Sample Research Paper on Business Incidents

Case facts

In one of the biggest scandals of 2015, car manufacturer Volkswagen admitted to equipping over 11 million vehicles with software that allowed it to cheat on emission tests. When the vehicles were being tested, the software became activated and it consequently adjusted components such as catalytic converters and valves which in turn recycled some of the exhaust gasses (Gates, Ewing and Russell). During regular driving, however, the software turned the equipment down leading to nitrogen oxide emissions 40 times higher than the permitted limit.

Mr. Liang, one of Volkswagen employees who pleaded guilty in the emissions scandal, stated that he and colleagues had begun producing a novel engine in 2006 but upon carrying out tests they realized that the new engine failed to meet emission standards in the U.S. as well as customer expectations. Instead of ceasing manufacture or tweaking the engines, however, the Volkswagen engineers in liaison with engineers from Raymond Bosch began designing the cheat software (Viswanatha). When researchers from West Virginia University noticed additional emissions during road tests as compared to the standard tests and sent a report to the Environment Protection Agency (EPA), Volkswagen employees instead blamed the discrepancies on “innocent mechanical and technological problems.”

The EPA, however, issued a notice of violation on 18 September 2015 about Volkswagen’s violation of the Clean Air Act prompting numerous environmental groups, consumer organizations, and governments to institute regulatory investigations on Volkswagen cars that led to numerous suits afterward.

Ethical Issues Involved

There are many ethical issues involved in the case, the first being a violation of federal emission laws in numerous nations. Volkswagen had knowingly produced engines that did not meet emission standards in the EU, the U.S. and in numerous other nations of the world. The cars, for example, had emissions 40 times over the federal emission limits but the automaker installed cheat tests to show that the cars pass the emission tests.

Besides the clean air violation, the automaker also used unsavory practices to earn and continue doing business. Even when allegations of excess emissions were uncovered, the automaker failed to disclose information about the issue instead opting to lie to investigators, governments, and the population. In South Korea, it is alleged that the company resulted to forging documents related to emission tests.All these omissions and non-disclosures were intended to enable Volkswagen to continue the sale of the cars.

Another ethical violation present in the case is the sale of products that do not meet specifications (defective products). The company knowingly produced and sold cars when it had the knowledge that these cars were not value for customers’ money. In doing so, the company also used false advertising as it touted that the affected diesel models had environmental and economic advantages besides them having low emissions output. The company had for years promoted “clean diesel” as an alternative to hybrid and electric vehicles in its advertising campaign (Atiyeh).

The last ethical issues is a moral one that involves the manufacture of products harmful to other living things. Nitrogen oxide, the pollutant present in the cars, has been known to cause emphysema, bronchitis, and other respiratory illnesses. The EPA the pollution caused by the affected cars between 2008 and 2015 will lead to approximately 59 deaths, and this in the U.S alone.

All stakeholders involved

The first stakeholder in the case is the Volkswagen Corporation, its management, and employees as they were responsible for designing the defective engines. Volkswagen knowingly designed a faulty engine and when they realized their folly they decided to fit it with a cheat software so that it could pass the safety tests.

The second set of stakeholders is regulators both in the U.S, the EU, and in other nations as well.  These include the environmental regulatory agencies as well as vehicle inspectorate agencies responsible for testing and certifying vehicles to ensure they meet all the legislative requirements. The failure by these regulatory agencies to conduct more stringent inspections not only allowed Volkswagen to install cheat devices in its vehicles but is also the reason why over 90% of diesel vehicles in the EU do not meet emission limits. These regulators failed to identify afault in Volkswagen vehicles leading that allowed the company to produce polluting vehicles for a period of more than 7 years unabated.

Vehicle owners who unknowingly bought vehicles that did not meet safety requirements are also parties to the case. Not only did these car owners not get value for their money but they also face the risk of their car registration not being renewed especially in states or nations that follow Partial Zero Emissions Vehicle Standards (Atiyeh). In the U.S., these owners are required to return their vehicles to Volkswagen in a buy-back scheme targeting 85% of affected of 2.0-liter cars by June 2019. These U.S. owners will also get free emissions fixes unlike car owners in other parts of the world who will have to foot the bill personally and cannot resell their vehicles to Volkswagen. Car dealerships for Volkswagen, Audi, and Porsche cannot sell new dieselcars and in regions where a stop-sale order has been issued for the affected cars, they cannot sell even the old models (Shepardson).

Volkswagen shareholders are also involved in the scandal. Most of these investors who had invested in the company on the back of misleading information were faced with investment losses as the company lost a quarter of its stock price. Car sales also declined resulting in the company making a $ 6.2 billion loss in 2015 that spread to 2016. Costs related to the scandal are estimated at 17.8 billion euros and these will have to be borne by the shareholders who risk their wealth being diluted further as more governments and institutions continue suing the company.

