A Bad Week for Business, Germany and Government

Daniel Jones, faculty manager of BPP University Business School explains the consequences of the recent Volkswagen scandal and the ricocheting impact it will have on other businesses as well as future government policies.

“After recent revelations, our diesel engine Volkswagen Golf seems no longer such a great investment. It has been a reliable car over a number of years, suffering the inevitable dents and scrapes of life parked on a London street, but it has never let us down, until now.

We bought the car, like many others, because we thought it was a Green Choice. Electric vehicles present many challenges in terms of recharging so Diesel was easily the best option. However, little were we to know Volkswagen engines are not so clean, and worse still, not nearly as clean as the government tests were telling us.

It’s no secret that London has an air pollution problem but the inconsistencies between actual pollutions levels and the claimed levels indicated by the vehicle emissions seems never to have been fully investigated. Two factors appear to have been at work: firstly, a testing regime that does not provide meaningful results for road-use and secondly, in the case of Volkswagen, a manufacturer who has been deliberately distorting the results. Considering the way in which the events of the banking scandal unravelled, it would prove very surprising if other manufacturers have not followed suit. At present that remains to be seen, however the U.S. EPA is already beginning to investigate numerous vehicle manufacturers.

Volkswagen now faces a number of challenges. Firstly, how will the global company begin to recall potentially thousands of vehicles that are illegal to drive because of their inaccurate emissions certificate? This alone is an inconceivable challenge for a company that make 10m cars a year.

The second hurdle will be government fines. The U.S. has been unapologetic when imposing heavy fines for non-U.S. firms in the financial sector, with 20 banks paying out a combined total of over $200bn in fines since 2008. The initial €6.5bn set aside by VW to deal with the crisis does seem very optimistic.

There is already a stir from legal professions who are sensing the opportunity for class actions around the health damage caused by diesel engine exhaust; a prospect that could swamp Volkswagen under the weight of global legal action. When breaking legislation could result in life-threating or even fatal consequences for thousands of people, who knows what the future looks like for Volkswagen.

Finally there is the question of trust: will people want to buy a VW car again? In my mind, the firm still retains a reputation for engineering excellence but in the face of such deceit, will this ever be enough for redemption? This scandal reinforces once again that a business cannot be trusted to act in a way that benefits society, but instead acts with unending greed to benefit its shareholders. In the wake of these revelations, other German firms are recognising the tarnish that this will carry to Germany’s reputation as a whole. This question of trust extends further still to German government agencies, who appear to have been either ignorant of the problem or perhaps largely underfunded.

It really has not been a good week for business, Germany and government. Thankfully I can fall back on the delight of having watched Japan beat the Springboks in the Rugby World Cup, reminding me of the magic of watching an underdog snatch victory from the jaws of defeat.”



*Image source: https://www.flickr.com/photos/bikeman04/6468592039/in/photolist-aRBe3X-ejmFjf-fCwyzA-9A9qnQ-7ytuvh-4r5qDm-4r5qsE-EvQy1-6ruVyZ-K3rGH-ejjq4F-a65Pkc-7MTtUZ-bHxLeK-bGL32t-3ytJvh-4N6jHq-yw6XP-66tu5X-4r1kip-6rHYJm-ywa2q-paNVra-ywa2n-fr4Bxp-ywa2j-7MpAyj-9m5rFu-fr4APH-of6umf-ywa2u-999VRM-ywaAc-vALos-7qULdm-ejgiQs-ywa2m-ywaAd-ywa2h-yw6XL-fTWz7R-q6Qu4g-5vsGF8-dAZCmu-5fdNDB-aiJXV8-5fdJTD-aiK1Sn-8HxnfH-fr4AWH

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