Volkswagen Emission Scandal - Case Study Example

Volkswagen Emission Scandal: Case Analysis Name Institution Course Date Volkswagen Emission Scandal: Case Analysis Introduction No organization is immune to a crisis. However, whenever a crisis strikes in a company, it is important for the management to respond effectively to the crisis to minimize the reputational damage that might result from the incident. Effective communication is one of the best ways to handle a crisis. Coombs (2007, p. 164) argues that, when communication is not handled effectively, a crisis can turn from bad to worse. Macnamara (2016, p. 44) reveals that, over the last few years, there are many incidences that have occurred either because of poor communication or worsened because of lack of effective communication in response to the crisis. The Volkswagen recent emission scandal is an example of an incident turned from bad to worse because of poor communication during response to the crisis that resulted in the recall of more than 11 million cars. This report described the Volkswagen emission scandal and proceeds to analyze how the German automaker handled the incident. The Emission Scandal Volkswagen is a German leading manufacturer and seller of automobiles. The company was formed in 1937 and has sing expanded its operations to become a global brand (Reiger 2010, p. 91). Worldwide, VW is the second largest automaker and seller behind the Japanese automaker, Toyota. Presently, three of VW’s cars ranks among the top 10 best-selling cars in the world and include car models, such as Passat, Golf and Beetle. In 2014, before the emission incident occurred, VW was among the top most profitable automakers in the world after posting revenue estimated at €202.5 billion and profits of €12.7 billion (Blackwelder et al. 2016, p. 2). Despite the good performance and reputation that the German automaker has built over the past eight decades as an ethical brand, the company was recently involved in one of the most scathing corporate scandal. This follows the discovery that VW had been cheating on its emission of nitrogen gas. The incident erupted in September 18, 2015 after the investigations by the Environmental Protection Agency (EPA) found that the executives of Volkswagen had colluded with the engineers and installed the so-called “defeat device,” a software that had the ability to sense when VW cars were being tested for nitrogen dioxide emission level (Yu et al. 2008). Here it was discovered that as soon as the software detected testing, it immediately minimized the torque and nitrogen emission and reverted to its normal status by increasing torque, acceleration and ensured fuel efficiency. The use of such dubious tactics allowed all the VW cars to pass the United States emission tests for all its diesel-powered engines despite the tough standards set by the United States. Although suspicion about emission scandal erupted as early as 2014, VW denied such allegations vehemently (Blackwelder et al. 2016, p. 4). The executives of the automaker denied any such arguing that everything was in order and as per the standards and regulations. It took EPA to threaten VW of its intention to stop the VW from allowing all its cars into the market for the executives of the German automaker to accept having been cheating on its nitrogen dioxide emission by installing software. The embarrassments and the reputational damaged caused to the company prompted the CEO of the automaker to resign from his post. Investigations conducted later found that more than 11 million cars were affected and had to be recalled by the German automaker (Ritson 2015). So far, other than the reputation damage suffered by VW, the company has incurred financial losses estimated at more than $18 billion and is still counting (Yu et al. 2008). The automaker has also suffered from investor confidence that threatens destroy the company. In addition, VW has experienced a steep decline in the number of customers since the scandal erupted in 2005. Analysis of VW’s Response to the Incident The Volkswagen emission scandal is an example of an incident that was worsened because of poor communication. It emerges from that VW management mishandled the incident by starting by denying any wrongdoing and later accepting when the pressure becomes too much from EPA. When the first case was detected in 2014, VW strongly denied that the company has been cheating on its emission saying that it was just a technical issue (Yu et al. 2008). And throughout, the company’s communication team responded to allegations by denying ever installing the “defeat device” and would wait until such a time that it is put under pressure to accept having been involved in cheating, which indicates serious communication blunders. Ritson (2015) argues that Volkswagen communication blunders started even before the scandal became public. Analysis of the chain of events indicates that the engineers of the automaker confessed to EPA of having installed the defeat software on September 3, 2015. During their confession, the engineers indicated that about 480,000 diesel cars had been fitted with the software with the intention of underestimating the nitrogen dioxide produced during testing. However, to the surprise of many, this new was only made public more than two weeks later on September 18, when the regulator, EPA decided to go public. Coombs and Holladay (2014, p. 41) argues that VW made a big mistake by not disclosing the information not just to regulator early enough, but also to the public. To save its image, it would be expected that WV communication team was the one to disclose the information to the public instead of the regulator. However, in this case, the opposite happens as it was EPA that disclosed the information to the public on September 18 after VW failed to do so and the company has been criticized by communication and public relations gurus for making such communication blunders that have only served to worsen the situation that would have been salvaged if the company had communicated the information effectively and in a timely manner, argues Vos et al. (2014, p. 201). By nagging and taking too long to issue statements to inform the stakeholders of the happenings at the company, this allowed the crisis to get out of control because the new revelations that kept emerging destroyed the automaker’s reputation. Although some information Zhang (2016, p. 43) feels that VW did a good thing by not commenting on the incident more