The danger of Dieselgate: how Volkswagen’s diesel scandal critically damaged the wider market

Abstract

In 2014, emissions violations were discovered in Volkswagen diesel vehicles. The research was conducted initially by a range of bodies, including a team at the West Virginia University, financed by the International Council on Clean Transportation. The results confirmed suspicions by other carmakers, such as General Motors, who were unable to replicate the results claimed by Volkswagen for their diesel engines. In 2015, these initial results were corroborated by the US EPA and the California Air Resource Board, and the scandal became global. It had been found that Volkswagen engineers had fitted cheat software that allowed the vehicles to run within the strict boundaries of Californian regulations for nitrogen oxide emissions during tests, but when run in the real world, the engine emissions were significantly higher. The furore was greater in the USA, but the ramifications for Volkswagen were felt around the globe. Importantly, the issue for the USA was the potential damage done to the diesel engine industry. The fast-pace and global nature of communication and news means that the fallout of corporate scandals is larger, faster, and much harder to mitigate against. The rise of consumer groups and the ubiquitous use of social media to highlight and criticize corporate issues by users means that such scandals are no longer able to be kept within the scope of investors and industry figures. As such, corporations involved with scandals are penalized quickly and harshly. These consequences are also felt amongst the other supply organizations that are associated with the scandal. In the case of the Volkswagen scandal, other car marques from the Volkswagen Group, as well as associated German brands such as Bosch were adversely affected. Critically, consumers also questioned the environmental viability of diesel throughout the automotive industry. There are considerable knock-on effects to scandals in such large organizations. Their requirements for suppliers to enable rapid and huge expansion in particular business areas (such as Volkswagen's desire to become the world's largest automotive manufacturer) mean that any market destruction can wipe out these now reliant smaller organizations. The consequences of the scandal reportedly cost those associated with Volkswagen a combined US $6.44 billion. The effects of corporate scandals on organizations that were not complicit leads Nunes and Park (2017) to conceptualize the "inertial effect", leading to the research question:

The contagion effect of environmental violations: The case of Dieselgate in Germany

“…In 2014, a research team of the West Virginia University investigated the emissions of VW diesel vehicles following suspicions by other automotive firms. This investigation revealed that nitrogen oxides (NO x ) emissions for a running VW Jetta 2012 and a VW Passat 2013 are much higher than the declared test values, a finding that the US Environment Protection Agency (EPA) could confirm (Robertson, 2017). In direct response, VW recalled and “repaired” affected diesel vehicles; however, this did not mitigate the excessive emissions, which led to both the EPA and the California Air Resource Board withholding approval for the 2016 model year VW diesel vehicles.…”