Case Introduction
Your team is a leading global consultancy that specializes in risk management and organizational strategy. Your firm was recently engaged by a growing car manufacturer based in the United States that is about to introduce a new diesel vehicle to market. The company has seen good sales growth in the last 15 years, has a strong positive cash flow, and is eager to capture market share.
Unfortunately, the company’s new vehicle has problematically high emissions, and it is not clear if it will meet the requirements for distribution in the United States. Given this critical juncture, the company’s board of directors believes it would be beneficial to receive an external perspective on strategic directions and potential blind spots as they move forward on the vehicle’s production. In that respect, your team has been tasked to assess potential behavioral challenges that may occur in strategic planning, business operations, and risk-based decisions on next steps and priorities. In particular, they would like you to use the example of Volkswagen’s Dieselgate scandal to provide lessons learned from a behavioral economics perspective that could help them navigate this exciting yet perilous time in the company’s evolution. They have provided you with a brief history of that effort to start from.
A Brief History of Dieselgate
In the mid-2000s, the Volkswagen Group set its target to become the world’s largest auto manufacturer. At the end of 2015, the German automaker was about to reach its goal two years ahead of schedule, with a significant proportion of this growth occurring in the US market. Just
at the moment when the company seemed invincible to the public and many shareholders, the United States Environmental Protection Agency (USEPA) revealed that Volkswagen had installed software in its most successful TDI diesel engines to rig the test stand in order to pass emission standards.
Across brands, over half a million of its diesel vehicles worldwide were discovered to have a cheating device installed, emitting while on the road as much as 40 times the level of nitrogen oxide and dioxide (NOx) permitted in the United States. The company also admitted to understating carbon dioxide (CO2) emission figures in Europe. This was the biggest automotive- emissions scandal the world had ever seen, shattering the brand worldwide, and developing into a threat to the formerly pristine image of products “Made in Germany.”
Provide a brief descriiption of the competitive landscape at the time of the scandal and Volkswagen’s strategy within it. When was the decision to rig the test stand made?
