Category: Volkswagen

The history of the Volkswagen car company stretches back to 1931 when Ferdinand and Zundapp designed and developed the “Auto fur Jederman” meaning, the car for everybody. Later on, Adolf Hitler submitted sketches to Ferdinand Porsche, christening it “the peoples car” having the capacity to carry two adults and three children, and the ability to do 100 km/ h. However, Porsche reformulated Hitler’s sketches. Therefore, there is lucidity in the thought that the Volkswagen car company started out by making economic family cars (Mahoney, Mahoney, Vallance 2003).

Initially, people held reservations towards the Volkswagen cars citing their seemingly rough ride, low engine and noisiness. However, with the accentuation of time, all these misgivings have been proved baseless with the Volkswagen car company scooping the fourth awards after Ford Model T, the Mini and the DS Citroen in the International Poll for the World’s Most Influential Cars of the 20^th Century. In the same wavelength, the Volkswagen company has remained as the US top seller even after the renovation of of the hind wheels’ traditional sub compacts and their replacement with the front wheel drive make.

Further traces of development has been clearly demonstrated by the recent scooping of the first prize of the Celebrations of the Motor Trader National Awards which was held at Grosvenor House and Hotel in London. In this event that was held on the 13^th July 2007, the Volkswagen car company was rated as having become the the most improved business in the face of stiff national competition. The criteria that were used to arrive at these merits were the financial performance, customer and affiliate satisfaction, business investment, and the overall entrepreneurial turnaround which had scaled upwards by 53%. According to the director of the New Groups Finance, Nigel White, the company had increased the new and reconditioned cars use volumes by 41% and its after sales services by 26%. In addition to this, Nigel continues that the Volkswagen company had a positive margin movement of 4.82% (Malachowski 2004). These above accruals that were received by the Volkswagen car company were attributed to the observation of business ethics and values.

On the other hand, business ethics and values are concepts that touch on the obligations of the employee, the employer and the clientèle in the field of business. The dominant issue here is the concept of right or wrong in the course of business transaction. Business ethics and values is multifaceted since the matters that touch on business transactions are diverse, ranging from accounts, human relations, sales and marketing, to production and globalisation among other things (Macfarlane, Ottewill 2001).

Ethics of accounts and auditing relate to the responsibility towards matters that touch on record keeping in relation to a company’s cash flow. It is a highly regarded norm by the Volkswagen car company that proper records of accounts are kept by the mother company in Germany and the rest of the subsidiaries world wide. However, copies of the subsidiaries are sent to the mother company and are also edited annually. The practice is observed to the latter since it is these same records that are submitted to the respective governments for taxation purposes. The Volkswagen company eschews fraud, accounting scandals and bribery by the keeping of comprehensive expenditure and revenue records. Of paramount importance is the observation of accounting ethics since the observation of other forms of business ethics are hinged upon it. For instance, the calculation of employees’ wages and benefits (human relations ethics), the setting aside of funds for community welfare and development such as the offering of scholarships (the ethics of communal responsibility), are arrived at through the use of accounting records (Mc Ewan 2001).

The ethics of human relations is chiefly concerned with the betterment of the work place and the welfare of the work force. The Volkswagen company in its section 2.6 clearly states that it is as an entity against any form of discrimination be it based on sex, age and colour during the recruitment drive (Vallance 1995). Herein, the privacy of the employees and the rights of the employees are dwelt on. Fairness of the contract is also clearly spelt out to ensure that no employee is terminated from the job without the maturation of the contract, or without valid reason. The ethics of human relations also transcend the organisational borderlines and touch on community ethics.

The Volkswagen company navigates this by ensuring that it is not only those that are highly skilled or learned who are employed as some organisations do as an artifice to increase productivity and subsequent profitability. Closely related to this, the company does not employ child labour. The company ensures that even the less educated get employment opportunities. The subsidiaries are also under obligation of ensuring that the natives are the ones given priority during the recruitment drive. The Volkswagen company is also compliant with the Occupational Safety and Health care measures to ensure that cases of injury among the employees are minimised. To ensure this, all the employees in the vehicle assembly and manufacture section are properly fitted with protective clothes (Burgoyne, Reynolds 1997).

The ethics of sales and marketing is also very highly observed by the Volkswagen company. The company ensures that there is fair pricing of its products in relation to the cost of production and the profit margin. In developed economies, the Volkswagen also takes into consideration the economic status of the country. The products’ spare parts are always made available to all countries at subsidised prices too. The Volkswagen also does not use the raunch culture (the use of, and the displaying of eroticism and sex) in its advertisements, and is very punctilious in its contents of advertisement.

In a matter that is closely related to this, the Volkswagen’s consumer satisfaction ethics ensures that the company produces only high quality products. To this end, the company produces vehicles and vehicle parts that are durable. An average Volkswagen has a lifespan of 20 years (Cowton, Crisp 1998). The consumer satisfaction is also recognised by the Volkswagen company since presently, according to the company’s policies, anyone who purchases goods or services worth 50 Euros and above is accorded chance of wining sundry types of expensive prizes by being issued with a raffle ticket.

As far as matters of the ethics of production go, the Volkswagen company does well since it does not manufacture inherently harmful, defective or addictive products- a problem that bedevils companies such as the tobacco or alcohol manufacturing companies. However, because the Volkswagen company manufactures diesel reliant vehicles, it pays heavier taxes to governments that have introduced measures to abate green house effects. Animal rights that are always infringed upon through animal testing does not relate with the Volkswagen company. On the other hand, the part of the personnel that carry out road tests are always comprehensively insured and equipped against potential harm. In the same vein, the Volkswagen company has designated dumping sites and has within its programs, conformity with the earth day to facilitate the coming together with the rest of the community to take care of the environment (Fisher, Lovell 2006).

The ethics of intellectual, knowledge and skills divulges on the philosophical problem of the putative owner of the intellectual rights (ie. whether it is the employee with the skills or the business entity that trained him/ her). Herein, copy right matters, trade marks and the raiding of the employee are tackled. To curtail these problems and the related problem of conflicts of interests, section 3.3 of the Volkswagen company stipulations prohibit the employment of personnel who are already working with another automobile firm. The dispositional duties of collaborations has also been spelt out in the National Conventive Agreement in the article 15 of the VW. Group Italia SP4 (Fredrick 1999). The Volkswagen company ensures the employment activities are tampered with need and not solely pegged on the socialisation and the qualification of the personnel. The Volkswagen company also in its activities does not practice biopiracy since it deems the act as being purely unethical. The trade marks and product logo (bearing the encircled marks VW) of the Volkswagen vehicles and products are so distinct that they are well known throughout the world and can therefore ward off imitations. This instead has bolstered the Volkswagen market base.

The more global businesses have become, the more problems have arose in the global scene. This is proved by the fact that while business ethics emerged in the 1970s, international businesses ethics did so in the 1990s. International business has necessitated the need to look for global values on the basis of global community behaviour. In addition to this, the need to compare, contrast and design ethical traditions among different countries has ushered in the need to come up with concepts and guidelines touching on the ethics of international business and economic systems (Hornann, Kaslowski, Luetge 2007). Matters touching on globalisation and the entrenchment of cultural imperialism, varying or contradicting global trends such as, the use of child labour, are hereby addressed. The Volkswagen company addresses these these issues comprehensively. It is on this backdrop that the Volkswagen company highly seeks to assimilate aboriginal cultural prospects into its modi operandi and its business culture that is normally exhibited through advertisements. The Volkswagen company also does not support or employ child labour, neither does it as a multinational use the concept of outsourcing to manipulate globalisation to lower the wages. There are no companies that the Volkswagen as a company has ever outsourced with to manipulate the production cost and to achieve maximum profit.

Reference

Burgoyne, J., Reynolds, M., 1997, Integrating perspectives and theories on management learning, Sage, London.

