Volkswagen’s Demise

AP+Photo

AP Photo

“Diesel is no longer a dirty word,” Audi proclaimed. “95% fewer sooty emissions,” said another Volkswagen ad. The ad campaign was witty, humorous, and convincing. So convincing, in fact, that Volkswagen claimed they had “sold more diesel cars in the U.S. than every other company combined.” In light of what we now know, these ads are not in the least bit amusing.

Volkswagen is one of the top auto manufacturers in the world, putting 4.6 million cars on the road last year, and bringing in $113 billion in revenue. Their prominent position in the auto world comes as a result of a history full of sleek engineering, groundbreaking technology, and unprecedented innovation. Their latest breakthrough was their introduction of a new line of “clean diesel” cars, which would produce fewer emissions than a regular gas engine. The TDI engine, as it is known, targeted the environmentally and economically conscious consumer, and would supposedly cover 46 miles on a single gallon of diesel fuel.

But unfortunately, consumers who paid extra money for these especially efficient and “green” cars were shocked to find that their cars were actually spewing out dirty emissions at over 40 times the legal limit.

The engineers at Volkswagen attempted to design a car with a diesel engine that would get good gas mileage, while maintaining sufficient power which would make it fun to drive. At the same time this design would meet CO2 emissions standards. Since their competitors, such as Mercedes and BMW. had seemingly mastered this trifecta, Volkswagen was under pressure to get their version to drivers as soon as possible. The problem was, they could not pull it off.

Rather than admitting their shortcoming and trying to solve the challenge with a different design, Volkswagen’s software engineers chose to take a shortcut around the emissions test by installing computer software that could detect when a car was being tested, and would temporarily reduce its emissions. The result of this lapse in judgment is now one of the worst examples of fraud in manufacturing history.

The consequences for Volkswagen’s employees, not only in Germany but all over the world, is significant. Equally affected are the hundreds of thousands of shareholders whose investments are worth 2/3 less than they were before this crisis. Mr. Michael Murphy, an economics teacher here on the Island, offered some insight into the impact. “The company has already set aside $7.3 billion as an initial estimate to cover direct costs,” he stated. That number is expected to rise even higher in the face of lawsuits and other hefty fines. “What’s more concerning to management and investors,” Murphy explains, “is the brand damage and the potential negative effect on future sales of Volkswagen and Audi cars and resulting revenues and profits that drive the value of the company.”

But putting money and value aside, the damage to the company’s reputation may prove to be irreparable, since misleading the consumer will lower future customers’ trust in the company.

Many frustrated consumers wonder how top level engineers and executives in a company as renowned as Volkswagen could let such deception and cheating exist. Volkswagen was faced with the difficult challenge of designing a car with superior performance, efficient gas mileage, while meeting stringent U.S emissions standards.

Here at Loomis Chaffee, we are taught about basic principles of science and ethics, which emphasize the importance of revising an experiment or solution if the results are not what we intended. By trying the easy way out, Volkswagen has not only lost consumer trust, but also missed the opportunity to challenge themselves technologically and make more advance and useful discoveries. For future technological companies who are designing new cars the demise of Volkswagen will serve as a cautionary tale.