the same test-cheating software on additional Volkswagen and Audi diesel models and on a Porsche model. The agency said it covered about 10,000 cars sold in the United States since the 2014 model year. But in meetings with the E.P.A., the company admitted that all model years since 2009 with its 3-liter diesel engines contained the software as well. The latest disclosure covers an additional 80,000 vehicles.

volkswagen scandal 2015 case study

When Will the Cars Get Fixed?

It’s still unclear. In the United States, Volkswagen has reached settlements with federal officials to fix or buy back all affected vehicles, on top of compensating owners for having misled them over their cars’ emissions. In June, it said it would spend about $10 billion to buy back the roughly 475,000 Volkswagens and Audi A3 models that have 2-liter engines. The company also agreed on Dec. 20 to fix or buy back 80,000 vehicles with 3-liter engines. It will try to fix a majority of those to be compliant with emissions standards, but some owners will be offered a buyback option outright. Owners who want to sell their cars back to Volkswagen can register on a website, VWCourtSettlement.com . As part of the June agreement, VW agreed to buy back or fix affected vehicles by December 2018. The Federal Trade Commission has said that consumers could expect to get roughly $12,500 for an older-model Jetta to as much as $44,000 for a 2014 Audi. In Europe, the company said it would install a small tubular part into some of its engines to help them come into line with clean-air standards there. The part, which is about the size of the cardboard inside a roll of paper towels, does not lower emissions enough to comply with American standards.

Volkswagen to Pay $14.7 Billion to Settle Diesel Claims in U.S.

Volkswagen to Pay $14.7 Billion to Settle Diesel Claims in U.S.

As Volkswagen Pushed to Be No. 1, Ambitions Fueled a Scandal

As Volkswagen Pushed to Be No. 1, Ambitions Fueled a Scandal

Complex Car Software Becomes the Weak Spot Under the Hood

Complex Car Software Becomes the Weak Spot Under the Hood

It Took E.P.A. Pressure to Get VW to Admit Fault

It Took E.P.A. Pressure to Get VW to Admit Fault

Volkswagen Says 11 Million Cars Worldwide Are Affected in Diesel Deception

Volkswagen Says 11 Million Cars Worldwide Are Affected in Diesel Deception

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The Volkswagen Emissions Scandal

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In September 2015, VW had admitted to United States regulators that it had deliberately installed "defeat devices" in many of its diesel cars, which enabled the cars to cheat on federal and state emissions tests, making them able to pass the tests and hit ambitious mileage and performance targets while actually emitting up to 40 times more hazardous gases into the atmosphere than legally allowed. The discovery had prompted the U.S. Environmental Protection Agency (EPA) to halt final certification of VW's 2016 diesel models, and VW itself had halted sales of its 2015 models. As fallout from the defeat devices developed, VW posted its first quarterly loss in more than 15 years, and its stock plummeted. Top executives were replaced, and VW abandoned its goal of becoming the world's largest automaker. Stakeholders around the world had been asking since the scandal broke: "How could this have happened at Volkswagen?"

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Videos Concepts Unwrapped View All 36 short illustrated videos explain behavioral ethics concepts and basic ethics principles. Concepts Unwrapped: Sports Edition View All 10 short videos introduce athletes to behavioral ethics concepts. Ethics Defined (Glossary) View All 58 animated videos - 1 to 2 minutes each - define key ethics terms and concepts. Ethics in Focus View All One-of-a-kind videos highlight the ethical aspects of current and historical subjects. Giving Voice To Values View All Eight short videos present the 7 principles of values-driven leadership from Gentile's Giving Voice to Values. In It To Win View All A documentary and six short videos reveal the behavioral ethics biases in super-lobbyist Jack Abramoff's story. Scandals Illustrated View All 30 videos - one minute each - introduce newsworthy scandals with ethical insights and case studies. Video Series

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Volkswagen’s Emissions Evasion

Faced with an emissions test their vehicles could not pass, Volkswagen created a “defeat device” in their engines to sidestep regulations.