Cowton, C., Crisp, R., 1998, Perspectives on the practice of business ethics theories, Oxford University Press, Oxford.

Fisher, C., Lovell, A., 2006, Individual and corporate perspectives in business ethics and values, FT Prentice Hall, London.

Fredrick, R., 1999, Business ethics: a companion, Blackwell Publishing Press, Blackwell.

Hornann, K., Kaslowski, P., Luetge, C., 2007, Business ethics and globalisation, Ashgate Publishing Limited, London.

Macfarlane, B., Ottewill, R., 2001, Effective learning and teaching in business ethics and management, Routledge GBI., London.

Mahoney, J., Mahoney, J., Vallance, E., 2003, Business ethics and values in New Europe, Springer, London.

Malachowski, R. A., 2004, Critical perspectives on business ethics and management, Routledge, London.

Mc Ewan T., 2001, Managing organisation values and beliefs, Finance Times Prentice Hall, London.

Vallance, E., 1995, Business ethics and values at work, Cambridge University Press, Cambridge.

Background

To begin with, it should be emphasized that Volkswagen is the company that positions itself as the manufacturer of reliable and comparatively cheap cars. Surely, the presentation of high-class Phaeton cars failed, as customers do not associate Volkswagen with luxury cars. In the light of this fact, it should be stated that the real problem may be covered in the managerial drawbacks, and may be solved in several ways.

Current Status

The model was represented in 2005, and the 2009 model was subjected to minor facelift changes. The daytime running lights were modified, and the new Fuel Stratified Injection became available for the models.

The company aimed to reintroduce the model in the USA in 2009, nevertheless, the results of this action are still invisible. As for the previous sales, up to 20,000 models were delivered to Germany (of 25,000 produced). Nevertheless, the luxury car segment is dominated by the Mercedes Benz S-Class and BMW 7 series, however, both models are achieving more than twice the sales volume of the Phaeton in 2008.

SWOT Analysis

Thus, the problem of the company is the improper positioning of the new model. In spite of the fact it is positioned as the luxury car on the largest markets, lack of proper promotion appeared to be the largest drawback in the allover marketing strategy. The target audience is just unable to associate the company with luxury cars, thus, the advertisement department should deal with this problem.

High competency in the market of luxury cars should not be regarded as an obstacle, as this market is featured with the essential conservatism among customers: up to 80% of customers prefer some particular car manufacturer. Consequently, if Volkswagen admirers find out about the new model, there will be high credibility of buying Volkswagen Phaeton by them.

Alternative Solutions

Originally, the problem may be solved with different approaches. From the marketing point of view, the obvious solution is to get back to manufacturing the cars which the customers got used to knowing. Originally, Volkswagen is associated with small, ugly and reliable cars, which are comparatively cheap and available for almost all the social classes. Nevertheless, the company will have to reject manufacturing the Phaeton model and forget the sector of luxury cars.

The managerial solution will be to produce these cars in China. This will provide the reduction of the price for the model; however, the reliability of this car will be seriously doubted. Consequently, this is not the best solution.

Another variant of solving the problem of penetrating the market of luxury cars is advertising and promotion. There is a strong necessity to destroy the stereotype within the customers, who associate Volkswagen with the manufacturer of cheap and available cars. This reputation prevents them from buying the luxury model of the ‘cheap’ manufacturer. Thus, a properly arranged promo campaign would help to move the problem from the standstill. (Mullin and Walker, 432)

Recommendations

• Create a promo campaign showing all the advantages of the luxury car by ‘People Manufacturer’.
• Arrange a series of test drives
• Participate in Salons
• Create a series of video clips
• Provide the model for a movie shooting

Rationale

The necessity of a successful promo campaign has been already explained in the part of the alternative solutions. Originally, all the recommendations from the list are aimed at supporting this campaign. The test drives will show people the reliability of the new model, and support the awareness of the brand within the target audience. Moreover, test drives are often used in commercial videos, thus, there will be an opportunity to combine it with shooting video.

Participation in salons, where luxury cars are exhibited will provide penetration into the segment of luxury cars. Moreover, these actions are featured with the experience exchange. Taking into account the fact that presentations are the most important part of marketing, there will be a great opportunity for presenting a model in comparison with the other manufacturers.

The series of commercial videos are an integral part of any promotion. Videos should be interesting, with numerous special effects and they should represent the reliability of the model. Originally, the high reliability should stay the trump of the company. If a model of the car will be provided for shooting some blockbuster, people will be more aware of the existence of this model.

Closing Remarks

The next steps for promoting this model will be the evolution of the design or adding some technical features. V-8, V-12, and V-16 models should be available. AS for the promo campaign, the next step should be the representation of a supercar on the basis of Phaeton, participation in Formula races (Formula 3 at least), and the design of a concept car, for the customers could associate VW with the luxury vehicles.

Bibliography

Mullin, J. and Walker, O. Marketing Management: A Strategic Decision-Making Approach. McGraw-Hill/Irwin. 2004.

This report focuses on the analysis of the financial performance of Volkswagen AG using financial ratios and horizontal analysis. The horizontal analysis demonstrated that Volkswagen recovered from the crisis associated with the COVID-19 pandemic, as its revenues and profits increased significantly. The company managed to increase its sales and decrease all types of costs due to optimization of the supply chain. Moreover, Volkswagen AG continued its course of increasing the production capacity of electric cars without increasing the role of debt in its capital structure. The company’s performance in terms of liquidity and efficiency was stable, with slight growth in all the ratios. While Volkswagen’s financial leverage decreased, the role of debt in the capital structure remained high. At the same time, the company’s attractiveness for investments decreased due to the disproportionate growth of share prices in comparison with dividends and profits.Introduction

This report aims at evaluating the financial health of Volkswagen AG in 2021 in comparison with 2020. The COVID-19 pandemic had a significant impact on the automobile sales in 2020, which cause a significant decline in profitability of automotive companies around the globe (Morgan Lewis, 2022). In 2021, the trend to recovery prevailed in the industry, which caused significant improvement in financial health of automotive companies around the globe (Morgan Lewis, 2022). This report focuses on demonstrating how the automotive industry recovered from the influence of the pandemic based on the example of Volkswagen AG.

The report is divided into several sections. First, the report provides a brief overview of Volkswagen AG and its history with mentions of financial milestones and significant mergers. Second, the report provides a horizontal analysis of key financials between 2021 and 2020. Third, the report analyzes the company’s financial performance in terms of profitability, liquidity, leverage, efficiency, and investment using appropriate financial ratios. Fourth, the report provides brief conclusions. The paper is concluded with a set of recommendations for Volkswagen AG to improve its financial performance.

Company Overview

Volkswagen AG is a multi-national company operating in the automobile industry, as its primary operations are associated with producing, marketing, and servicing vehicles (Volkswagen AG, n.d.). The company operates in four segments, including Passenger Cars and Light Commercial Vehicles, Commercial Vehicles, Power Engineering, and Financial Services (Yahoo Finance, 2022). The company operates under ten brands, which are subdivided into volume brands (Volkswagen, Volkswagen Commercial Vehicles, Skoda, SEAT, and CUPRA), premium brands (Audi, Lamborghini, Bentley, and Ducati), and sport (Porsche). The company has 120 production plants in Europe, Asia, Americas, and Africa with 51.5% of the plants concentrated in Europe (Volkswagen AG, n.d.). The company’s long-term strategy is “NEW AUTO – Mobility for Generations to Come,” which emphasizes the importance of sustainability in the automobile production (Volkswagen AG, n.d.). The company set a high goal of becoming a world leading provider of sustainable mobility (Volkswagen AG, n.d.).

