Photo taken from Mid Island Collision Center’s website: http://www.midislandcollision.com/brands/volkswagen/
When the name Volkswagen is mentioned in conversation, many different adjectives may come to mind. Before September 18th, 2015, the majority of those words would have been positive: reliable, well-built, affordable, and respected. Nowadays, you may get different results: dishonest, manipulative, and unethical. What happened to change this? In 2015, on September 18th, the United States Environmental Protection Agency discovered that all Volkswagen cars with turbocharged direct injection diesel engines gave off 40 times more Nitrogen Oxides (NOx) than was permitted by the law [1]. This happened whenever when the car was outside a test environment. The car was designed so that when it was being analyzed in a lab, it would produce less NOx at the cost of some performance. This was a work around so the vehicles could still be sold even though they did not meet emission standards [1].
Due to this, Volkswagen’s reputation and stock price dropped dramatically and they were required to spend over $20 billion to settle criminal charges against them, with many executives, including Oliver Schmidt, facing jail time for their actions [2]. This is the result of value based management; or, to be more specific, this is the result of a misinterpretation of value based management. The main idea of this principal is to “maximize shareholder value” [3]. The Volkswagen executives thought the best way to accomplish this goal was to produce high performance, fuel efficient cars for the cheapest cost. To do this, they needed to cut corners, resulting in the poor and short-sighed decision they made. What these executives do not realize is that ethics are just as important to value based management as any other element [4]. On September 4th of 2015, their stock price was $162.20; On October 2nd, their stock price was at $92.36 [5]. This is a drop of 69.84% in value, in just under one month. Their pursuit of maximizing stock value had the opposite effect intended because they did not realize the power of ethics.
Almost two years later, Volkswagen is now starting to recover. They recently announced plans to become relevant in the market again. They have now bought back and fixed most of the affected cars, and will be releasing them on the market slowly [6]. They are also planning to focus on other types of vehicles in addition to the small compact cars they are know for. Soon they will start producing the Volkswagen Atlas, an SUV with seven seats [6]. With these changes, their stock price has slowly started to rise again with it now at $135.60 [5]. Hopefully Volkswagen has learned the importance of good ethics in business and will continue to be prosperous in the future.
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[1] – BBC: http://www.bbc.com/news/business-34324772
[2] – CBC News: http://www.cbc.ca/news/business/vw-executive-diesel-scandal-1.4235244
[3] – Value Based Management: http://www.valuebasedmanagement.net/faq_what_is_value_based_management.html
[4] – R. Edward Freeman: https://www.youtube.com/embed/bIRUaLcvPe8
[5] – Google Finance: https://www.google.ca/search?rlz=1C1CHBF_enCA760CA760&q=volkswagen+stock+price&spell=1&sa=X&ved=0ahUKEwifqeTDrqHWAhVmrlQKHSnTDIEQvwUIJSgA&biw=799&bih=745
[6] – CBC News: http://www.cbc.ca/news/business/volkswagen-diesel-scandal-1.4271719