In 2015, the U.S. Environmental Protection Agency (EPA) issued a notice of violation to German automobile company Volkswagen. The company’s vehicles met emissions standards when tested in indoor lab environments but failed when tested outside of the lab. On roads, the vehicles’ emissions equipment reported 40 times above the permissible levels of dangerous gases as set by EPA standards. After the EPA presented evidence to Volkswagen, the company eventually admitted to using a “defeat device” in the software of the vehicles’ engines. This software detected when the automobiles were in lab environments and adjusted the level of power and performance to pass emissions requirements.

This was not the first violation Volkswagen faced for skirting emissions tests. In 1973, the company used temperature-sensing devices to deactivate vehicles’ emissions control systems. Volkswagen settled those charges with the EPA for $120,000 and admitted no wrongdoing.

Volkswagen began using the software-based defeat device in 2008 after finding that its engine could not pass the pollution standards set by many countries. This was a diesel-based engine newly developed at a high cost to the company. In the U.S., the company marketed new vehicles with this engine as environmentally responsible “clean diesel.”

In response to the EPA’s disclosure, Volkswagen CEO Martin Winterkorn stated, “I personally am deeply sorry that we have broken the trust of our customers and the public.” He blamed the deceptive practices on “the terrible mistakes of a few people.” Winterkorn soon resigned and was replaced by Matthias Mueller. Mueller stated, “My most urgent task is to win back trust for the Volkswagen Group—by leaving no stone unturned.” Volkswagen launched an internal investigation and recalled as many as 11 million cars worldwide, pledging €6.7 billion (approximately $7.3 billion at the time) for repairs. Volkswagen board member Olaf Lies stated, “Those people who allowed this to happen, or who made the decision to install this software—they acted criminally. They must take personal responsibility.”

Researchers and journalists have pointed out larger concerns in the ways emissions are regulated. Reporter Jack Ewing, who followed the case closely for The New York Times, pointed out inconsistencies between American and European standards and enforcement. He stated, “What emerged from this case was that America, first of all, has stricter emissions standards. And the U.S. enforces them. Even though Europe had a lot of the same rules on the books…they just weren’t enforced at all.” Researchers found that emissions tests could be gamed because the EPA’s tests were set up for manufacturers to pass. University of Denver research associate Gary Bishop noted, “One thing most people are not aware of is that manufacturers will have specific drivers who drive certain models because they can legally drive the test and produce the lowest emissions for that model.” Professor Donald Stedman, an associate of Bishop’s, pointed out the compromises in designing cars, “Drivers want optimum power, performance and fuel economy, the EPA wants passing the test… [These] goals are often not compatible.” Other automobile manufacturers have engaged in similar practices over the past several decades, including General Motors, Ford, Chrysler, Nissan, and Toyota.

In addition to Winterkorn’s resignation, the company shuffled around several other executives. In January 2017, Volkswagen pleaded guilty to criminal charges of defrauding the U.S. government and obstructing a federal investigation. The company agreed to pay a $2.8 billion criminal fine and $1.5 billion in civil penalties on top of a $15.3 billion settlement with U.S. regulators. This was the largest settlement in the history of automobile-related consumer class action cases in the United States.

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Incentive Gaming

Incentive Gaming

Incentive gaming, or “gaming the system,” refers to when we figure out ways to increase our rewards for performance without actually improving our performance.

Related Terms

Bounded Ethicality

Bounded Ethicality

Bounded Ethicality means that people are limited in their ability to make ethical choices.

Ethical Fading

Ethical Fading

Ethical Fading occurs when people focus on some other aspect of a decision so that the ethical dimensions of the choice fade from view.