Volkswagen AG is considered one of the top employers in the world, and it currently employs 662,575 workers worldwide (Volkswagen AG, 2022). Its total revenues increased from €222,884 million in 2020 to €250,199 million in 2021 and its net profit was €14,843 million in 2021, which was the highest during the past five years (Volkswagen AG, 2022). Thus, there is a strong basis to state that the company has recovered from the effect of the pandemic.

Company History

The company was formally established on May 28, 1937 as the ‘Company for the Preparation of the German Volkswagen Ltd.’ (Volkswagen Newsroom, n.d.). In 1938, the name was changed to ‘Volkswagenwerk GmbH’, as the company built its first plant in Wolfsburg (Volkswagen Newsroom, n.d.). World War II had a significant impact on the company’ operations, and it was forced to use its facilities to build armed vehicles (Volkswagen Newsroom, n.d.). After the war, the British instructed the company to focus on production of two models of vehicles, including Käfer and transporter, which became a symbol of German economic miracle (Volkswagen Newsroom, n.d.). Further, in the 1960s, the company tuned into a joined stock company and added Passat, Scirocco, Golf and Polo models to production in the 1970s (Volkswagen Newsroom, n.d.).

In 2015, Volkswagen AG experienced a turning point in its modern history. In September, the Environmental Protection Agency (EPA) found that Volkswagen used software that could determine if the engine was tested (Hotten, 2015). The device would change the performance of the engine to provide better environmental test results (Hotten, 2015). The scandal had a devastating effect on the company’s reputation and financial performance (Volkswagen AG, 2016). As a result, Volkswagen changed its long-term strategy to move to sustainable mobility through development, production, and marketing of electric cars (Volkswagen AG, 2016).

Horizontal Analysis

This section focuses on the horizontal analysis of the company’s income statement. The analysis aimed at determining how the company’s ability to generate income during the past three years. Horizontal analysis provided in Table 1 below focuses on the central figures included in the income statements, such as net sales, COGS, operating profit, and net profit. The data utilized for calculations was extracted from the company’s annual reports and reports for FY2021 and FY2020. All the crucial financial data is provided in Appendix A.

Table 1. Horizontal analysis

In 2021, Volkswagen experienced a significant rise in sales in comparison with 2020. In particular, sales increased from €222,884 million in 2020 to €250,199 million in 202, which signified a €27,315 million (12.26%) increase. The increase in sales is associated with the overall market recovery after the pandemic and an increase in sales of electric cars (Morgan Lewis, 2022; Volkswagen AG, 2022). While the increase is significant, the sales did not return to the pre-COVID levels of €252,633 million (Volkswagen AG, 2021).

The cost of sales increased from €183,937 million in 2020 to €202,959 million in 2021, which signified a €19,022 million (10.34%) increase. Cost of sales grew disproportionately with sales, which allowed the company to increase its gross profit faster than sales. In particular, the company’s gross profit grew from €38,947 million to €47,240 million, which was a 21.29% increase. This implies that the company’s gross profit grew almost twice as faster as sales. Net income grew even faster after the pandemic, as it increased from €8,334 million in 2020 to €14,843 million in 2021, which signified a 78.1% or €6,509 million net increase in the net profit. This implies that the company was able to reduce operating, administrative, and direct production cost despite the shortage of semi-conductors in the world (Volkswagen AG, 2021). The central reason for the reduced cost is the course to optimization of the supply chain and increased emphasis on labor efficiency through employee training and education (Volkswagen AG, 2021).

While the income statement demonstrated significant victories of the company, the balance sheet had fewer remarkable figures. The company’s total assets increased from €497,114 million in 2020 to €528,609 million, which was a 6.34% or €31,495 million. The increase in total assets was largely to the growth of non-current assets, which increased from €302,170 million in 2020 to €328,261 million in 2021, which was a 8.63%. Current assets grew only by 2.77%; however, since current liabilities decreased by 0.61%, slow growth of current assets was not a concern. The growth in total assets was due to continues growth of electric car manufacturing capacities in China and the rest of the world. Volkswagen AG continues converting its plants producing vehicles with internal combustion engines to production of electric cars (Volkswagen AG, 2022).

Total liabilities grew from €368,331 million in 2020 to €382,455 million in 2021, which accounted for €14,124 million o 3.83% increase. The increase was associated with the company trying to take an advantage of low interest rates after the pandemic and financing its long-term assets with debt (Volkswagen AG, 2022). However, it should be noticed that the company’s shareholders’ equity grew at a faster pace, as it increased from €128,783 in 2020 to €146,154 in 2021, which was a 13.49% growth. This implies that the company decreased risks associated with high financial leverage. Volkswagen AG’s management realized the eminent danger of future waves of the pandemic and decided to reduce its risks by reducing the role of debt in the capital structure and increasing liquidity.

In summary, horizontal analysis of the company’s key financials demonstrated that 2021 was a year of recovery after the devastating effect of the pandemic. The company managed to increase its sales and decreased all types of costs due to optimization of the supply chain. Moreover, Volkswagen AG continued its course on increasing the production capacity of electric cars without increasing the role of debt in its capital structure.

Ratio Analysis

This section of the report focuses on the discussion of the company’s financial health using ratios. The section is subdivided into five subsections according to the type of ratios, including profitability, liquidity, efficiency, leverage, and investment ratios. Volkswagen’s ratios for 2021 are analyzed against the company’s ratios for 2020 and against the ratios of BMW, when of the largest Volkswagen’s competitors. The calculations of all the ratios for Volkswagen AG are provided in Appendix B. The summary of all the ratios against BMW’s ratios is provided in Appendix C.

Profitability

The company’s profitability was measured using four ratios, including gross profit margin (GPM), net profit margin (NPM), return on capital employed (ROCE), and return on equity (ROE), which are recommended for use by Gowthorpe (2021). The ratios are provided in Table 2 below.

Table 2. Profitability ratios

The company’s GPM increased from 17.47% in 2020 to 18.88% in 2021, which demonstrates that the company managed to decreased its direct production costs in 2021. Volkswagen’s GPM was close to that of BMW’s GPM with a difference of less than 1%. However, Volkswagen’s NPM was almost twice as low as BMW’s NPM in 2021. The implies that despite Volkswagen’s increase in NPM from 3.74% in 2020 to 5.93% in 2021, the company was unable to decrease its administrative and other costs to match BMW’s NPM.

The analysis of ROCE revealed that Volkswagen improve its ability to convert capital into profit. In particular, the company’s ROCE increased from 3.03% in 2020 to 4.38% in 2021, which signified an increase in ROCE by 135 percentage points. However, Volkswagen’s ROCE was more than twice as low as BMW’s ROCE.

Similar situation concerned Volkswagen’s ROE, which increased from 6.47% in 2020 to 10.16% in 2021. According to Elliott and Elliott (2015), the higher a company’s ROE, the higher its ability to use shareholders’ equity to generate income. In 2021, Volkswagen’s ROE grew by 57% or by 369 percentage points, which is a significant increased in one year. However, Volkswagen’s ROE was significantly lower than that of BMW of 16.48% in 2021.

In summary, Volkswagen demonstrated a large increased in profitability according to all four metrics utilized in this report. However, all Volkswagen’s ratios were below that of BMW, which shows that there is further potential for development.

Liquidity

A company’s liquidity measured demonstrates if a company has enough current assets to cover its current portion of debt. There are two ratios that are usually used to measure a company’s liquidity, including current ratio and quick ratio (Arkan, 2016). Current ratio is calculated by dividing the current assets by current liabilities. Today, many companies consider current ratio of ‘1’ optimal for operations, as it implies that the company has just enough money to cover its current debt without attracting additional capital (Gowthorpe, 2021). While this ratio is easy to calculate, there is significant danger in relying on current ratio only for measuring a company’s liquidity. The problem with the current ratio is that it considered inventory in its calculations, which may difficult to convert into cash. Therefore, this report uses quick ratio in combination with the current ratio. Quick ratio is calculated by current assets less stock divided by current liabilities. The primary advantage of this ratio in comparison with the current ratio is that it does not take into consideration inventories, which may be difficult to convert in cash and use to cover the current expenses. The ratios for Volkswagen and BMW are provided in Table 3 below.

