In 2007, with the advent of Martin Winterkorn in the company on the designation of CEO bought a new vision to the company where he strategically aimed at surpassing the production levels of Toyota and assuming the role of world’s largest automaker by the next few years. The vision was strengthened by the belief that further exports of the product would also aid the German economy particularly after the 2008 Financial Crisis. The new strategy was focused on the market gap existed in America where Volkswagen was yet not a popular brand or consumer choice. The company aimed at increasing the sales of its car by almost thrice proportions to capture a greater market share which was mostly occupied by companies like Toyota and Ford. The regulations related to climate impact, vehicle safety, and fuel consumption are much sterner in America that they were in Europe so Volkswagen managed to dominate the vehicle industry in Europe. For complying with American laws and pollution regulations, German producers had to design and produce a diesel car that was fuel efficient, customer friendly, and complied with all the regulations. In 2007, when electric cars or hybrid cars were just mere figments of imagination, Volkswagen also refused to work in the field of environmental friendly cars. Volkswagen wanted to produce its conventional diesel fueled cars which were attractive and fast without compromising on the strengths of the company that somehow did not comply with the American laws. The biggest challenge was that Volkswagen’s diesel fueled cars created much more pollution than did the conventional gas fueled vehicles. The obstruction was to ensure that population is minimized within the engines of the diesel cars but that was impossible which hampered Martin Winterkorn’s vision to lead the market with a consolidated revenue structure and loyal customer base. After trial and error, and a lot of investment in research and development, when nothing worked out for the company, Volkswagen started pressurizing its engineers to install something in the car that would decrease the levels of smoke ejection through a mechanism. Volkswagen formed a venture with Daimler which produced a BlueTech device that could reduce the levels of nitrogen oxide emission from the cars using a solvent called “urea”. The engineers did as they were instructed by the higher-level authorities and thus Volkswagen started to export its cars to America with these cheat devices that could recognize the testing stage of cars and automatically activated the device which resulted in the temporary mitigation of detrimental emissions. The cars cleared all the criteria for US legislation and thus a huge influx of Volkswagen cars was experienced in the American automotive industry. These cars emitted around 35 times higher harmful fumes than it was permitted for vehicles to exhale as per American regulations. In late 2014, when European researchers started to study the climatic change policies and found vehicles’ smoke to be a conducive factor towards it. The Europeans were concerned about the environmental problems
The cars cleared all the criteria for US legislation and thus a huge influx of Volkswagen cars was experienced in the American automotive industry. These cars emitted around 35 times higher harmful fumes than it was permitted for vehicles to exhale as per American regulations. In late 2014, when European researchers started to study the climatic change policies and found vehicles’ smoke to be a conducive factor towards it. The Europeans were concerned about the environmental problems rising in the region so they started studying the policies of America regarding vehicle regulations. Finally, Volkswagen was exposed and it was a debacle for the company as the reputation, customer base, and financial assets, everything was at stake for the company. The investigation began in America as the scandal developed and Winterkorn resigned immediately.
The Environmental Protection Agency (EPA) soon discovered the harsh reality that their scrutinizing systems were compromised and Volkswagen cars sold in America were all equipped with “defeat devices” that cheated on emission tests being conducted in America. Around 420,000 cars were retested and the fears turned out to be true. In later investigation, when Volkswagen was probed for the issue, they admitted the installation of such “defeat devices” in around 11 million cars across the globe that included Audi, Beetle, and several other brands. This debacle resulted in the first ever financial loss to Volkswagen of around €2.5 billion. To regain the trust of customers, Volkswagen promised to recall 8.5 million cars in Europe, 1.2 million in UK, and around 500,000 vehicles in United States of America for repair. The biggest issue with the scandal was something more than just the financial losses that the company had to face but the trust level that was shattered of the customers and the ethical lapse that the company chose to lead its way on.
It must not be forgotten that the significance of this issue is the aftermath of such financial debacle, $30 billion needs to be compensated to the customers due to cheat machines that were installed in the cars for eloping the environmental regulations in America.