Ethical Insight

Volkswagen (VW) spent millions on developing a new diesel-based engine. The company was obviously incentivized to sell as many cars as possible. But government regulations also required the cars to be environmentally-friendly, and engineers could not figure out how to design the VW engines to both meet environmental standards and performance standards. When Volkswagen found that their engine would not pass emissions standards, they developed a “defeat device” that would alter an engine’s performance in a lab environment to pass the test. This gaming of the system is more likely to happen when incentives are high and opportunities to evade detection are available. When VW marketed new cars with these engines in the United States, they described the technology as “clean diesel.” It was, in fact, anything but “clean.”

Economists often model people as being perfectly rational, although evidence from the real world makes it clear that for a variety of reasons people are only “boundedly rational.” They are largely rational, but far from perfectly so. Similarly, people are boundedly ethical. They generally act ethically, but a variety of social and organizational factors, cognitive biases, and even situational factors can cause people to make poor moral choices.

While the VW engineers who developed the defeat device were likely rational and (largely) ethical people, their bounded rationality and bounded ethicality influenced their actions. They wanted Volkwagen to succeed, and the ethics of developing the device for their company faded from view. Indeed, engineers and executives at VW seem to have become so focused upon meeting technical standards and maintaining the company’s profits and reputation as a leader in anti-pollution technology that the ethical ramifications of the defeat devices were not taken into account. While it may be argued that emissions tests were set up in a way that encouraged many automobile makers to game the system, for Volkswagen, gaming the emissions test with defeat devices ultimately proved to be an expensive misstep for the company.

Discussion Questions

1. What factors led Volkswagen’s managers to make the decision to try to cheat environmental tests via a “defeat device?” Explain how each of the following concepts was apparent in this decision: ethical fading, incentive gaming, framing, bounded ethicality, bounded rationality, obedience to authority, and conformity bias.

2. When the software-based defeat device was first used by Volkswagen in 2008, why do you think those involved decided to use the defeat device?

3. How did Volkswagen frame its goals? Do you think ethical considerations were in the managers’ frame of reference? Why or why not?

4. Did the fact that its profit goals seemed immediate and concrete while the victims of pollution seemed very distant impact the decision making of the company’s employees? Explain.

5. This was obviously an unethical strategy by Volkswagen. In retrospect, do you think it wise on financial grounds? Explain.

6. Engineers at Volkswagen complained that environmental standards were becoming impossibly strict. In what ways did emissions tests and regulation standards encourage automobile companies to game the system when testing their vehicles? How might these factors lead companies’ ethical frameworks to fade from view?

7. It has been suggested that engineers often focus their attention on solving problems (such as how to build a defeat device and not get caught), and do not pay attention to the ethical particulars of a situation. Do you think that was the case here? Do you think that it is the case generally? Why or why not? What behavioral biases or situational factors may have impacted the engineers’ involvement in developing the defeat device?

8. Are individuals more likely to cheat or engage in other wrongdoing if they think others are doing so? Why or why not?

9. At a minimum, scores of Volkswagen employees knew of the defeat devices. Why might none of them come forward? What was wrong with the company’s culture that no employee felt safe to blow the whistle? How can a company create a culture that would encourage employees to step forward to stop wrongdoing?

10. How might automobile companies guard against ethical fading? How might regulating bodies like the EPA support protections against incentive gaming?

11. Would knowing that Volkswagen cheated on the emissions testing affect your decision to purchase one of their vehicles? Why or why not? How could a brand regain trust with consumers? Explain.