Table 3. Liquidity ratios

Volkswagen’s current ratio increased from 1.18 in 2020 to 1.22 in 2021, which demonstrated a mild increase. The increase in the current ratio was due to the slight growth in current assets and a slight decrease in current liabilities demonstrated in Table 1. Volkswagen’s current ratio in 2021 was also slightly above BMW’s current ratio, which was 1.13. Volkswagen’s quick ratio of 0.95 in 2021 was also above BMW’s quick ratio for the same year and Volkswagen’s quick ratio in 2020. In summary, Volkswagen’s liquidity measured using current and quick ratio was close to the benchmark of ‘1’ and to BMW’s liquidity. This implies that Volkswagen’s performance in terms of liquidity was solid.

Efficiency

Volkswagen’s efficiency was measured using five ratios, including inventory turnover ratio, asset turnover ratio, receivables turnover ratio, payables turnover ratio, and revenue to capital employed. The results of ratio calculations are provided in Table 4 below.

Table 4. Efficiency ratios

Volkswagen inventory turnover ratio increased significantly from 4.23 in 2020 to 4.68 in 2021. This implies that the company’s ability to sell of its inventory remained roughly the same. Despite a mild increase, Volkswagen’s stock turnover ratio was below BMW’s stock turnover ratio in 2021 by 18.5%. In 2021, Volkswagen’s asset turnover ratio remained roughly the same with 0.47 and 0.45 in 2021 and 2020 correspondingly. The ratio was comparable to that of BMW’s, demonstrating a solid performance in Volkswagen’s ability to use its assets to generate revenue. Similarly, Volkswagen’s revenue to capital employed ratio also remained roughly the same, growing from 0.67 in 2020 to 0.69 in 2021, which was comparable to BMW’s ratio of 0.73. This ratio demonstrated that Volkswagen’s ability to use capital to generate sales was stable and satisfactory.

In 2021, Volkswagen demonstrated outstanding performance in terms of payables and receivables turnover ratios. The company’s receivables turnover ratio increased from 13.04 in 2020 to 15.75 in 2021, demonstrating a solid growth in company’s ability to collect payments from its customers. The ratio was 15 times higher than that of BMW’s (1.3), which signifies Volkswagen’s excellent efficiency of payment collection.

Volkswagen also demonstrated an excellent ability to pay for the purchases, as the company’s payables turnover ratio increased from 10.76 in 2020 to 12.78 in 2021. The performance was optimal, as it took around one month for the company to pay for the purchases bought on account. Additionally, the ratio was comparable to that of BMWs.

In summary, analysis of Volkswagen’s efficiency revealed a steady growth in all ratios. The strongest side of Volkswagen’s performance was receivables turnover ratio, while the weakest spot of the company in terms of efficiency was inventory turnover ratio. It is worth mentioning, however, that the company produced two million cars fewer than it planned to produce due to semiconductor shortages in 2021 (Volkswagen AG, 2022). This demonstrates that the company sees the current inventory management as optimal and would have more inventory if it was possible.

Financial Leverage

A company’s financial leverage demonstrates how aggressively it uses debt to finance its assets. Volkswagen’s financial leverage was measured using debt (debt-to-assets) ratio and interest cover ratio. The results of ratio calculations are provided in Table 5 below.

Table 5. Financial leverage ratios

The analysis of ratio demonstrated that Volkswagen’s performance in term of financial leverage improved in 2021. The company’s debt ratio decreased from 0.74 in 2020 to 0.72 in 2021, which demonstrated a lower reliance on debt. Moreover, the company’s ability to pay interest measured in the interest cover ratio increased from 4.39 in 2020 to 8.77 in 2021. While Volkswagen’s performance in terms of financial leverage improved, the company is still behind BMW, which had a debt ratio of 0.67 and interest cover ratio of 57.01 in 2021.

Investment Appraisal

Volkswagen’s attractiveness for investors was measured using earnings per share (EPS), price-to-earning (P/E) and dividend yield ratios demonstrated in Table 6 below.

Table 6. Investment ratios

Volkswagen’s EPS increased from €1.66 in 2020 to €2.96 in 2021 due to a rise in net profit, while its total shares outstanding remained the same. At the same time, due to a significant increase in share price, the company’s P/E ratio also increased from 9.73 in 2020 to 11.1 in 2021. Such an increased in the P/E ratios demonstrates that the company’s stocks are highly overvalued. BMW’s P/E ratio was 4.75, which is closer to the benchmark of ‘1’. As a result, investors may believe that Volkswagen’s shares are not a reliable investment and may decide to sell them. Moreover, Volkswagen’s attractiveness from the viewpoint of dividend yield ratio decreased from 3.5% in 2020 to 1.78% in 2021. For comparison, BMW’s dividend yield ratio was 4.25% in 2021, which is almost three times higher than that of Volkswagen’s. In summary, even though Volkswagen’s EPS grew in 2021, the company’s share became less attractive due to a dipropionate growth in share price from €16.17 per share in 2020 to €32.88 per share in 2021.

Conclusions

The analysis of Volkswagen’s financial performance demonstrated a recovery from the crisis associated with the COVID-19 pandemic. Volkswagen’s profitability, efficiency, and financial leverage demonstrated a slight to moderate improvement, while the company’s liquidity remained roughly the same. The only major concern was associated with the company’s performance in 2021 was attractiveness to the investors, as the share prices grew disproportionally in comparison with profits and dividends. At the same time, when compared to the financial performance of BMW for the same year, Volkswagen has potential to grow in terms of profitability, and financial leverage.

Recommendations

Considering all the aspects of Volkswagen’s financial performance, the following recommendations were developed.

1. Volkswagen should search for ways to reduce administrative costs. The analysis of GPM and NPM demonstrated that the company demonstrated outstanding performance associated with decreasing the direct cost sales. However, Volkswagen appeared to spend more on administrative costs in comparison with BMW, which revealed an area fir further improvement.
2. Volkswagen should dedicate to reduction of the role of debt in its capital. While Volkswagen managed to decrease its debt ratio and improve its interest cover ratio, the company still relies on debt more than its competitor. Considering growing uncertainty associated with the COVID-19 pandemic and the situation in Ukraine, it is crucial to continue decreasing risks associated with debt.
3. Volkswagen should increase its dividends. Currently, the company’s shares do not look attractive in comparison with the competitors. Therefore, the company should consider increasing dividends since the company’s profits grew significantly.
4. Investors should consider selling the company’s shares. Volkswagen’s stock is currently overpriced. Therefore, investors should consider searching for other possible investors.

​References

Arkan, T. (2016). The importance of financial ratios in predicting stock price trends: A case study in emerging markets. Finance, Rynki Finansowe, Ubezpieczenia, 79, 13-26.

BMW Group. (2022). Annual report 2021.

Elliott, B. & Elliott, J. (2015). Financial accounting and reporting. Pearson.

Gowthorpe, C. (2021). Business accounting and finance. Cengage Learning.

Hotten, R. (2015). Volkswagen: The scandal explained. BBC News.

Morgan Lewis. (2022). Automotive industry: Year in Review 2021.

Volkswagen AG. (2016). Annual report 2015.

Volkswagen AG. (2021). Annual report 2020.

Volkswagen AG. (2022). Annual report 2021.

Volkswagen AG. (n.d.). Group.

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Yahoo Finance. (2022). Volkswagen AG.

Crucial Financial Data

Note: All numbers in million except per share value. Currency is Euro.