quickly, the company moved subtly too slow in issuing statements. Besides ensuring that statements are issued promptly in response to a crisis, communication experts argue that the statement being communicated should be truthful and based on facts. A company must ensure that the stakeholders are informed by providing them with truthful information about the crisis as this ensures that stakeholders, such as investors, employees, customers and suppliers understand the gravity of the incident and how they are likely to be impacted (Zhang et al. 2016, p. 177). Unfortunately, in Volkswagen case, the situation was different as the former CEO of the company Martin Winterkorn responded by denying any wrongdoing at the beginning and this amounted to the provision of deceptive information (Volkswagen 2015). The communication blunder by Volkswagen was witnessed on November 2, 2015 when EPA discovered a defeat device in Porsche, Audi and VW 3-litre diesel cars, which reportedly affected close to 85,000 cars. When contacted by EPA over the issue, the management of VW denied that the German carmaker ever installed defeat device in 3-litre V6 diesel-powered cars. In a statement, VW said, “Volkswagen AG wishes to emphasize that no software has been installed in the 3-litre V6 diesel power units to alter emissions characteristics in a forbidden manner” (Milne 2015). Despite denying installing defeat device in this car model, further investigations revealed that the automaker had indeed installed the device with the aim of understating its emission level. This implies that the company provided deceptive information by denying its involvement in the cheating, which is unethical and amounts to serious communication blunders. Deceiving the regular and the stakeholders through denials of wrongdoing only served to worsen the incident that communication experts believed could have been addressed if the management of the company had accepted wrongdoing early enough and took proactive measures to address the problem (Zhang et al. 2016, p. 181). Besides, just a day after denying installing defeat device on 3 November, VW management came out to admit that about 800,000 of its cars had been fitted with defeat software to underestimate its nitrogen dioxide emission, saying that it was setting aside €2billion to address the problem. Despite accepting wrongdoing this time round, there were still problems with communication considering that VW left out critical information that it ought to have provided. For instance, the company only admitted that about 800,000 cars were fitted with defeat software, but failed to provide details regarding the affected car models (Ritson 2015). The failure to provide detailed information regarding the extent of the cars involved and the types of car models involved amounted to poor communication considering that it left the investors and customers in a bad situation and in an uncertainty not knowing whether their cars were affected and would be recalled or not. Analyst Max Warburton of Bernstein Research argues that “The press releases from VW seem almost purposefully designed to infuriate further investors—and probably regulators — with their obscure language” (Milne 2015). The confusion in communication at VW emerged again on November 23, when the company reversed course by admitting that the company had installed the 3-liter cars. The back and forth, denial and acceptance of guilt by the management of the company showed that there was serious communication problems that only made the situation worse for the VW since it demonstrated the company as unethical and untrustworthy , which damaged the reputation of the company. The fact that the German automaker gave mixed comments and statements about the emission scandal would make it difficult for the stakeholders to believe in any statement that the company issue to the public considering that it has developed a culture of providing deceptive and misleading information to the audience. The Volkswagen scandal was also worsened by communication blunders in the sense that the executives of the company began by shifting blames to the employees instead of taking personal responsibility and apologizing to that effect. In a video statement issued by Martin Winterkorn on September 22 regarding the emission scandal, the CEO pledged that they will handle the issue with utmost openness and transparency (Blackwelder et al. 2016, p. 7). The following day, Winterkorn resigned but after uttering a bad statement that only served not to resolve but to worsen the situation. He said, “I am not aware of any wrongdoing on my part” (Milne 2015; Volkswagen 2015). By saying that he was not responsible to the public, this implies that the CEO was trying to transfer blame to employees and probably other senior managers of the company, which is not a good way of addressing a crisis, according to Coombs and Holladay (2014, p. 43). Instead, communication experts believe that VW could have minimized the public and media scrutiny that followed the events if the management of VW had accepted responsibility right from the beginning. Lastly, the situation that VW found itself was gravitated by the fact that the management of the company allowed the media to air the events to the public and only reacted to the news that was already on the public domain. The supervisory board members claimed that they only learned about the scandal in the media (Hemus 2015; Benoit, & Brinson 1994, p. 77). It would be expected that if the company had good communication in place, then the management could have informed the supervisory board of the defeat device as this could have helped ensure that appropriate actions are taken to address the issue and even prevent it from reaching the media. Conclusion Volkswagen 2015 emission scandal was a carefully calculated scandal that involved the collusion between the executives and the company engineers. This saw more than 11 million VW cars get fitted with “defeat devices” that allowed the German automaker underestimate is nitrogen dioxide emission. However, as illustrated in the report, this scandal was worsened by poor communication by the management that not only provided misleading information by denying involvement at the beginning, but also provided statements in a subtly slow pace. Therefore, this case study indicates the degree to which effective, factual and prompt communication is important during a crisis. References Benoit, W. 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