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Uncovering stakeholders in public–private relations on social media: a case study of the 2015 Volkswagen scandal

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While researchers have focused on the nature of interpersonal communication on social media, few have investigated the patterns and structures of interactions among stakeholders engaged in an unexpected event. On September 18, 2015, the United States Environmental Protection Agency issued a notice of violation of the U.S. Clean Air Act to Volkswagen Group of America, Inc., citing Volkswagen’s inappropriate software that circumvented the United States’ emission standards. This research is systemically designed to examine the evolutionary structures of interpersonal issue networks on social media by focusing on the 2015 Volkswagen scandal on social media. The interpersonal network emerged and evolved to build a discourse on issues by stakeholders after the event. By using longitudinal data collected from the Volkswagen USA’s Facebook page between September 17 and 20, 2015, this research tests four hypothesized network structures, which are reciprocity, transitivity, popularity, and activity, which assess the evolution of interpersonal issue networks. The results of exponential random graph models, analyzing 4131 stakeholders, show that interpersonal issue networks on social media have evolved overtime into a set of reciprocal relations and stakeholders transmitting critical information to bystanders. The findings imply that stakeholders who have Volkswagen’s cars and stocks play a critical role in placating the scandal by mutually interacting with diverse bystanders on social media.

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Acknowledgements

This work was supported by the National Research Foundation of Korea Grant funded by the Korean Government (NRF-2007-362-A00019).

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Kenneth Chilton

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Jung, K., Chilton, K. & Valero, J.N. Uncovering stakeholders in public–private relations on social media: a case study of the 2015 Volkswagen scandal. Qual Quant 51 , 1113–1131 (2017). https://doi.org/10.1007/s11135-016-0462-7

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Critical Lessons from the Volkswagen Scandal

Ethical failings precipitated the auto giant’s reputation crisis.

model blue VW van upside down in a puddle

Volkswagen has paid dearly for the ethical shortcomings that led to “Dieselgate.” But has VW learned from the scandal? With the FTC recently filing the final court summary on the case, Michael Toebe reflects on the crisis that leveled the company’s reputation.

Volkswagen’s good name has been tarnished regularly in the media in the last four years over its low-level decision-making and irresponsibility. Severe financial penalties have been meted out as punitive and corrective measures. There are lessons to be learned from VW’s errors.

In 2015, the company confessed to cheating emissions tests on 11 million vehicles across the globe. “Dieselgate,” as the scandal was called, was a punch to VW’s reputation. The financial hit, significant. The company has paid a whopping $9.5 billion in the last four years to American car owners.

That’s historical, with the Federal Trade Commission (FTC) calling it the “largest consumer redress program in U.S. history.”

The total penalties paid internationally has totaled $35 billion.

VW knew of the problems with its vehicles. As is common in developing scandals and the reputation crisis that accompany them, instead of responding ethically, leadership engaged in reckless decision-making. The needed corrections were deemed undesirable, and the financial incentives and temptation to cheat proved too great.

There is, however, another school of thought, says Bret Hood, Director of 21st Century Learning & Consulting and adjunct professor of Corporate Governance and Ethics at the University of Virginia. “Some have argued that VW actively contemplated the risk versus the reward, but I would bet that they approached the issue as did Ford with the Pinto. We take the issue and turn it into a cost-benefit analysis and, as we are taught, the lowest cost is the choice,” he says. “Where we are fallible is that we never do an objective evaluation, because our System 1 brains (automatic) are working in our subconscious to help us produce a predetermined outcome; in this case, sales volume.”

Hood sees another variable as very likely in play, as questionable a rationalization as it could seem to critics. “There are a number of ethical models, such as the Rest Model, Kohlberg’s stages of moral development and the Jones Moral Intensity model, but as Ann Tenbrunsel and Max Bazerman point out, most of the time, the decision-makers have not classified the dilemma as an ethical issue,” he says. “This idea is reinforced by (Daniel) Kahneman’s work on the System 1 (automatic) and System 2 (rational deliberation) thinking.”

It’s reasonable to suppose that moral courage was either insufficient at VW or absent altogether. In cases like these, governance and compliance will never be conducted as skillfully as necessary. As history proves repeatedly, scandal is far more likely.