Ratio Calculations

Ratio Summary

Dividend Policy Overview

The company’s dividend payout ratio has been growing steadily over the past three years. In 2020, the dividend payout ratio was 29%, while it was only 20.4% in 2018 (Volkswagen AG, 2018; 2020). This tendency can be explained by Volkswagen’s commitment to reach the dividend payout ratio above 30% by 2025 (Volkswagen AG, 2020). The company accepted this goal in 2015 and has been steadily increasing the payout ratio since that time.

At the same time, the suggested dividend per share policy was €4.8 in 2018, €6.5 in 2019, and €4.8 in 2020 (Volkswagen AG, 2018; 2019; 2020). As a result, the dividend yield in 2020 was 2.8%, 3.8% in 2019, and 2.4% om 2018 (Volkswagen AG, 2018; 2019; 2020). These fluctuations can be explained by the changes in the company’s net income (Yahoo Finance, 2020). Since the company experienced a slight decrease in net income in 2020, it decreased its dividends to the level of 2018 to ensure steady growth of dividend payout ratio. The company did not have any major stock repurchases or splits during the past three years.

Comparison to Major Competitors

Volkswagen’s dividend policy was one of the most attractive for the investors based on comparison with market leaders. Table 1 below provides a comparison of Volkswagen’s dividend policy to Ford, Toyota, and General Motors in 2020. The analysis demonstrates that Volkswagen’s dividend policy was very close to the dividend policy of Toyota. Toyota has been keeping the dividend payout ratio above 30% for the past three years, which was the goal for Volkswagen AG. Dividend yields of General Motors, Toyota, and Volkswagen were similar, which puts these companies in line in terms of attractiveness.

Table 1. Competitors’ Dividend Policy.

Note: The chart was prepared using the information of the companies’ annual reports (Ford Motor Company, 2021; General Motors, 2021; Toyota, 2021; Volkswagen AG, 2021).

Dividends and Earnings

There are different theories that explain incentives for paying dividends. Common theories are residual, traditional, irrelevancy, optimal dividend policy and relevancy theories (Clive, 2012). In order to understand if there was a correlation between the dividend policy and earning, the company’s net income was plotted together with the dividend per share for the past three years (see Figure 1). The analysis demonstrates that there is a significant correlation between the two matters; however, it is not direct. This tendency can be explained by the optimal dividend policy theory (Clive, 2012). The company aims at reaching the dividend payout ratio of 30% by 2025. This value may be assumed as the optimal dividend policy. Thus, the company regulates its dividend per share policy based on the expected dividend payout ratio. Since the dividend payout ratio depends on net income and total dividends paid, it regulates its dividend per share.

References

Clive, M. (2012). Financial management for non-financial managers. Kogan Page.

Ford Motor Company. (2021). Annual report 2020. Web.

General Motors. (2021). Annual report 2020. Web.

Toyota. (2021).Annual report 2020.Web.

Volkswagen AG. (2019). Annual report 2018.Web.

Volkswagen AG. (2020). Annual report 2019. Web.

Volkswagen AG. (2021). Annual report 2020. Web.

Yahoo Finance. (2021). Volkswagen AG. Web.

Volkswagen Group is the name of the company.

Ferdinand Porsche is the founder of the company.

The brand’s origin dates back to the early 30s when the German auto industry offered mainly luxury models. To occupy an empty segment, automakers have been developing mass cars available to a wide range of the population. The official countdown of the Volkswagen company’s history dates from May 28, 1937, when the “Limited Liability Company for the Preparation of the German People’s Car” was created, from September 16, 1938, referred to as Volkswagenwerk GmbH. In the 20th century, the company launched a number of iconic models, including the Volkswagen Polo, Volkswagen Golf, and Volkswagen Passat. The 21st century for the brand was the beginning of the development of electric cars. Like many car companies, Volkswagen’s share price fell when the coronavirus hit. However, it did not take long for the company to recover. Stocks have surged in recent months after Volkswagen outlined its plans to expand its use of electric vehicles.

The company has an estimated net worth of $ 500 billion as of 2021.

Investing in Volkswagen can be considered a smart and reasonable decision. In addition to the release of new electrically powered models, the group’s global manufacturing network is transforming to expand the company’s presence in the electric vehicle market. It actively invests in developing its business in China, the third-largest automotive market in the world. Accordingly, the quality of products, their cost, the introduction of innovative production technologies, and the overall market success are the reasons why people in business should invest in company shares.

The sale of high-tech and environmentally friendly electric vehicles can improve Volkswagen’s economic performance, particularly the profit, which is vital for the shareholders. VW aims to become the global market leader for electric vehicles no later than 2025 (Rauwald, 2021). Significant opportunities underpin Volkswagen’s plans for the electric car industry. Environmental problems that have become especially aggravated in recent years oblige manufacturers to switch to greener technologies. As follows from numerous studies in recent years, electric cars are less harmful to the environment than cars with conventional fuel engines. The electric car industry’s limitless potential will let it maintain premium valuations of the shares of the analyzed company. Electric vehicles entered the market relatively recently; they do not yet have a long market history and, accordingly, impressive statistics on profitability. However, these factors should not be a reason to refuse to invest in a company like Volkswagen. The Volkswagen stock chart from early 2019 to mid-2021 is presented below (Figure 1).

Volkswagen invests in research and development to increase its market share. By the end of 2022, the company will allocate more than 34 billion euros for electric cars, autonomous driving, communications, and new mobile services (Geib, 2017). The governments of the largest countries support the principles of ESG – Environmental Social Governance. Therefore, the era of electric vehicles, which has begun quite rapidly, will continue to develop more and more intensively, and investors can capitalize on the growth of quotations of manufacturing companies. Electric cars are not only an environmentally friendly form of transport, but they also provide additional opportunities for getting financial benefits. Given the promising nature of this area, one should invest in this industry right now, especially since there are many tools for direct and indirect financing.

The modern consumer market imposes fundamentally new requirements for the quality of products. In this respect, Volkswagen is a brand that will not diminish in demand, which is a worthy reason to buy a share of the company. Significant resources, experience, well-established technologies for car production give traditional auto concerns a head start over startups. The German Volkswagen is known for its high-quality products all over the world. According to analysts of the Swiss bank UBS, in the coming years, Volkswagen will become the world’s leading manufacturer of electric cars (UBS, 2021). The criterion for obtaining a competitive advantage in the international arena is the quality of the products; Volkswagen vehicles are manufactured in strict accordance with international quality standards. Tech companies like Volkswagen pays high dividends to its investors as the founders are confident that their unique high-tech products will continue to be in demand. When deciding whether to invest in this company, one should pay attention to this circumstance as well. The release of quality products is the best guarantee that the consumer will remain loyal. This is the only way to maintain a competitive advantage in the domestic market and resist foreign manufacturers. Almost all manufacturers and industrial companies engaged in producing similar products compete for the primacy of the indicator of the obtained profit. The highest quality materials are used in the finishing of all parts of the cars produced. These materials are prepared and processed on the most modern equipment and meet the needs of even the most demanding drivers. Volkswagen has high customer loyalty rates; moreover, according to a recent report, this brand is the leader among other European car companies (Volkswagen, 2020). The consummate product quality combined with other indicators of economic activity guarantees customer loyalty to the brand, which ensures people in business that the investment in the company will be profitable.

Investing in a Volkswagen should be considered an economically sound and smart decision. This company is developing according to the realities of the modern world, which require manufacturers to reduce environmental harm. The concern invests in the spread of electric vehicles while maintaining high product quality. However, some investors are not sure of the rationale of such a decision; therefore, it can become a possible reason for refusing to invest in a company. In that case, investors can visit both the official website of the company and get acquainted with the results of independent studies of the company’s economic activities. The electric vehicle industry has tremendous growth potential as all developed countries strive to reduce hydrocarbon emissions. That is why there is a need for investing in a company like Volkswagen. New technologies will reduce the cost of electric cars and make them more accessible, and with the deployment of a network of recharge stations, public acceptance will come. Volkswagen needs to continue to gain customer loyalty and reduce overall costs and defective products by introducing new technologies and the provision of high-quality products. I would advise one to start investing by purchasing several company shares, especially given their relatively low cost. I see Volkswagen as a reliable company with a wealth of experience, quickly and efficiently adapting to changing market conditions. However, despite the seeming reliability of the manufacturer of goods, to assess the need for investment, it is necessary to conduct a multidimensional analysis of activities in the market.

