In late September 2015, Volkswagen found itself in the midst of a firestorm. The company, which captures 70 percent of the U.S. diesel-powered passenger-car market, was caught cheating on diesel emissions tests. Over the past many years, Volkswagen had installed software on more than half a million diesel cars in the United States—and roughly 10.5 million more worldwide—that detected when the cars were undergoing emissions tests and triggered so-called “defeat devices” that temporarily switched operating modes and allowed them to pass the tests. VW diesel autos were found to actually be emitting up to 40 times the allowable levels of nitrogen oxide pollutants. Volkswagen has long pitched its diesel cars as efficient, nonpolluting vehicles. But in 2008, when U.S. rules on diesel exhaust became stricter, VW faced difficulties meeting the new standards and living up to its “clean diesel” advertising promises and image. So, under competitive pressures, it covertly installed the secret “defeat devices.” When the scandal broke, Volkswagen’s global sales plunged along with its reputation. The company halted sales of affected diesel models and suspended all of its “clean diesel” marketing and advertising. To mitigate the damage, Volkswagen created a “Customer Goodwill Package” in which it doled out $1,000 in cash and dealership purchases to VW diesel owners along with access to free 24-hour roadside assistance for three years. It also reached a more than $15 billion settlement with U.S. regulators to cover the costs of possible vehicle buybacks and other remedial actions. The full long-run harm to VW’s reputation and market performance remains to be seen. company, or market-centered company? Explain your answer. What competitive thinking moved Volkswagen, one of the world’s major automakers, to cheat on emission standards rather than comply with them? How could Volkswagen have prevented this scandal, and what are the lessons for other firms?
In late September 2015, Volkswagen found itself in the midst of a firestorm. The company, which captures 70 percent of the U.S. diesel-powered passenger-car market, was caught cheating on diesel emissions tests. Over the past many years, Volkswagen had installed software on more than half a million diesel cars in the United States—and roughly 10.5 million more worldwide—that detected when the cars were undergoing emissions tests and triggered so-called “defeat devices” that temporarily switched operating modes and allowed them to pass the tests. VW diesel autos were found to actually be emitting up to 40 times the allowable levels of nitrogen oxide pollutants. Volkswagen has long pitched its diesel cars as efficient, nonpolluting vehicles. But in 2008, when U.S. rules on diesel exhaust became stricter, VW faced difficulties meeting the new standards and living up to its “clean diesel” advertising promises and image. So, under competitive pressures, it covertly installed the secret “defeat devices.” When the scandal broke, Volkswagen’s global sales plunged along with its reputation. The company halted sales of affected diesel models and suspended all of its “clean diesel” marketing and advertising. To mitigate the damage,
Volkswagen created a “Customer Goodwill Package” in which it
doled out $1,000 in cash and dealership purchases to VW diesel
owners along with access to free 24-hour roadside assistance
for three years. It also reached a more than $15 billion settlement
with U.S. regulators to cover the costs of possible vehicle buybacks and other remedial actions. The full long-run harm to VW’s
reputation and market performance remains to be seen.
company, or market-centered company? Explain your answer.
What competitive thinking moved Volkswagen, one of
the world’s major automakers, to cheat on emission
standards rather than comply with them?
How could Volkswagen have prevented this scandal, and what are
the lessons for other firms?
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