Click to read more coverage and analysis of the Volkswagen scandal

Expectations mixed with unexpected developments, stress, psychology and intent are strong drivers of predictable behavior. “As we look at Wirecard, Enron, etc., the executive decision-makers are assisted in their deviation from the ethical path by both motivated blindness and indirect blindness,” Hood says. “With motivated blindness, ‘I am willing to overlook things because it is easy for me to overcome internal objections as I am motivated to succeed.’ When you get into large organizations such as these, it is easier to diffuse responsibility through psychological distance from the victims as well as the actual act of committing the fraud.”

This psychological distance is an important variable to understand and recognize as a driver of decision-making and behavior. It plays a role in acts and momentum that lead to a violation of principles, weak or failed governance and missing compliance.

“Indirect blindness comes in when I, the executive, do not actually participate in the unethical behavior but rather, someone on the lower rungs of the organization actually creates the transactions necessary for the unethical behavior to succeed,” Hood says.

This can be either a conscious act or a realization. Either way, both can end up being used as a defense by leadership in behavior and a response when wrongdoing is exposed and scandal is underway, even if considered unprofessional, unconvincing and a failed attempt at absolving oneself of responsibility.

“As an example, the CEO of VW did not sit in on the meetings talking about falsifying the codes, nor did he create the software code that accomplished the mission. This leads to indirect blindness since ‘I did not take part in the mechanics of the process,’” Hood says, as an example of how this works.

The cold and difficult truth is investigators, the law, the media and the public don’t buy this type of defense. The evidence trumps the corporate or legal spin.

“Despite this, the CEOs of all these organizations had an active hand in the unethical behavior by what they said or didn’t say,” Hood says. “In the VW case, an engineer went up to an executive and said, ‘We don’t have the technology to accomplish this.’ The executive responded by saying, ‘Maybe it is time I get another engineer.’ While there was no specific unethical message, there was clearly an implied message.”

The blame-shifting and attempt at exonerating oneself organizationally or individually is not just poor form; it is considered contemptuous to throw your team into the fire, given that the professionals are doing as expected – and uncertainty or fear is a very real component of psychological safety.

“Since people need their jobs, they interpret the exec as saying ‘do whatever it takes and I will tacitly approve,’” Hood says. Another factor is the competitive nature of business in general and the natural personality of leadership or a leadership team.

“Competition and rivalry can certainly lead to unethical behavior as the perception of rivalry creates in (and out) groups,” Hood says. “This usually leads to advantageous comparison wherein you look at yourself and say ‘what I am doing is not nearly as bad as what my competitor is doing’ or ‘I have to do this in order to make this a level playing field.’”

VW has survived its scandal and reputation crisis, but has VW learned from it? Or will the company repeat its errors, as other organizations do?

Are leaders in other organizations paying attention to and learning from this story and similar scandals – from the psychological errors, belief systems, natural competitive tendencies and compromise or failures of ethics, decision-making, governance and compliance?

Some, maybe. The wise ones. However, not all organizations and leaders will pay attention and correct the course they are currently traveling.

Scandals are not closely dissected and examined, but they really should be. Organizations that choose to do so – that regularly test and question their own mindset, practices and weaknesses and make critical adjustments – will be taking significant steps toward critical, protective improvements and risk management, therefore protecting mission, shareholders, reputation, the board and executive careers.

When coupled with humility and a growth mindset, intellectual honesty is a safety precaution critical to prevent embarrassing, costly and career-damaging scandals and to keep your organization from becoming the next cautionary tale.