References

Geib, C. (2017). Volkswagen has pledged to spend $40 billion on electric and hybrid cars. Futurism.

Rauwald, C. (2021). VW soars most since famous short squeeze on plans to beat Tesla. Bloomberg.

StockCharts. (2021). VW daily chart with default indicators.

UBS. (2021). The electric vehicle revolution is shifting into overdrive. UBS.

Volkswagen. (2020) Annual Report. Volkswagen AG.

The administration of the recovery of items once they are no longer wanted or cannot be utilized to recover a financial benefit from the recovered products, is known as reverse logistics. In this manner, reverse logistics has developed into a strategic issue that businesses consider when making decisions about the design and growth of their supply chains (Rubio & Jiménez-Parra, 2014). Since the Volkswagen Group is one of the most well-known global automakers, the 2015 emissions scandal led to a significant and expensive recall effort (Five things to know, 2018). Thus, this paper examines how Volkswagen Group handles its reverse logistics procedures in the form of vehicle recalls and evaluates the role of supply chain management.

The term supply chain refers to the series of operations and movements that occur both within and outside a business, between various stages, and combine to satisfy client demands. The supply chain is the arrangement of various businesses that aim to ensure that the final product comes in the minimum time set, in the correct location, and in the right quantities. It refers to the management and tracking of all activities conducted on the good or service, from the raw resources until it is conveyed as a finished product to the customer (Garzón-Agudelo et al., 2018). A key component that enables reconsidering the delocalized manufacturing processes of businesses that strive to provide an effective response to the customer through distribution channels and transport is the supply chain (Garzón-Agudelo et al., 2018). It develops from organizations’ need to organize production operations efficiently.

Another significant possibility for supply chain improvement is provided by reverse logistics. Supply chain management takes the reverse, and the forward movement of items into consideration, and a spike in returns may increase supply chain expenses and reduce profitability. The reverse supply chain is the backward flow of items from vendors, such as damaged goods. Contrary to the traditional supply chain, which moves goods from the manufacturer through the merchant to the customer, this one does not. Reverse logistics is the field that deals with returns as well as what happens to goods when a customer returns them. This involves developing and putting solutions to lower return-related expenses and losses and improve the returns experience.

Volkswagen Group had installed software in its diesel vehicles intended to give misleading results during emissions tests. Although the cars do not directly endanger the safety and cannot cause accidents, they are not ethically produced, do not adhere to applicable laws, and are not ecologically sustainable. Consequently, 11 million automobiles, most of which are in Europe, need to be recalled and rectified (Five things to know, 2018). To resolve the problem over the next three years, crisis management was started immediately. In order to do this, Volkswagen Group started to evaluate its policies, examine its management team, invest in developing new technologies, and regain the confidence of its clients, particularly through vehicle recalls (Welch, 2019). Although scandalous recalls involving Volkswagen Group are rare, the need to remove vehicles is an inevitable aspect of how the automobile business operates. Eventually, customers are encouraged to use an online tool to determine their eligibility, provide contact information to the business, and take advantage of the Goodwill Package benefits. At the same time, they wait for the fix (Welch, 2019). The business believes it is viable to build separate shops to handle the repair, given the recall scale.

The efforts in research and development are significant from the perspective of the two final phases. Equipment that is ecologically friendly and modern could not work with older versions. As a consequence, depending on the vehicle, both software and hardware fixes will be required. It is possible and expected that the hardware components intended for other models would be borrowed, which might lower the repair cost in certain situations. Sometimes a car may not have enough room, and Volkswagen Group plans to replace it if necessary. To make up for the issue and win back the customers’ faith, the firm is postponing non-essential projects, reducing yearly investment, and working to increase liquidity (Welch, 2019). Acting socially or ecologically responsible may provide genuine value, particularly in consumer loyalty and brand awareness. The company’s readiness to be ethically and ecologically responsible is shown by the reverse logistics action plan that has been given. This might help Volkswagen Group win back its consumers’ trust.

Overall, it can be said that Volkswagen Group acknowledges the significance of reverse logistics and recalls and makes use of the effort to gain a competitive edge and restore its reputation. The initiative also enjoys the backing of senior management. Therefore, Volkswagen Group’s campaign can benefit from at least three effective reverse logistics strategies. The role of supply chain management in reverse logistics is significant since the supply chain’s costs might increase with larger returns, which would hurt profitability. This requires coming up with and putting into practice solutions to reduce expenses and losses related to returns.

Furthermore, it could improve the returns experience while decreasing customer happiness. However, the manner the reverse logistics system is being managed under the strain of the crisis is significant and might be interesting for the company’s or the industry’s future operations. It may be inferred that the actions are appropriate given that the business started creating the reverse logistics process immediately following the scandal. The campaign’s effectiveness will be seen in practice, but so far, it seems appropriate for the circumstances.

References

Garzón-Agudelo, P. A., Palacios-Alvarado, W. L. A. M. Y. R., & Medina-Delgado, B. (2021). Diagnosis of physical conditions for implementing a reverse logistics management model in a supply chain. In Journal of Physics: Conference Series (1938 )1.

Five things to know about VW’s ‘dieselgate’ scandal. (2018). Phys.org.

Rubio, S., & Jiménez-Parra, B. (2014). Reverse logistics: Overview and challenges for the supply chain management.International Journal of Engineering Business Management, 6, 12.

Welch, J. (2019). The Volkswagen recovery: Leaving scandal in the dust.Journal of Business Strategy, (40)2, 3-13.

The circumstances in which Volkswagen has lost the trust of its consumers will help us rethink our priorities and be transparent with our decisions and ethics.

Wolfsburg, March 31, 2022. The Volkswagen team would like to apologize for misleading our customers and violating the Clean Air Act. We take responsibility for the unethical behavior that has resulted in a loss of trust in us as a reliable brand, but we promise to make major changes to show that we are committed to getting better as a brand and as a car manufacturer with environmental responsibilities.

Volkswagen has been involved in a controversy regarding our software that would prevent regulatory agencies from thoroughly monitoring the emissions during the test drives required before the release of our automobiles on the market. We are aware that the environmental agenda protected through federal acts is critical, and our mission is to become a better brand that is transparent when it comes to all the factors that may determine our impact on clean air and safety. Volkswagen has always been resilient to changes and respectful of regulations, and the violation correlating with the organization’s behavior is to be addressed immediately.

Multiple people facilitated the decision that has ultimately led to such outcomes, but the majority of stakeholders have not been informed of the ethical challenges within the company. We strive to correct the mistakes that we have made, beginning with the implementation of a professional code of ethics. It will strengthen our corporate values and allow our employees to be independent when it comes to operating under the professional influence of managers who make decisions that can compromise us as a company (Baase and Henry 491). Moreover, we strive to reach more transparency and become more public in regard to the technologies used in our automobiles and the environmental regulations that we follow through our policies.

As a brand with multiple loyal consumers all over the world, we would like to apologize and prove that we are trustworthy by offering you all the information or assistance you require. On our official website, we have published the contact details and more detailed information on the automobiles that have been affected. Our goal is to ameliorate the negative impact caused by the aforementioned regulatory offenses by not only providing our consumers with the necessary assistance but also making sure such circumstances will never again be linked to Volkswagen.

