Reference no: EM133283534
Case: In September 2015, a scandal of epic proportions hit the auto industry, affecting both the United States and Germany. Volkswagen (VW), which had only recently assumed the position of top automaker in the world, was forced to admit that it had been fitting diesel cars with "defeat devices" that allowed the cars to pass emission tests when, in fact, they did not meet U.S. emission standards. Hundreds of thousands of cars were recalled, Volkswagen paid billions in fines, and top-level leaders faced criminal charges for the deception.
From its early roots during WWII, the Volkswagen AG umbrella grew to house a number of respected brands, including Volkswagen, Audi, Porsche, and Bentley. Known for expert engineering, particularly of smaller vehicles like the Beetle, Passat, Jetta, and Golf, Volkswagen had factories in 31 countries, employed more than 600,000 people, and sold cars in nearly every country in the world.
When CEO Martin Winterkorn assumed leadership of Volkswagen in 2007, he developed a vision called Strategy 2018. The goals of the decade-long plan were: (1) to sell more than 10 million cars a year, (2) to become the world leader in quality and customer satisfaction, (3) to achieve an 8% return on sales, and (4) to be the most attractive employer in the industry. Winterkorn, under the mentorship of previous CEO and family owner-shareholder Ferdinand Piëch, drove his team hard, and their combined management style created a competitive culture with no tolerance for failure. Ironically, the organization demonstrated a strong commitment to ethics with a written Code of Conduct for all employees, but this commitment did not extend to top leadership, or perhaps it simply couldn't be sustained under the internal pressure to perform.
In the early 2000s, when other manufacturers were expanding into electric vehicles and hybrids, Volkswagen developed a strategy of promoting diesel-powered vehicles in the United States, which historically had not favored diesel passenger vehicles but they were slowly gaining traction. Creating a diesel engine that met U.S. emission standards was a struggle, and Volkswagen was hard-pressed to engineer a solution. Then, under the Obama administration, the EPA issued new rulings that favored the production of hybrids and electrics, which severely impacted Volkswagen's diesel strategy. This was compounded with a shift in U.S. consumer preference for larger SUVs. Volkswagen's ambitious growth plans were in jeopardy.
Volkswagen's deceitful solution-to program its diesel vehicles to meet emission standards under test conditions but not on the open road-came to light when researchers from the International Council on Clean Transportation noticed discrepancies between the performance of diesel vehicles in the United States and in Europe. Their subsequent investigation produced irrefutable evidence of tampering with the vehicles programming coding, and Winterkorn was forced to acknowledge the deception before resigning. Volkswagen's sales, particularly in the United States, dropped way off, and the company was forced to pay out billions in settlements. The company and its senior leadership are still dealing with the fallout.
Question:
How did the fallout from the Volkswagen scandal impact their brand and culture?
From an outside vantage point, what actions would you have taken after this scandal to rebuild customer loyalty and overall corporate stability?