The last group of interested parties is the other manufacturers of diesel vehicles including Volvo, Renault, Mercedes, Jeep, Hyundai, Citroen, BMW, Mazda, Fiat, Ford and Peugeot. As a result of the Volkswagen scandal, regulators carried out independent tests on models by these companies with results showing that most of them exceed legal European emission limits by more than 10 times hence the possibility of recall.

Alternative Courses of Action

One course of action which is already in play in the U.S. is the recall of all affected vehicles. Under an agreement with the U.S. Department of Justice, Volkswagen is required to do a recall of approximately 85% of affected 2.0 liter-cars by June 2019 and has already set aside $14.7 billion for the exercise. The company is also facing pressure from the EU and other nations such as South Korea to recall its vehicles, while many of these have already issued orders to halt the sale of the affected models.

An alternative to total recall would be for Volkswagen to do an emissions fix that entails removing the cheat device, overhauling the engine, and retesting the vehicles for free.

The last course of action would be for authorities to put a halt to the production of diesel engines as the Diesel engines by Volkswagen as well as other manufacturers have been found to flout emission standards.

Effect of alternatives on stakeholders

The buyback option already in motion for the 2.0-litre cars in the U.S. will cost Volkswagen over $14 billion in compensatory damages. The number of affected 2.0-liter cars in the U.S. is approximately 500,000 vehicles, meaning that a total recall of the more than 11 million affected vehicles worldwide would lead to a financial crisis for Volkswagen. Company shareholders would see their stocks significantly diminished if not eroded and the company would most likely go bankrupt. Car owners and dealerships who had purchased the affected vehicles would get a reprieve as they would receive compensation but most would still suffer loss due to diminished resale value. Additionally, those who had purchased their vehicles after September 17, 2015, would be left out in the exercise.

The second option of offering a free emissions fix would still be costly for Volkswagen but not as much as the total recall option. The company would thus have to commit significant resources to fixing the engines, and the exercise would most probably entail installing new engines. This would also have significant financial ramifications for shareholders who would still see their stocks eroded. Car owners and dealerships would get a reprieve but for those who fear that the fixes would reduce performance, the option is not ideal.

The last option of putting a halt to the production of diesel engines would be detrimental not only to Volkswagen but also to other manufacturers of diesel vehicles. Bernstein, a financial research firm, have said that 90% of diesel vehicles in the EU fail to meet emission targets and bearing in mind that EU testing rules are less stringent than those in the U.S, a call for the ban of diesel vehicles is not that far-fetched (Hotten). Such a move would not only hurt Volkswagen and other diesel car manufacturers but also prompt them to invest vast resources in electric vehicles (Saarinen). The move would also lead to a revival of the potential revival of petrol cars as the switch to electric cars would take a decade to materialize. The move would, however, be beneficial to car buyers in terms of acquiring products that do not pollute the environment but the new cars would probably cost more.

Seeking guidance

In order to decide which option to pursue, I would seek guidance from the European Commission as well as the EPA as these two bodies are responsible for ensuring that safety standards are met for the betterment of humankind. The two bodies have also done adequate research on the issue and would thus be better informed on which of the three options would lead to a cleaner future for humans while also ensuring that the personal rights of the parties involved are not infringed upon.

In conclusion, the decision to scrap the production of diesel cars looks the most favorable to me since it not only safeguards the safety of living organisms that suffer death and respiratory illnesses as a result of exhaust fumes adding nitrogen oxide to the environment but also because the evidence does not convince one that diesel car manufacturers have a solution at hand that will ensure their cars meet the required safety standards. As evinced in the case, Volkswagen had tried to produce a diesel that met these requirements but failed along the way and gave up the endeavor altogether choosing instead to mislead the world through false advertising campaigns. The move will hurt the sales of diesel vehicles and lead to them incurring heavy financial costs as they shift to petrol engines or electric cars but it will benefit consumers who will not only purchase efficient cars but also breathe cleaner air. It is expected that diesel car manufacturers will cry foul over this move but until they can prove that their engines meet all the set emission limits, the die is cast on the issue.



Works Cited

Atiyeh, Clifford. Everything You Need to Know about the VW Diesel-Emissions Scandal. 7 October 2016. Web. 15 October 2016.

Gates, Gilbert, et al. Explaining Volkswagen’s Emissions Scandal. 12 September 2016. Web. 15 October 2016.

Hotten, Russell. Volkswagen scandal: Are car emissions tests fit for purpose? 24 September 2015. Web. 24 October 2016.

Saarinen, Martin. VW emissions scandal: latest on dieselgate recalls, compensation and testing. 13 October 2016. Web. 15 October 2016.

Shepardson, David. Volkswagen to pay $175 million to U.S. lawyers suing over emissions. 14 October 2016. Web. 15 October 2016.

Viswanatha, Aruna. VW Engineer Pleads Guilty in Emissions-Cheating Scandal. 9 September 2016. Web. 15 October 2016.