The Volkswagen team is currently working hard to minimize the issues that have resulted in a lack of ethical boundaries that we strive to maintain in the future. We are aware that preventing what has happened is not in our power, so we focus on minimizing the negative effects and creating an environment in which all federal acts are followed without exceptions.

We are also trying to reach maximum transparency to allow the public to see how we operate and the changes that are going to happen within the organization. The goal of this objective is to gain trust back and build a new reputation as a brand that is open to consumers and ready to pwn up to mistakes in case they happen. Our priority is to get better. While we are professionals in manufacturing cars, the new agenda is being reliable as a major economic entity that can make sustainable changes.

Works Cited

Baase, Sara, and Timothy Henry. A Gift of Fire: Social, Legal, and Ethical Issues for Computing Technology. 5th ed., Pearson, 2019.

Introduction

This paper focuses on Volkswagen’s emissions scandal, the company’s ethical dilemma, and the resulting moral failure. There is also information on a description of the company, the factual background of the problem, and the ethical dilemma. The company’s moral framework is described in deciding on that ethical dilemma. There is an analysis of the ethical framework that the company should have used when the problem arose and how to apply it for them to have reached a better result than what happened. The presentation features the analysis of the company’s code of ethics, its potential use in practical situations, and the conclusions from the discussed ethical dilemma. In other words, the current work aims to examine the emission scandal from an ethical perspective.

Company description: Volkswagen

The selected company is Volkswagen, one of the major automakers globally. Volkswagen produces vehicles, engines, and motorcycles and has a global distribution and presence. According to the estimates of the last two decades, it is one of the most developed and profitable businesses in the European Union. Volkswagen Group owns brands such as Volkswagen, Bentley, Audi, Porshe, Lamborgini, Cupra, Skoda, SEAT, and Ducati (Vega, 2017).

It shows that the auto group is the official owner of several renowned brand names that used to be separate companies. The brand name is German, and the company works according to European laws. At the same time, when Volkswagen Group decides to sell its products worldwide, it adapts the cars to the legal requirements of the target company (Vega, 2017). Localization is an essential component in working on the global market.

Background of the problem

The Volkswagen emissions scandal happened in 2015 when the EPA accused the automaker, the United States Environmental Protection Agency. According to it, Volkswagen violated the Clean Air Act that was initially ratified in 1963 in the United States and is regarded as the significant clean air regulated in America nowadays. The accusation emphasized the cheating of Volkswagen that was connected with the software of emissions controls in diesel engines. EPA stated that the TDI or turbocharged direct injection engines activated the emission control only during laboratory testing (EPA, 2018). In other cases, when the car was actively used, there was no emissions control, and the vehicles showed an emission level more than 40 times higher than the reported one (EPA, 2018). More than 11 million cars sold globally featured the wrong information about the emissions level (EPA, 2018).

Ethical dilemma

The ethical dilemma presented by the situation was connected with the lies about emissions control software. Volkswagen lied consciously about the control of this parameter in their diesel engines. The company was accused of falsifying more than 11 million emission reports globally. Though even more severe, when Volkswagen was charged with conscious deception, it continued to insist that there was no fault in its actions (Neate, 2015).

The automaker’s representatives emphasized for more than a year that the falsification resulted from a technical bug in the software (Jacobs and Kalbers, 2019). The company acknowledged that it was a deliberate deception only after the indisputable proofs of the lies were presented in public (Powell, 2018). Therefore, Volkswagen admitted the deception of clients and the conscious air pollution with their diesel engines only after they had the opportunity to deny the accusations.

Ethical framework that the company apparently employed

The company’s ethical framework in deciding on that ethical dilemma was utilitarianism. This view on ethics supposes that the action is justified when the advantages of the decision are more significant than the disadvantages (Mayer and Siedel, 2012). In this case, the company lied about the level of emissions of their diesel engines because it was an effective advertising campaign, and these numbers helped the automaker sell millions of cars globally. In most cases, the clients need to pay more attention to the level of carbon emissions, and they are not interested in the detailed information on this topic. Volkswagen decided to cheat on the laboratory tests regarded as the objective proof of the car’s characteristics to increase the sales of its diesel engines.

Ethical framework to use

The company should have used virtue ethics when the problem arose. It would allow Volkswagen to preserve its reputation as a company that works according to high ethical standards and respects its clients. The main issue is that the deception of the customers and the violation of the environmental laws shows the neglect of business to the needs of people, making earning money the only critical thing in the work of the company (Mayer and Siedel, 2012).

Therefore, it is destructive to the company’s reputation. Virtue ethics, in turn, suppose the emphasis on the moral laws in the decisions Volkswagen should make. For example, deception and conscious violation of the regulations is not acceptable from the perspective of virtue ethics. The pursuit of happiness and well-being of the clients and humanity corresponds to the principles of virtue ethics. Volkswagen sells cars globally, which means it can affect the well-being of society.

Measures to implement

In the future, the company needs to use the principles of virtue ethics in its decision-making. First, it is critical to remember that reputation is fragile, and a public scandal can ruin it instantly. Second, business leaders need to acknowledge that they should respect the laws (Cruden et al., 2018). Therefore, creating products that correspond to the legal basis of the company where the cars are sold is essential. Environmental laws are an example of the regulations that businesses should consider while localizing the product in the country. The third issue that Volkswagen should implement to avoid this type of problem in the future is acknowledging the mistake when the public or the commission finds it out. The denial of one’s own faults when everyone is aware of the conscious deception is even more destructive for the company’s reputation than the mistake itself.

Code of ethics

The Volkswagen Group’s code of ethics applies to the situation. The main issue was that the business representatives needed to use it in the case. The principle of integrity and high quality of production is described on the company’s official website, and they are continually emphasized in public relations campaigns of Volkswagen. The company had the reputation of being the manufacturer of exceptionally high-quality cars. Therefore, all customers believed in the words that the representatives of the Volkswagen group wrote in the descriptions of their products (Chudler, 2022). The central issue, in this case, was that the company’s leaders were too self-assured that everyone would take the high quality of their cars for granted. They worked in the automobile market for decades, which made them believe in their invincibility.

Lessons for business leadership

Business leadership in any company can learn from this situation that integrity is critical in the organization’s work. It is impossible to provide clients with poor-quality products and tell them they are wrong in their opinion. The second crucial point is the importance of respect for the laws and people, as the example of Volkswagen shows. The manufacturers of cars are aware of the air pollution from diesel engines, and they do everything possible to reduce carbon emissions (Chudler, 2022). In this case, the company decided to cheat its clients and the governments of the countries where the vehicles were sold. It leads to severe problems with the company’s reputation.

Conclusion

The third issue that business leaders should remember is that it is easy to spoil a reputation that is difficult to build. The attempts to deny the evident mistake for a year, as Volkswagen did, led to a severe problem with the corporate image. The public scandal has become well-known, and their attitude to the corporation changed significantly. The logic, in this case, is clear: people think that if the manufacturer deceives them concerning emissions control, it can deceive them about other critical things (Chudler, 2022). Therefore, their safety is challenged, and they should find another car to buy.

References

Chudler, K. (2022). “You are not expected to understand this”: How 26 lines of code changed the world. Princeton University Press.

Cruden, J. C., Engel, B., Cooney, N., & Van Eaton, J. (2018). Dieselgate: How the investigation, prosecution, and settlement of Volkswagen’s emissions cheating scandal illustrates the need for robust environmental enforcement. Virginia Environmental Law Journal, 36(2), 118–184. Web.

EPA. (2018). Inspector general finds EPA improved fraud detection since VW scandal. Inside EPA’s Clean Air Report, 29(11), 22–23. Web.

Jacobs, D. & Kalbers, L. P. (2019). “The Volkswagen diesel emissions scandal and accountability.” CPA Journal. Web.

Mayer, W., Siedel, L. (2012). Business law and the legal environment. Saylor Foundation.

