An enormous scandal rocked the automotive sector in 2015. VW (Volkswagen), the prestigious German carmaker was involved in a massive pollution scandal that was dubbed “Dieselgate”. VW was found to have installed “defeat devices” in its diesel vehicles in order to manipulate emissions tests, a revelation that rocked the industry and beyond (https://www.bbc.com/news/business-34324772).
Unmasking the Scandal:
The U.S. Environmental Protection Agency (EPA) discovered that many Volkswagen vehicles sold in the country were equipped with “defeat devices” – sophisticated software in diesel engines that could recognise when the engines were being tested and modify their performance to improve the outcome.
What was the outcome? Nitrogen Oxide pollution from the engines was up to 40 times more than what was allowed in the United States. VW eventually acknowledged that these misleading devices were installed in about 11 million vehicles worldwide, including 8 million in Europe (https://www.independent.co.uk/news/business/analysis-and-features/volkswagen-emissions-scandal-forty-years-of-greenwashing-the-welltravelled-road-taken-by-vw-10516209.html)
Corporate Repercussions:
“We all know that we have let down customers, authorities, regulators and the general public here in America, too…. We are — I am — truly sorry for that. And I would like to apologise once again for what went wrong with Volkswagen.” – CEO Matthias Mueller
The Scandal inflicted a severe blow to VW’s financial situation. The business was forced to set aside €6.7 billion (£4.8 billion) to cover the expense of recalling and fixing the impacted cars. As a result, the business recorded its first quarterly loss of €2.5 billion in 15 years. Furthermore, after resolving a High Court lawsuit regarding the installation of emissions-cheating devices in its cars, Volkswagen was left with a large compensation payment for more than 90,000 drivers in England and Wales.
Shareholder Impact:
The scandal also took its toll on VW’s shareholders. Since VW admitted in September 2015 that it had misled US authorities about pollution the company’s shares lost nearly a third of their value around 22 billion euros. In the first two months alone following the scandal, the business lost around half (46%) of its pre-scandal value in terms of stock prices, and even five years after the scandal, it continued to be 35% below its original stock price. https://www.learnsignal.com/blog/volkswagen-emissions-scandal-overview-2/).
Consumer Fallout:
In terms of its consumers, they were also significantly impacted by the scandal. Some Volkswagen owners became concerned about their vehicle’s impact on the environment, while others were worried about the vehicle’s resale value. More than half of VW consumers said that had been deterred from purchasing a diesel VW in the future. As part of the High Court Settlement, VW had to pay out £193 million (https://www.bbc.co.uk/news/business-61581251), to be divided between among the claimants in proportions that were agreed by their solicitors, along with an additional sum to cover their legal expenses (https://www.theguardian.com/business/2015/oct/15/vw-customers-demand-answers-and-compensation-over-emissions-scandal).
Greenwashing Exposed:
The VW emissions scandal is a prime example of greenwashing and shows first-hand a company projecting a false image of its environmental continues and friendliness to its consumers but doing the opposite in practice. Volkswagen had launched a significant drive in the sale of diesel vehicles to the United States, and a continued effort in Europe, supported by a massive advertising campaign that praised the low emissions of its vehicles. In actuality, the cars were generating up to 40 times as much nitrogen dioxide as was legally allowed.
This is a video from the advertising campaign VW in 2015 and shows first-hand the company’s attempt to greenwash its cars, which ultimately added to its downfall when the scandal broke, and led to them also getting sued by The U.S. Federal Trade Commission (FTC) for falsely advertising that hundreds of thousands of its diesel vehicles were environmentally friendly (https://europe.autonews.com/article/20160329/COPY/303299941/vw-sued-by-u-s-gov-t-agency-over-clean-diesel-ad-claims).
The Aftermath:
In the aftermath of the scandal, VW dealt with a plethora of lawsuits, as mentioned throughout this post. In the US alone, the company agreed to a settlement of $14.7 billion. This included $10 billion to buy back affected cars, $2.7 billion for environmental mitigation, and $2 billion for research into zero-emissions vehicles. There were also major adjustments brought about by the crisis at VW.
The corporation declared that it would invest billions in new models and technology in order to establish itself as a global leader in electric vehicles. This was a dramatic shift in the company’s approach as it did eventually work to restore its tarnished reputation.
Conclusion:
The Volkswagen emissions scandal served as a clear warning about the repercussions of greenwashing. It emphasised how crucial it was and still is for a company’s environmental claims to be truthful, honest and open. Companies need to make sure that their environmental commitments are more than just marketing speak, as regulators shareholders and customers demand greater accountability.
Cover Image: https://www.caranddriver.com/news/a15339250/everything-you-need-to-know-about-the-vw-diesel-emissions-scandal/
Unmasking the scandal diagram & graph: https://www.nytimes.com/interactive/2015/business/international/vw-diesel-emissions-scandal-explained.html
Shareholder impact graph: https://www.theguardian.com/news/datablog/2015/sep/22/scale-of-volkswagen-crisis-in-charts
VW Video Campaign: https://vimeo.com/352056532
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