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Trial of former Volkswagen CEO Winterkorn over diesel scandal set to start in September

FILE - Martin Winterkorn, former CEO of the German car manufacturer 'Volkswagen', arrives for a questioning at an investigation committee of the German federal parliament in Berlin, Germany on Jan. 19, 2017. Former Volkswagen CEO Martin Winterkorn is set to go on trial in September on charges of fraud and market manipulation linked to the automaker's diesel emissions scandal, a German court said Friday, March 14, 2024. (AP Photo/Michael Sohn, File)

FILE - Martin Winterkorn, former CEO of the German car manufacturer ‘Volkswagen’, arrives for a questioning at an investigation committee of the German federal parliament in Berlin, Germany on Jan. 19, 2017. Former Volkswagen CEO Martin Winterkorn is set to go on trial in September on charges of fraud and market manipulation linked to the automaker’s diesel emissions scandal, a German court said Friday, March 14, 2024. (AP Photo/Michael Sohn, File)

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BERLIN (AP) — Former Volkswagen CEO Martin Winterkorn is to go on trial in September on charges of fraud and market manipulation linked to the automaker’s diesel emissions scandal, a German court said Friday.

The state court in Braunschweig said the trial in what were originally two separate cases will start on Sept. 3. It added in a statement that it has scheduled 89 court sessions through September 2025.

Winterkorn, now 76, has denied wrongdoing. Proceedings against him have been delayed because of health problems.

Winterkorn resigned from Volkswagen days after the U.S. Environmental Protection Agency announced a notice of violation on Sept. 18, 2015.

The company had for years been using software that recognized when vehicles were on test stands and turned emission controls on, then turned the emission controls off during normal driving. As a result, the cars emitted far more than the legal U.S. limit of nitrogen oxide, a pollutant that harms people’s health.

In the market manipulation case, Winterkorn is accused of knowing about the installation of an illegal “defeat device” in about 500,000 cars on the U.S. market and deliberately failing to inform stock markets in good time of a “significant financial risk” that had started to materialize in early 2015.

Volkswagen paid more than 30 billion euros ($32.8 billion) in fines and settlements over the scandal.

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Home » Management Case Studies » Business Ethics Case Study: The Volkswagen Emissions Scandal

Business Ethics Case Study: The Volkswagen Emissions Scandal

Over the last few decades, there has been great concern regarding the sustainability and conservation of the environment. Environmental pollution and globalization have become the concern of most environmental protection agencies. The harmful and mortal effects of nitrogen oxide, which is a pollutant found in car exhaust have led the Environmental Protection Agency (EPA) to tighten emission control considering the attention paid to conservation and saving the green. These concerns have made the EPA constantly announce restrictions for standard emissions for all types of vehicles the sports car, heavy-duty trucks, automobiles, and other types of cars. These stringent measures are necessary considering that nitrogen gas emitted is harmful to human health and results in diseases such as asthma, premature death, bronchitis, and respiratory and cardiovascular.

Business Ethics Case Study: The Volkswagen Emissions Scandal

In 2015, the scandal regarding diesel cheat damaged the image of the Volkswagen Company. In light of the discovery of the diesel dupe of Volkswagen in 2015, the mechanism’s aim was to alter the detection of nitrogen oxide gas in Volkswagen diesel engines. The test of the emission of nitrogen oxide in the lab was thirty-five times more on the road hence endangering the lives of the people. The leadership of Volkswagen decided to take a shortcut in the production of their internationally recognized brand. This rigging scandal has had a bad reputation for Volkswagen leading to a series of consequences for its direct and indirect stakeholders. The harmful and mortal effects of nitrogen oxide, which is a pollutant found in car exhaust have led the Environmental Protection Agency (EPA) to tighten emission control considering the attention paid to conservation and saving the green. The management decided to pursue short-term needs forgetting the future prospects of the company.  The leadership of the company made a complete gamble with the stakeholder’s trust and resources. The cheat was in line with the stringent measures initiated by the EPA. These stringent measures are necessary considering that nitrogen gas emitted is harmful to human health and results in diseases such as asthma, premature death, bronchitis, and respiratory and cardiovascular. The Volkswagen Company’s reputation was severely damaged by the scandal leading to low revenue and other effects including law suites.

