Volkswagen (VW) Label Corruption Scandal

Introduction

VW Corporation is among the world’s leading automakers in history. It was established in 1937 by the German Labor Front and had a record of producing high luxury automobiles. In the past couple of years, the corporation had rejected the concept of contending in the hybrid segment rather than opting to manufacture diesel vehicles. For instance, the firm has undertaken countless initiatives to produce environmentally sensitive vehicles, primarily in today’s era where everyone is dealing with the repercussions of climate change.

In full compliance with environmental laws, the corporation introduced a campaign to produce cars whose emissions did not add to an elevation in the content of toxic gases in the atmosphere (Ewing 147). All of their vehicles had to be subjected to diagnostic procedures in various sectors to meet the environmental laws.

The U.S. is one of the jurisdictions that have strictly adhered to its pollution reduction policies. For instance, VW was required to comply with the standards imposed in the U. S. as one of its core markets as an internationally known vehicle manufacturer with significant business, socio-economical, and ethical obligations. Nevertheless, the corporate image was irreparably harmed in 2015 after the U. S. Environmental Protection Agency (EPA) discovered that it had breached the Clean Air Act (CAA) (U.S. Environmental Protection Agency 1). Notably, VW had deliberately configured the automobiles it had submitted to pass the emission testing to match American regulations, yet the cars it had placed on the market lacked the same compliance mechanism.

Summary of the Volkswagen scandal

The VW label has been mired in a disastrous emissions corruption scandal that has shattered the brand’s credibility globally. VW acknowledged installing software meant to deceive regulatory emissions testing in approximately in almost all diesel-engine vehicles globally (Atiyeh). The automaker’s ethical quandary was precipitated by allegations that the manufacturer violated air pollution tests administered by the U.S.’s federal government. Interestingly, VW created a marketing effort in which they promoted their automobiles as having low pollution rates since they were cognizant of the pollution laws enforced in the U.S. Yet before the automobiles could be sold in the U. S., federal government’s authorities required them to be tested. In this case, the vehicles sold in the U.S. market by the corporation between 2008 and 2015 did not satisfy the emissions criteria imposed by the U.S. government (Ewing 267). Case in point, VW had placed specialized technology in the vehicles used for the emissions test, which manipulated their pollution levels.

The technology was critical in persuading controllers that the VW’s autos were not spewing treacherous chemicals into the environment at uncontrollable amounts. Still, once the cars were released for sale, numerous eco-friendly experts became concerned about their pollution, instigating the U.S. federal government to initiate a probe into the subject (Atiyeh). Their studies revealed that the automobiles were releasing up to forty times the permitted levels. This finally led to the Federal investigators requesting clarifications from VW Group about the abnormalities, to which they confessed to installing unique gadgets in the test vehicles that were not fitted inside the cars on the market. The EPA discovered that several automobile models breached the requirements, including the Passat, Racquetball, and Jetta (Ewing 268). Interestingly, VW, for its part, replied to the claims by acknowledging that the test automobile models were equipped with a defeat device that was not utilized on the road-going vehicles. This spurred other nations with a large market for VW vehicles to begin looking into the legal hurdles.

Analysis

Legal Issues

Violation of the CAA

Volkswagen breached the CAA by selling about 590,000 diesel motorized cars fitted with “defeat devices”. According to the EPA, these automobiles are outfitted with defeat devices in the form of computer algorithms engineered to evade government safety inspections. The principal additional pollutant under consideration in this situation was nitrogen oxides (NOx), which are a severe health risk. While the enterprise’s managers originally claimed that the errors were triggered by technology flaws, they subsequently acknowledged illegally acting in dishonesty, much to the disappointment of their faithful consumers who had put their trust in their vehicles (Ewing 225). However, VW responded immediately to the incident after it was brought to the attention of the U.S. media. For example, top officials at the carmaker voiced tremendous regret for their heinous behavior and breaking the trust of people across the globed, which they had rightfully earned through the decades.

Violation of the Criminal and Civil Customs Laws

The US Justice Department settled a criminal charge against Volkswagen AG with a pretrial bargain for espionage, perverting the course of justice and the importation of defective cars by fraudulent misrepresentation. Moreover, US Customs and Border Protection established civil fraud allegations against Volkswagen originating from the unauthorized importation of affected automobiles. To resolve the matter, the business began a buyback effort targeted at correcting the reported flaws. In this case, VW put aside more than $18 billion to settle the expenditures accrued throughout the operation (Ewing 103). Ever since, the issue has lingered on, with the findings of the inspections it had undertaken being disclosed in 2018. In April 2015, a federal criminal jury summoned the firm to pay $14.7 billion as punishment for defrauding the U.S. government (Atiyeh). This was after the company had admitted to breaking criminal customs statutes.

Violation of FIRREA Act of 1989

US authorities are investigating whether lenders were affected by funding consumers’ acquisition of automobiles at exorbitant prices under the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA). Since the fraud issue became known, the value of VW diesel vehicles has decreased. The corporation was charged legally and financially for customers who received tax incentives when they purchased automobiles that they believed released less pollution than they did.

Moreover, the claimed FIRREA breaches stemmed from VW’s provision of competitive credit conditions through the acquisition of car mortgages and leases from dealers. Some of the mortgages featured diesel automobiles with emissions-cheating software (Ewing 167). The automobiles were used as collateral to secure credit and lease deals. In this case, the mortgages and contracts were aggregated together to form asset-backed securities, that were acquired by collateralized banking firms.

