Volkswagen Scandal Repercussions for Company and Germany

VolkswagenFew companies have survived massive scandals of their own making, except those in the auto industry. While massive fines, stock dips and executive parachutes being pulled are the norm, the Volkswagen (VW) scandal, however, may have far more repercussions than others did for both the company, the reputation of “German engineering” and Germany itself.

Volkswagen is engulfed in a growing scandal since it came out that the company cheated on emissions tests to make its diesel vehicles look more environmentally friendly than they are. The German company recently passed Toyota to become the world’s largest automaker, as the country has stepped up to become a European leader, economically and compassionately in the Greece and migrant situations. So, timing is particularly bad (as if there is a good one) for the public to distrust the reputation of the company, German engineering and the culture that bred the issue.

VW’s CEO, Martin Winterkorn, stepped down and the company has reportedly set aside considerable funds (estimated to be $7.3 billion) to try and win consumer confidence back. However, both of those actions do not address the real problem – a company culture and regulatory environment that encouraged and perpetuated the problem.

There have been a number of corporate scandals and auto industry ones over the years. But none has been as far reaching. VW actually admits that it programmed 11 million cars, including models of the Passat, Jetta, Beetle, Golf and even cars they help manufacture like the Audi A3, to cheat on emissions tests. The sophisticated deception involved software that detected the vehicle was going through a nitrogen oxide emissions test and went into a lot-emission mode. Once the test was over, the cars reverted to their standard operating mode, which pumped out up to 40 times as many pollutants as legally allowed.

Cheating on the emissions tests is not inherently life-threatening like Ford Pinto’s fuel tanks that would easily rupture in a rear-end collision and cause a fire, or the Firestone tires/Ford Explorer SUV rollover problem caused by tire tread issues, or the General Motors ignition switch problems that caused power brakes, the steering and even the airbags to stop working. All three of those auto issues involved accidents and deaths. They were not so wide spread in impact – none of the vehicles in those situations represented such huge market share (for example, half of all cars in Western Europe are made by German automakers and VW makes 10 percent of all passenger cars in the world.).There was already some distrust against Daimler, the carmaker behind Mercedes Benz, from a scandal a few years ago over financial corruption and bribery.

By deliberately cheating on the emissions tests, Volkswagen spit in the face of regulators and customers concerned about emissions. They falsely advertised their vehicles as environmentally friendly and contributed considerately more to health-damaging toxic fumes and climate change than anyone could have imagined.

One reason the problem persisted is the lax testing systems in the U.S. and Europe. Carmakers actually test their own vehicles and send the results to the Environmental Protection Agency (EPA) in the U.S. The agency reportedly only conducts random testing on 10 to 15 percent of new car models.

The problems with this basic honesty test have been obvious for a few years. Consumer Reports reported that 55 percent of hybrids and 28 percent of turbocharged autos did not perform to their EPA fuel-efficiency ratings. Hyundai and Kia both paid considerable settlements for overstating miles per gallon. Ford, Mercedes and other manufacturers were forced to restate their official mileage ratings in recent years, under threat of lawsuits.

Making “attractive and environmentally friendly” cars was key to Volkswagen’s growth. “German engineering” and a reputation for reliable machinery has helped build the nation’s economy. But now, consumers will undoubtedly be questioning things that are German made for some time to come.

More than a tale of corporate cheating, Volkswagen scandal has tremendous repercussions for the company and is delivering a blow to the Germany’s image just when the country is trying to claim moral leadership in Europe for its warm welcome to migrants and reputation for order and thriftiness. Many migrants are attracted by Germany’s economy and job market. About one in seven jobs there are in the auto industry. So, if car sales dwindle, which they will undoubtedly do in the scandal’s aftermath, the promise of a brighter future in Germany will be dimmer.

Written and edited by Dyanne Weiss

Wall Street Journal: Volkswagen, the Symbol of Germany Inc.
Washington Post: What the Volkswagen scandal means for Germany’s economy and the rest of Europe
New York Times: A Car Scandal Shoves Berlin Off High Ground
Bloomberg: Volkswagen and the EPA’s Dirty Little Secret
MSN: 10 of the biggest automotive scandals ever

2 Responses to "Volkswagen Scandal Repercussions for Company and Germany"

  1. Mark Gendala (@markgendala)   January 4, 2016 at 4:40 am

    Hey, watch us Germans hug and kiss 1 million of those wonderful Middle East refugees and you’ll forget all the silly “defeat software” stories…

  2. Pingback: Toyota reports higher profits but cuts sales target

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