The scandal clearly reflects corporate misbehavior on the part of Volkswagen. The automakers manufacturing fuel-efficient diesel cars in the United States faced hardships due to these new stringent emission regulations. Volkswagen is among the automobile makers in the United States market that were new stringent regulations. However, in the year 2015, the EPA announced that Volkswagen was a diesel dupe following its strategy to deceive the emission test. Volkswagen managed to deceive the test by showing less emission in its engines than what the engine emitted in the real sense. Therefore, this article is aimed at analyzing the extent to which this issue of diesel dupe has ruined the reputation of Volkswagen.

The Impact the Diesel Dupe had on Volkswagen

In the previous year before the rigging scandal, Volkswagen was among the leading automobile producer in the automobile industry just second after Toyota Company. However, Volkswagen’s admission of guilt in the scandal had a series of effects on it and its operations and the company. The scandal severely damaged the company’s reputation in the automobile industry. Building a reputation in the business world takes time but destroying it is often fast, therefore, this has led to the Volkswagen Company bringing in three public relations company companies to help manage the crisis from Germany, Britain, and the United States. The implications of this deceit by Volkswagen leave the company in a bad condition considering that it has to deal with different regulations since the company is an international brand.

The Role of the Managers

Good leadership has three pillars that support it which are commitment, character, and competencies . Therefore, if any of these three values is not present then there is bound to be problems for the stakeholders, the manager, and the entire organization. In any organization, corporate social responsibility and sustainability have proven too challenging. This follows as managers are faced with the challenge of the tradeoff between the long and short-term decisions. This tradeoff often poses decisions between the survival of the business and its annual compensation, between long-term environmental factors and quarterly profits, and between short-term and long-term goals. Business schools must learn a better way to teach students about these tradeoffs and ways of handling them not ignore them. Resilience is key to financial sustainability. Therefore, business is capable of surviving natural disasters or financial crises. Moreover, the manager’s relationship with the employees, the environment, and the community results in resilience. Therefore, it is important that businesses not work against the institutions that enable their long-term success. However, the antithesis of sustainability is what the Volkswagen Company showed in 2015 through diesel dupe. It does not make any sense for the managers of Volkswagen to create this shortcut and be comfortable thinking it would lead to long-term success. The deception played on the consumers and the regulators compromised the long-term needs and success of the company despite achieving the short-term needs.

The decision the managers made regarding the tradeoff between short and long-term was surely misguided. Volkswagen is a company surrounded by competent staff and the managers are well educated and have vast experience in the industry. Therefore, tabling an argument that there was a shortage of expertise would be wrong and misguided. The strong desire of the managers to succeed at whatever cost is what brought this predicament to the company. They did everything with a sense of urgency and approached the challenges faced by the company with passion and vigor. The decisions these managers made, it is a case of failure in leadership. Research has concluded that drive, temperance, courage, humanity, collaboration, humility, integrity, accountability, justice, transcendence, and judgment are all qualities of a good leader and must all work together since using overusing one trait may result in liability. These traits are essential considering they enable a leader to think things through before making a decision. Moreover, the trait of justice helps in knowing the importance of giving back to society that ensures the success of the business and not harming them like in the case of Volkswagen.

Threatening People’s Health

In case the scandal regarding the cheat device would not occur, sixty people would have died a premature death in the United States alone by the end of 2016 due to the additional pollution the Volkswagen cars produce. The 428,000 Volkswagen and Audi diesel cars manufactured produced more nitrogen oxide gas forty times more than the standard allowed by the Clean Air Act in the period between 2008 and 2015. Researchers have concluded that every six years the cars Volkswagen and Audi produce an excess of about 36.7 million kg of nitrogen oxide, which is very bad for the environment and the health of human beings considering diseases like cardiovascular diseases and other respiratory diseases are caused by this emission.

