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Volkswagen: The scandal explained

By Russell Hotten, Business reporter, BBC News

What is Volkswagen accused of?

It’s been dubbed the “diesel dupe”. The Environmental Protection Agency (EPA) found that many VW cars being sold in America had devices in diesel engines that could detect when they were being tested, changing the performance accordingly to improve results. The German car giant has since admitted cheating emissions tests in the US. VW has had a major push to sell diesel cars in the US, backed by a huge marketing campaign trumpeting its cars’ low emissions. The EPA’s findings cover 482,000 cars in the US only, including the VW-manufactured Audi A3, and the VW brands Jetta, Beetle, Golf and Passat. But VW has admitted that about 11 million cars worldwide, including eight million in Europe, are fitted with the so-called “defeat device”.

The result? The engines emitted nitrogen oxide pollutants up to 40 times above what is allowed in the US.

What has been VW’s response?

“We’ve totally screwed up,” said VW America boss Michael Horn, while the group’s chief executive at the time, Martin Winterkorn, said his company had “broken the trust of our customers and the public”. Mr Winterkorn has now left the company as a direct result of the scandal and has been replaced by Matthias Mueller, the former boss of Porsche. “My most urgent task is to win back trust for the Volkswagen Group – by leaving no stone unturned,” Mr Mueller said on taking up his new post. VW has also launched an internal inquiry.

With VW recalling almost 500,000 cars in the US alone, it has set aside €6.5bn (£4.7bn) to cover costs. The carmaker has said it will begin recalling cars in January. But that’s unlikely to be the end of the financial impact. The EPA has the power to fine a company up to $37,500 for each vehicle that breaches standards – a maximum fine of about $18bn. Legal action from consumers and shareholders may follow, and there is speculation that the US Justice Department will launch a criminal probe. Then, or course, there is the cost of fixing all the cars.

It’s all another blow for the diesel market.

Certainly is. Over the past decade and more, carmakers have poured a fortune into the production of diesel vehicles – with the support of many governments – believing that they are better for the environment. Latest scientific evidence suggests that’s not the case, and there are even moves to limit diesel cars in some cities. Diesel sales were already slowing, so the VW scandal came at a bad time. “The revelations are likely to lead to a sharp fall in demand for diesel engine cars,” said Richard Gane, automotive expert at consultants Vendigital.

Questions

1. Did VW misbehave ethically? If yes, highlight the ethical guidelines violated in this case (20 marks)

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2. Identify the parties affected by what happened and explain the nature of impacts (20 marks)

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3. What are the losses incurred by VW? (20 marks)

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4. Is ethical conduct beneficial for companies? Explain how in case you agree. (20 marks)

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5. List some of the ethical habits you should develop as a student to enhance your performance (20 marks)

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