VW Emissions Scandal – Should Winterkorn have acted sooner?

In 2015 the Volkswagen emission scandal was made public where they were found to be using a ‘cheat device’ to pass emissions tests. Martin Winterkorn was the CEO at the time. It is alleged that Martin was made aware of the situation in 2014 in a memo. This blog writes from Martins point of view as if he did know of the ‘cheat device’ in 2014 and the moral dilemma he faced on what to do with the information.

Martin Winterkorn was wrong to keep quiet about the emissions tests being cheated.

Martin Winterkorn, the now former CEO of VW, was informed about the “cheat device” installed in VW diesel cars in 2014, one year before the information was made public. Therefore, the question is whether he should have admitted the company’s mistake as soon as he was told in 2014, or try to cover the mistake in the hope that it wouldn’t be made public.

It was found that all 11 million affected vehicles are capable of releasing a total of up to 948,691 tons of nitrogen oxide per year, which was about 40 times above the standard regulation. This was also roughly compared to the same total amount of emissions from all vehicles, power stations and industry in the UK. That huge amount will greatly negatively impact the environment.

VW has left a big dent on the public perception of the company and therefore the company image. YouGov’s Brand index has shown that the company was previously one of the top car brands in the UK and became the lowest after the scandal broke out. The consumer was not only being manipulated into buying these cars but also indirectly causing an impact on the public’s health. Diesel cars emissions in the UK itself have led to the premature death of 5,800 citizens. It was believed that this death toll could have a significant lesser value if vehicles followed the emission standards.

Martin Winterkorn could have come clean with the public the moment he was aware of the scandal in his company. His action would have prevented more adversely affected cars being bought between 2014 and 2015, thus lowering the cost to fix the problem. But instead the company brought itself in a lawsuit amounting to about $18bn.

Winterkorn was aware that his company was partaking in illegal activity for over a year. Consequently, he is now being investigated for allegations of fraud. However, revealing the emission scandal when he was first aware of it would negate the legal proceedings against him personally and therefore not damage his personal image.

Furthermore, if Martin Winterkorn was asked to outline his personal codes of conduct, they would most likely contradict his own actions during the emissions scandal. Keywords which are likely to occur in many people’s personal codes of conduct are integrity and honesty, both of which weren’t followed by Martin Winterkorn. He also outlined the industrial code of conduct for VW in 2011 stating that employees should master the legal and ethical challenges. This argument outlines how codes of conduct, particularly industrial, are mainly for show.

In conclusion, by investigating the environmental impact, negative impact on the public and consumers, legal issues and personal and industrial codes of conduct, Martin Winterkorn was wrong to keep quiet about the emissions cheating in 2014.

Martin Winterkorn was right to keep the emissions scandal secret from the public.

 The company image is important in attracting new customers and also maintaining returning customers. Volkswagen has a good reputation as well as gaining awards for their products for many years. If Martin would have exposed the problem to the public, the public’s trust towards the company would have declined damaging the company’s image, causing a domino effect in the sales from the VW group.

 Since 2009, more than 20% of the vehicles sold by VW in North America are diesel powered vehicles. A decline in trust towards the VW group as well as the problems in hand will cause a dip in vehicle sales. Not only the diesel powered vehicles will be affected, but also all the models offered across the range will also suffer. A significant drop in sales will cause a major loss in profit which may cause a closure of the manufacturing plant in the Northern US as well as a total withdrawal from the Northern US market. Since VW is a global company based in Germany, worldwide sales may also be highly affected by the problem. 

 The revenue of the VW group is mainly in sales of vehicles from the VAG group such as Audi, Bentley and SEAT. In 2014, VW’s revenue is around 200 billion euros where almost 28 billion euros is revenue in the Northern US. Decrease in revenue will also cause a drop in market shares.

Martin Winterkorn’s responsibility to his 588,000 employees means he cannot just come clean about the emissions scandal due to the number of jobs that would be lost as a result especially in the US market.

VW Group has many investors who stand to lose large sums of money if such a scandal came to light. Martin Winterkorn protects there investment in his company for as long as possible by keeping the emissions cheat device a secret. He could not tell his investors as they would short their stock and be liable for insider trading. In fact there is an argument that by telling any outside party the details of the issue Martin Winterkorn would open himself up for legal action to be taken against him. In 2014 the European Union (EU) adopted new legislation on the matter where all EU member states agreed to introduce sentences of at least four years for all serious cases of insider trading.

Martin Winterkorn had his own personal reasons for keeping the scandal secret as well his own salary he was trying to transform VW into the world largest automaker, stating “not just in units, but in profitability, innovation, customer satisfaction, everything.” The admission of such a flaw in his companies emission testing would set him back years and never see his goal to completion.

Therefore Martin Winterkorn was right to keep the scandal behind closed doors for as long as possible.

If you were Martin Winterkorn back in 2014 what would you have done?

8: Luke Boswell, Ziq Yahya, Tom Cracknell Aiman Awaludin

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6 thoughts on “VW Emissions Scandal – Should Winterkorn have acted sooner?

  1. I would have come clean and told the truth. Although it will have a negative effect on the company’s image and reputation, the effect of keeping it quiet and people finding out later is far worse.