Moreover, the research also stated that sixty people between the age of 10-20 are endangered by these emissions. Additionally, the effects of these emissions would result in the United States spending about $450 million on people over six years in the period between 2008 and 2015. There would be 140 premature deaths in the event Volkswagen failed to recall vehicles manufactured from 2015 onwards. Moreover, the Volkswagen diesel cars would cost about $840 million in health costs. Finally, acid rains are caused as a result of nitrogen oxide production in the atmosphere which leads to the destruction of property, and natural resources and badly affects the health of humans.

Drop in Volkswagen Sale

A bad reputation ruins businesses beyond recovery. Just as expected, Volkswagen faced a severe decline in revenue since the diesel cheat scandal. The scandal resulted in customers switching to its competitors disabling the sales of Volkswagen vehicles. For the first time since the year 2002, Volkswagen sales plunged throughout the world due to a bad reputation. Furthermore, the scandal affected every aspect of the Volkswagen brand considering even the share values slumped. The slump in share value started declining immediately after the scandal was revealed resulting in a one-third drop. The decline in revenue was expected considering no one wants to be associated with a company facing a scandal and no customers would buy products that cause health problems.

In light of the diesel scandal discovery, it is clear it was an act of pure conmanship. The company decided to make profits at the cost of its customers and the environment. This scandal clearly created a complicated situation for the stakeholders of the company. The actions of Volkswagen management were unethical to the business world leaving a bad name for the company. The management decided to pursue short-term needs forgetting the future prospects of the company. The scandal left the company in a series of cases including a violation of the Clean Air Act and a series of international laws. The leadership of the company made a complete gamble with the stakeholder’s trust and resources. The company had already established itself worldwide hence such a scandal cost it a huge price considering it would take a long time for it to get back to its glory days. The leadership of an organization is vital as it plays a significant role within the organization and its decisions may make or break the organization, therefore, in this case, Volkswagen’s leadership made a grave mistake.

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  1. The Volkswagen emissions scandal explained

    Volkswagen (VW) This article is more than 8 years old. The Volkswagen emissions scandal explained. ... Wed 23 Sep 2015 12.53 EDT Last modified on Wed 14 Feb 2018 11.40 EST. Share.

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  7. Spillover Effects from the Volkswagen Emissions Scandal: An Analysis of

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    paper demonstrating the learning outcomes of the case study exercise. The full text of the case study is included as an appendix. Introduction Since ABET's 2000 requirement for an ethics component in engineering education,1 instruction in ethics is now commonplace in engineering curricula. The 2015 Volkswagen diesel scandal,

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    The Volkswagen emissions scandal, sometimes known as Dieselgate or Emissionsgate, began in September 2015, when the United States Environmental Protection Agency (EPA) issued a notice of violation of the Clean Air Act to German automaker Volkswagen Group. The agency had found that Volkswagen had intentionally programmed turbocharged direct injection (TDI) diesel engines to activate their ...

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    To overcome these issues, we use the 2015 Volkswagen (VW) emissions scandal, which directly implicated VW but not the other German automakers, as a natural experiment. We study the scandal's effects on their vehicle sales, stock returns, and social media sentiment. ... Third, our results provide a case study for the recent macroeconomic ...

  17. Uncovering stakeholders in public-private relations on ...

    Uncovering stakeholders in public-private relations on social media: a case study of the 2015 Volkswagen scandal. Published: 10 January 2017; Volume 51, pages 1113-1131, (2017) Cite this article; Download PDF. Quality & Quantity Aims and scope Submit manuscript Uncovering stakeholders in public-private relations on social media: a case ...

  18. Critical Lessons from the Volkswagen Scandal

    Severe financial penalties have been meted out as punitive and corrective measures. There are lessons to be learned from VW's errors. In 2015, the company confessed to cheating emissions tests on 11 million vehicles across the globe. "Dieselgate," as the scandal was called, was a punch to VW's reputation. The financial hit, significant.

  19. Case Study: The Volkswagen Emission Scandal

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  20. Case Study: Volkswagen's Diesel Emissions Scandal

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  24. Case Study: Volkswagen's Diesel Emissions Scandal

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