By Aakriti Gupta
Elm Staff Writer
The Volkswagen group is a German multinational automotive company that sells passenger cars under the Audi, Bentley, Bugatti, Lamborghini, Porsche, SEAT, Skoda and Volkswagen brands, as well as motorcycles under the Ducati brand. It operates in 150 countries and has 100 manufacturing plants across 27 countries. This global company is one of the leading brands in the world with a market cap of $126 billion as reported by “Forbes.” The reputation that Volkswagen built over almost 100 years has been shattered by a recent scandal.
Volkswagen was found guilty of falsifying pollution tests on 500,000 diesel engine vehicles by installing software to make the gas emissions seem cleaner in the United States. Over two million Audi cars, one million Skoda cars and 700,000 SEAT were also involved in the scandal. After a series of investigations in a laboratory in West Virginia, Volkswagen was questioned on the emission results. After repeatedly denying the charges, Volkswagen admitted to installing “defeat devices” to overcome the emission standards. As of now, according to CNN Money, 500,000 cars have been taken off the US market, encouraging European countries to carry similar tests as there could be a possible scandal. If similar results are found, the results will prove far more damaging with one in every four cars in Europe produced by Volkswagen.
Volkswagen has been charged with heavy fines for breaching the emission limits. The penalties are estimated to be up to $18 billion with an additional $7.3 billion that it has already spent to cover recall costs. The market value of the company has already dropped by one third since the scandal hit the headlines. Besides monetary loss, Volkswagen has lost its goodwill and credibility in the market, which will cost them much more in the long term. The firm is working with German prosecutors to carry out criminal investigations where the guilty will deal with prosecutions for fraud and a possible 10 year imprisonment.
The management of Volkswagen too has undergone change since the cat came out of the bag. German prosecutors carried an investigation against former CEO Martin Winterkorn only to find him innocent. He denied committing fraud but took full responsibility for the scandal after sending in his resignation. Matthias Mueller, the CEO of sister company Porsche succeeded Winterkorn as CEO of Volkswagen.
In the greater scheme of things, this scandal has hurt more than just Volkswagen’s reputation. It has hurt Germany’s manufacturing as a whole. All German, automobile manufacturing companies like BMW and Mercedes Benz, have taken pride in their German engineering. Just like the authenticity of pashmina is judged by whether the label says “Made in India,” or leather shoes “Made in Italy,” premium automobile quality was synonymous to “Made in Germany.” Besides hurting the reputation of the country, this scandal will gravely affect the economy of Germany. Every seventh job in Germany is linked to the automobile industry in one way or the other. The automobile industry brings in $428 billion or 20 percent of the entire revenue of Germany. 30 percent of all the passenger vehicles produced in Europe come from Germany. The fact that one of the most reputed German automobile companies has defaulted in such a huge way, created a domino effect for the other companies with respect to rising doubts regarding vehicles.
What remains most concerning is whether Volkswagen will be able to build its reputation back after this controversy. Volkswagen will need more than just a couple of years to get back in the public’s good graces. This controversy has left people wondering whether Volkswagen is a sinking ship that will rise again or has already fallen beneath the waves?