Volkswagen’s Emissions Scandal
From 2000-2015 Volkswagen was unstoppable in the diesel vehicle market. In September of 2015, however, they admitted to creating software designed to cheat on emissions tests. This device emitted 40 times more pollution than allowed in the United States during regular use. Volkswagen lost 40% of its value in its first two weeks since the scandal became public. The emissions scandal led to a massive recall of 11 million cars worldwide. A gigantic public distrust followed when the company's senior management had known about the device the whole time and even rewarded people involved in the project. In the United States, several top-level VW executives and employees were charged and imprisoned for conspiracy to commit fraud and violating the Clean Air Act. (Jung & Sharon, 2019)
Conflict Management Life Cycle
The conflict management life cycle is supposed to show the entire process of conflict management. This life cycle is for practitioners to navigate through conflict management. The conflict management life cycle model is divided into four phases. The phases are as follows: Proactive, Strategic, Reactive, and Recovery. The phases are supposed to be in that order; however, they tend to overlap each other (Wilcox, Cameron, & Reber, 2014). We will be going through each phase and analyzing Volkswagen's conflict management.
Proactive
Volkswagen totally could have anticipated this. It's shocking how they did not have something planned based on their actions. Thomas Sedran, Volkswagen senior vice president for group strategy, had this to say about the scandal, "I thought, Jesus Christ, how naive are these guys?". Thomas Sedran was at the time managing director of Chevrolet Europe. Tom Sedran continued, "Why did they think it was okay to cheat and believe they would not get caught?" Volkswagen top executives had explicit knowledge of the device. They knew what the device was designed to do, which we previously mentioned. This shows a complete lack of being proactive on Volkswagen's part. Tom Sedran also had this to say, "And even when they were caught, they still lied about it. I don't get it." (Walt, 2018). Volkswagen failed in all aspects of being proactive; they were very reactive and denied every accusation that they faced. Volkswagen could've saved a whole lot of heartache if they had just got ahead of the press and were accountable for their actions. You would think they would have a plan for it if it went public. However, Volkswagen was ignorant and naive; they didn't even believe they would be caught.
Strategic
When the scandal began, Volkswagen was very slow to react and just denied allegations at the start. It wasn't until the Environmental Protection Agency (EPA) got involved that they then lied and said it was a voluntary recall due to a "technical glitch." Only they knew that the device enabled this, so they were still endangering their consumers by deception. When emissions did not change in 2015, the California air quality regulators and the EPA withheld selling Volkswagen 2016 diesel models. Only then Volkswagen offered a "goodwill package" to U.S diesel owners (Verschoor, 2016). Volkswagen failed to have a risk communication strategy; they left their consumers in harm's way until it affected their bottom line. Volkswagen also failed in conflict positioning: CEO Martin Winterkorn gave a halfhearted apology on german television, not taking responsibility for the company's actions. Volkswagen shows that they genuinely didn't have a plan and couldn't accept responsibility for their actions. Creating a goodwill package was not a strategy but more of a reaction because they were facing the consequences.
Reactive
CEO Martin Winterkorn later resigned, other top-level executives apologized, some engineers were suspended and an internal investigator was hired (Smith & Parloff, 2016). Volkswagen would take a while to recover after this failed positioning in executive leadership. There was only one other conflict resolution left for Volkswagen: litigation public relations, and Volkswagen hires one of the best. Volkswagen hires Kenneth Feinberg to compensate owners of diesel power cars. Feinberg is not new to compensating victims. He has worked on high-profile cases such as the General Motors ignition switch scandal and the BP Gulf oil spill (Krisher, 2015). Volkswagen would, however, have to pay a hefty price. "In 2017, Volkswagen pleaded guilty to three felonies in the U.S. District Court in Detroit and was forced to pay billions in fines and restitution. Most civil cases against the automaker have been settled, but some continue to wind their way through the courts." (Vellequette, 2020).
Recovery
The Resolution phase is finally able to begin for Volkswagen. 2018 Volkswagen hires Scott Keogh as CEO, and he makes real changes. Keogh started to listen to his U.S dealers and started investing in them heavily during the buyback period. Keogh was also able to resell the turbo diesels back to the dealers after repairs. Not only this, but Keogh offered high premiums to its client about 130 to 140 percent of the vehicle's value (Vellequette, 2020). These are more than economic decisions; Keogh's goal was to establish trust in the brand again. He showed confidence in his dealers by investing in them and eased their customers' minds with the buyback program. Keogh also cleaned up the culture he claims, "As someone who's navigated the culture of this company for about 15 years, it's just a different culture now, dramatically more open and one where anyone can speak up and express your point." (Vellequette, 2020). When you have a CEO focused on conflict resolution and building the brand's reputation, it affects the bottom line. Volkswagen U.S market share is back to 33.3 billion, which was just days before the scandal went public (Vellequette, 2020). Don't get me wrong this is a great play and a real strategy to build a brand's reputation. Trust, however, takes real-time, and the emissions scandal is not too soon to be forgotten. Indeed it is still a long road ahead for Volkswagen.
References
Jung, J. C., & Sharon, E. (2019). The Volkswagen emissions scandal and its aftermath. Global Business & Organizational Excellence, 38(4), 6–15. https://doi.org/10.1002/joe.21930
Krisher, T. (2015). Volkswagen Hires Kenneth Feinberg to Handle Fallout of Emissions Scandal. Time.Com, N.PAG. https://boston.cbslocal.com/2015/12/18/volkswagen-kenneth-feinberg-emission-cheating-scandal/
Smith, G., & Parloff, R. (2016). Hoaxwagen. Fortune International (Asia), 173(4), 98.
Vellequette, L. P. (2020). Volkswagen’s goal: Clean break from a dirty past: Money, new direction help company emerge from scandal. Automotive News, 95(6951), 1.
Verschoor, C. C. (2016). The Volkswagen Problem. Strategic Finance, 98(2), 15–16.
Walt, V. (2018). Inside Vw’s Big Fix-It Job. Fortune, 178(2), 102–111.
Wilcox, D. L., Cameron, G. T., & Reber, B. H. (2014). Public Relations: Strategies and Tactics (11th Edition) (11th ed.). Pearson.
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