    Even if he did keep it a secret with the intention of ‘protecting’ his employees and the secret was not made public, would most of the employees (if it was made known to them) be happy knowing that the money they earn is made through deception? Also, how can the employees feel ‘protected’ working in company that lies to the public?

    Based on the information given above, the right course of action was to tell the truth.

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  2. I think he was both right and wrong. I wouldn’t wanna be him but if I were him, I would’ve tried to resolve the problem within the company first, not making it public, BUT if even after a few months of non-significant changes, I would have made it public to prevent the lawsuit. I would have been honest and said yes I knew this for quite a while now but even after trying to resolve it and seeing that the company is not making any changes, I’m making it public as it is our promise to our customers and it’s only right to follow the ethical guidelines (or whatever it is) of the company to be honest. I wouldn’t have been able to sleep at night just cos I don’t want the company to suffer from any losses. If he did come clean earlier (preventing the lawsuit), VW wouldn’t have lost that many customers anyway (since they were made aware of the truth and in some way VW has gained trust in another form). If he came clean they might have been unable to sell the 20%… However, it’s still worth the risk as it might not even be the full 20%ish they wouldn’t be able to sell. At least by letting their customers know, they had the choice to buy the diesel cars knowing what it could do to the environment. What the CEO should have done back then was basically minimise the losses, not try and completely remove them. Everyone knows… The truth always comes out. VW could have had less losses and negativity heading their way if they were just ethical. Yes he was also responsible for 500000ish employees but, again, because he made the wrong decision to just keep his customers in the dark, was it all worth it? Because of his decision, more damage than good was done.

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  3. Well, I mean, I could write a witty, philosophical comment about decisions and responsibilities. But I guess, FUBAR is best to describe this whole situation.

    Suppose I’m about to sit my Calculus final exam but just before it begins, in my pocket, there’s a rolled miniature cheat sheet….and BAMM!!! Existential crisis happens. As a slacking student, I am unprepared to take the exam (any exam, as always) and this golden scroll of infinite wisdom holds the key to make sure that I’ll pass the paper. On the other end of the spectrum, my godly conscience kicks in. Words like ‘honesty’ and ‘integrity’ ringing in my ears like the annoying sound of mosquitoes on a tropical dusk. So what do I do now? Should I use it and embrace the glorious GPA that I ever so desired, or should I discard the cheat sheet and take the exam meticulously, diligently, like a ninja going for a kill. I’d choose the latter. Because despite my probability to crash and burn is substantial, being kicked out of college is a much greater hazard than the risk of repeating papers. 

    I know it is a lengthy analogy, but if I were Winterkorn, that’s exactly what I would do; utilising proper countermeasures to mend this messed up situation before it gets worse. Recall the affected vehicles. Fix the emissions issue. Although it sounds hefty, 11 million cars worth of repair is less expensive than a lifetime loss of clients’ trust, and nothing when compared to our priceless planet.

    P.S. Sorry for my bad English.

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  4. Well, I mean, I could write a witty, philosophical comment about decisions and responsibilities. But I guess, FUBAR is best to describe this whole situation.

    Suppose I’m about to sit my Calculus final exam but just before it begins, in my pocket, there’s a rolled miniature cheat sheet….and BAMM!!! Existential crisis happens. As a slacking student, I am unprepared to take the exam (any exam, as always) and this golden scroll of infinite wisdom holds the key to make sure that I’ll pass the paper. On the other end of the spectrum, my godly conscience kicks in. Words like ‘honesty’ and ‘integrity’ ringing in my ears like the annoying sound of mosquitoes on a tropical dusk. So what do I do now? Should I use it and embrace the glorious GPA that I ever so desired, or should I discard the cheat sheet and take the exam meticulously, diligently, like a ninja going for a kill. I’d choose the latter. Because despite my probability to crash and burn is substantial, being kicked out of college is a much greater hazard than the risk of repeating papers.

    I know it is a lengthy analogy, but if I were Winterkorn, that’s exactly what I would do; utilising proper countermeasures to mend this messed up situation before it gets worse. Recall the affected vehicles. Fix the emissions issue. Although it sounds hefty, 11 million cars worth of repair is less expensive than a lifetime loss of clients’ trust, and nothing when compared to our precious planet.

    P.S. Sorry for my bad English.

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  5. Obviously we don’t know what happens behind closed doors. I’m sure a lot of other companies are doing similar things and covering up their tracks, it just turns out that VW were caught. That’s not to say what VW did was ok, because it is a lie that harms the public’s health, regardless of any financial gain VW had from it

    For all we know, Winterkorn may have been trying to rectify the situation behind the scenes, attempting to organise some sort of correction of the issue before it became public. But I still think his first thought should have been to admit the issue and address the public, because at the end of the day it is a public health concern

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  6. The moral argument in CEO minds is irrelevant, their only interest is what will make the business most profitable; no matter what loopholes they need to jump through. If the allegation that Winterkorn was made aware of the cheat device in 2014 is true, then he took a gamble by not revealing it – a risk he would have definitely calculated at the time taken into account all the above factors. In this case, the risk didn’t pay off and the consequences were probably as expected.

    The good news is that every exposed scandal opens a door leading to tighter controls on all companies, meaning that if VW were alone in cheating in their diesel emissions tests (which is unlikely), they will certainly be alone now.

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