Neate, R. (2015). “Volkswagen under investigation over illegal software that masks emissions.” The Guardian. Web.

Powell, J. K. (2018). The VW emissions scandal: Cities as trust fund beneficiaries. Natural Resources & Environment, 32(3), 26–30. Web.

Vega, G. (2017). Volkswagen: Business as usual. Business & Professional Ethics Journal, 36(3), 285–296. Web.

Introduction

Volkswagen is a German automobile company that specializes in manufacturing cars. For a long time, this car brand has been trendy among people all over the world, but in 2015, this company faced a big scandal. The main problem that caused the scandal was violations of the law on environmental protection. The problem was taken up by the US Environmental Protection Agency (EPA), which investigated this issue and found as many violations as possible on the company’s part. The company’s main mistake was that Volkswagen diesel cars had unique systems for cheating air emissions tests.

Article by Jacobs and Kalbers

Jacobs and Kalbers conducted research in 2019 and wrote an entire article, “The Volkswagen diesel emissions scandal and accountability” (2019), which revealed the primary frauds at Volkswagen. The article’s main focus is on why this situation happened and its consequences for various areas of society. In particular, the authors of the study claim that the main problems that led to such a scandal are “a rigid management style, closed corporate governance, and the shortcomings of family quarrels and nepotism” (Jacobs & Kalbers, 2019). In the same vein, due to problems in the company itself, especially among the management, the consequences after the scandal actively affected the economic, political, and social components.

Also, this article is essential in understanding the opportunities that open up for the company. Jacobs and Kalbers are trying to demonstrate possible solutions that will allow Volkswagen to quickly improve internal processes and solve new problems. First, the authors propose to consider a new system to control diesel emissions, which should completely update the existing system and create new opportunities. Thus, the main advice is to change strategies in creating cars for the long term (Jacobs & Kalbers, 2019). That will allow the company to work simultaneously with potential competitors.

Prevention of the Scandal

At this point, it is worth agreeing with the article’s authors, Jacobs and Kalbers, that they should first consider a long-term strategy to avoid such a scandal. In this case, it turns out that the company did not work on the quality of cars but on the quantity of their production and sales. That is, adjusting internal processes would be the most profitable possible solution to create a comfortable work environment and an atmosphere for quality results for the company. As a potential company employee, especially in the engineering department, one would consider all possible options to minimize the risks of creating such a scandal. In addition, an important step would be to make an excellent alternative to avoid such fraud (Strauss & Hãbner, 2021). Still, most companies use various opportunities that would positively impact the climate and the environment.

However, it is essential to understand that the company’s problems in 2015, in particular, the misunderstandings among the management, somewhat complicated the processes of making new decisions and creating the right social solutions for the company (Painter & Martins, 2017). However, perhaps considering the position of the legal service, that could calculate such things. Since the company makes monthly reports, in theory, the company’s lawyers should be aware of all cases and should understand what consequences this could have. Thus, being in the position of a lawyer, each person could predict various possible situations that would happen to the company. Moreover, it could help avoid the situation that arose with fraud.

Response Prevention Future Incidents

As CEO of Volkswagen’s diesel division, the first thing that did after the scandal was to review the company and how it operates. The reaction to the scandal should be simple and should not involve evading or rejecting such accusations (Jacobs & Kalbers, 2019). It is worth accepting all the facts and using all such opportunities to reorganize the unit. In particular, in this context, it is also necessary to review the existing strategy and all possible options for developing actions for the future.

After all, if a scandal were to find me personally in the position of CEO of Volkswagen, I should perceive the situation as providing a new opportunity for the company. First, it is essential to analyze all the divisions that work on the creation of products and understand what disruptions are feasible and develop new opportunities and strategies (Jacobs & Kalbers, 2019). Changes can often occur in the staff or the team’s organization. That is the creation of a convenient schedule and the growth of employees. Creating an atmosphere will contribute to the active development of the company as a single team. It can also be well reflected in the market and affect the brand.

Developing this leadership in the company is essential through emotional intelligence and flexibility. In this way, it will help improve the state of affairs at Volkswagen and many internal processes (Jacobs & Kalbers, 2019). It is worth adding external perspectives and monitors to track any violations immediately and understand precisely where the errors occur. This method will allow everyone to solve existing problems and develop vigilance among employees quickly (Jacobs & Kalbers, 2019). Well, everyone must adhere to their competencies, for this, it is crucial to conduct special training to teach employees how to act correctly in various situations, that is why such things will allow avoiding problems in the future.

Conclusion

Problems in the company and neglect of various laws negatively affected the situation with engines in 2015 at Volkswagen. The main problem was that the management did not have agreed development plans and aimed to increase their sales. To improve the situation in the company and on the market, it is necessary to reorganize the team and develop a long-term strategy that would normalize all the requirements required for general standards.

Reference

Jacobs, D., & Kalbers, L. P. (2019). The Volkswagen diesel emissions scandal and accountability. The CPA Journal, 89(7), 16-21.

Painter, C., & Martins, J. T. (2017). Organisational communication management during the Volkswagen diesel emissions scandal: A hermeneutic study in attribution, crisis management, and information orientation. Knowledge and Process Management, 24(3), 204-218. Web.

Strauss, M., & HãBner, A. (2021). EU fines Volkswagen, BMW $1 bln for emissions cartel. Reuters. Web.

Introduction

The purpose of this paper is to determine the best forecasting method for the stock prices of Volkswagen AG based on the eight points of data between January 19, 2023 and January 30, 2023. I will used three different methods and measure their mean absolute deviation (MAD) to select the best option. The forecasting methods include moving average, weighted moving average, and exponential. The data used for the analysis were taken from Yahoo Finance. The dataset is provided in Table 1 below.

Table 1. Dataset

First, moving average was used to make the forecast. I selected to do a four-period forecast, as it appeared the most appropriate. In order to make the forecast, the following steps were followed:

1. Opened 4. CA_M5_Moving Averages template file and went on ‘4 periods’ tab;
2. Copied the dates to the data column starting from A6 to A14;
3. Copied the close prices to the data column starting from C6 to C13;
4. Recorded the forecast for the next period and MAD.

MAD for the analysis was 0.7375 and the prediction for the next period was 125.09. The screenshot of the calculations is provided in Figure 1 below.

Second, weighted moving average was used to make the forecast. I selected to do a four-period forecast, as it appeared the most appropriate. The weights for the periods were left untouched. In order to make the forecast, the following steps were followed:

1. Opened 5. CA_M5_Weighted Moving Averages template file and went on ‘4 periods’ tab;
2. Copied the dates to the data column starting from A6 to A14;
3. Copied the close prices to the data column starting from C6 to C13;
4. Recorded the forecast for the next period and MAD.

MAD for the analysis was 0.71433 and the prediction for the next period was 125.528. The screenshot of the calculations is provided in Figure 2 below.

Finally, exponential forecasting was used to make the forecast. I selected to do a four-period forecast, as it appeared the most appropriate. The weights for the periods were left untouched. In order to make the forecast, the following steps were followed:

1. Opened 6. CA-M5_Exponential Forecasting template;
2. Copied the dates to the data column starting from A7 to A15;
3. Copied the close prices to the data column starting from C7 to C14;
4. Recorded the forecast for the next period and MAD.

MAD for the analysis was 0.83185 and the prediction for the next period was 125.02773. The screenshot of the calculations is provided in Figure 3 below.

Based on the MAD values, the best forecast was provided by weighted moving average forecast.

Here is the ranking of the forecast based on the MAD values:

1. Weighted moving average;
2. Moving average;
3. Exponential forecasting.

I have ranked them this way because weighted moving average forecast had the lowest MAD of 0.71433, moving average forecast had a slightly higher MAD of 0.7375, and exponential forecast had the highest MAD of 0.83185.