Ethical Issues

The VW crisis raises ethical concerns, such as the attempt to mislead the US government, the EPA, and US residents; lying during annual inspections, and purposefully harming the ecosystem. As the controversy unfolded in the U.S., it gained traction in several other nations, including the U.K., Italy, and, most notably, Germany. As a result, the legality of VW’s pollution assessment has been called into question. The problem had also harmed the credibility of its companies, as VW was implicated by the EPA in tampering with the computer program fitted to VW cars, affecting approximately 10,000 cars, despite VW’s denials. The emission crisis was often preceded by facts rather than a hypothesis of the aforementioned irresponsibility.

Since such firms as VW’s financial capability and development in capital adequacy and efficiency are supplemental to the growth in “Corporate Social Responsibility” (CSR), raising income and business wealth were the primary reasons that the firm did not operate in a “socially responsible way”. According to Schooley (2021), firms must raise income while also focusing on stakeholder importance and CSR.

Because VW’s business strategy focused on monetary benefit and investor’s favor, the illustration demonstrates that Profitability Momentum is the predominant consequence, which reveals that when revenue growth focus rises, it will almost inevitably lead to irrational management. Consequently, the firm disregarded the obligation to care for the environment and the citizen’s health-related effects.

Although the automaker’s conduct merits no credit, the way they handled the controversy was quite unethical. In such a case, the only option a respected global corporation could do was to express heartfelt contrition to everyone harmed by their conduct, as well as terminate and fire all workers involved in the incident (Atiyeh). Furthermore, businesses are fundamental concepts that should govern all organizational events. And high-ranking leadership should embody those ideals daily in their activities. However, in this situation, the corporation may have responded differently to the incident. VW, for example, should not have acknowledged lying during the air pollution monitoring tests. The fundamental purpose of doing so is to protect their identity, brand, and general trust.

They may have claimed that they were unaware of the situation, but then offered to retrieve all of the vehicles and make the appropriate adjustments. This may have aided in persuading the community that they were not greedy or unconcerned about the wellbeing of their clients. This reaction would most likely have saved the firm a significant amount of revenue in penalties (Atiyeh). Another conceivable explanation that the firm might have offered was that the American regulators’ test procedure was flawed. Given that all of their automobiles had the same fault, this would have provided them with solid evidence to prove their claims. However, this approach would have major monetary ramifications because the inspection would have to be repeated, in addition to re-engineering all of the returned vehicles at the cost of the corporation.

Recommendation

According to reports, the automaker’s emissions crisis has had a wide-ranging detrimental impact on its investors and the car manufacturing sector in general. One of the biggest consequences of the scandal’s exposure was a considerable decline in the company’s financial performance. Therefore, to safeguard both the financial performance and the CSR of a company in a bid to make a profit while at the same time ensuring environmental protection is enacted, thorough recommendations are required.

Recommendation on Ethical Issue

According to sources, the emissions controversy functioned as a warning to other manufacturers throughout the globe, as demands for decreasing the excessive rates of environmental effluence produced by motor discharges grew. VW should undergo a series of corrections, resulting in a novel and supplementary CSR-intensive corporate policy, as well as more ecologically friendly industrial device suggestions, and other mechanical restructurings to address the greenhouse gas concerns. As a result, the administration should remain focused on “Environmental Integrity” as mitigation will prevent and prohibit actions concerning avoidable consequences rather than decrease after-effect costs, and halt global warming and health-related difficulties.

Recommendation for Legal Issues

The federal government should join other nations in creating equal emission regulations worldwide. In this case, such issues as the exportation of cars with defeat devices will be reduced, which will enable companies to engage in CSR. For instance, using the Zero Emission Vehicle Program, other states or countries should join the program to provide protracted pollution reduction targets by compelling automakers to sell a certain number of the cleanest automobiles on the market. As such, nations that are known to disregard international laws on CA are subsequently blocked from selling to other nations. An example of internationally related laws on CAA is Section 203 (a) (3)(b). This segment outlines that the manufacturing, sale, or fitting of any item that purposefully bypasses EPA discharge requirements by circumventing, disabling, or making inactive a mandatory part of the vehicle’s emissions reduction system is prohibited.

Conclusion

VW is a recognized worldwide corporation that should serve as a dominant player in encouraging moral practice. As a result, the VW’s emissions standards situation was a horrible decision that landed it in a huge ethical quandary and significantly tarnished its credibility. The scandal revealed that they were selfish and were never concerned about their customers’ health as long as they reached their sales objectives. Notwithstanding the firm’s repeated endeavors to reestablish its integrity, technology firms have expressed remorse for the automaker because the scandal revealed some of the loopholes that must be filled for the sector to thrive. It is vital in marketing to retain transparency and to constantly strive to enhance the greater good. This calls for the need to enact universal equal emission protocols as well as use a CSR-focused corporate strategy.

Works Cited

Atiyeh, Clifford. Everything You Need to Know about the VW Diesel-Emissions Scandal. Car and Driver, 2019. Web.

Ewing, Jack. Faster, Higher, Farther: The Volkswagen Scandal. W. W. Norton & Company, 2017.

Schooley, Skye. What Is Corporate Social Responsibility?. Business News Daily. 2021, Web.

U.S. Environmental Protection Agency. Laws and Regulations related to Volkswagen Violations. EPA. 2021. Web.

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