The Volkswagen Emissions Scandal

17 Pages Posted: 2 Jun 2017 Last revised: 27 Nov 2018

See all articles by Luann J. Lynch

Luann J. Lynch

University of Virginia - Darden School of Business

Cameron Cutro

University of Virginia - Darden School of Business

Elizabeth Bird

affiliation not provided to SSRN

Abstract

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?”

Excerpt

UVA-S-0267

Rev. Oct. 30, 2018

The Volkswagen Emissions Scandal

In October 2015, Mathias Müller became CEO of Volkswagen (VW), the 78-year-old economic jewel of Germany. His predecessor, Martin Winterkorn, who had led VW for eight years, had resigned suddenly in the midst of one of the biggest scandals to ever hit VW and the auto industry. In September, 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 US 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. Winterkorn and several other top executives were replaced, and VW abandoned its goal of becoming the world's largest automaker. In addition to significant financial implications, VW was rapidly losing its prized reputation as a trustworthy company capable of outstanding engineering feats.

Volkswagen Background: The Power of German Engineering

In 1937, VW was founded in Germany under the Nazi regime by the labor unions with the help of Ferdinand Porsche, the inventor of the Beetle (the people's car). Tasked with making a car that was affordable for all consumers, VW's flagship car, the compact and iconic Beetle, first rolled off the manufacturing floor in 1945, and by 1949, half of all passenger cars produced in West Germany were built by VW. The company began exporting cars in the late 1940s, and by 1955, the company had sold over one million Beetles worldwide. The Beetle would eventually surpass Ford's Model T as the highest-selling model ever built, reaching sales of more than 15 million by 1972. When sales of the Beetle began to decline in the late 1970s, VW branched into other models, including the Passat, Jetta, Golf, and Polo. The VW brand eventually folded into a broader public holding company, Volkswagen AG, which by 2014 owned 12 subsidiaries, including VW passenger cars, Audi, Porsche, and Bentley.

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Keywords: emissions tests, mileage and performance targets

Suggested Citation

Lynch, Luann J. and Cutro, Cameron and Bird, Elizabeth, The Volkswagen Emissions Scandal. Darden Case No. UVA-S-0267, Available at SSRN: https://ssrn.com/abstract=2975251

Luann J. Lynch (Contact Author)

University of Virginia - Darden School of Business ( email )

P.O. Box 6550
Charlottesville, VA 22906-6550
United States
434-924-4721 (Phone)
434-243-7677 (Fax)

HOME PAGE: http://www.darden.virginia.edu/faculty/lynch.htm

Cameron Cutro

University of Virginia - Darden School of Business

P.O. Box 6550
Charlottesville, VA 22906-6550
United States

Elizabeth Bird

affiliation not provided to SSRN

No Address Available

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