Following the current climate crisis, several corporations have been accused of “greenwashing,” or the deceptive technique of portraying products as environmentally friendly. In particular, the 2015 Volkswagen emission cheating scandal has raised questions about whether the company’s sustainability strategy was an actual effort to lessen its environmental impact (Zhang et al., 2021). Volkswagen’s actions proved beyond a doubt that the firm was more concerned with profit and reputation than actual sustainability.
Volkswagen’s “clean diesel” campaign was later found to be a misleading marketing ploy despite being a crucial part of the company’s sustainability strategy. The company outfitted its diesel engines were with software to evade emissions tests, giving the impression that the vehicles were releasing less pollution than they actually were (Zhang et al., 2021). Thus, Volkswagen was able to pass off their diesel cars as environmentally friendly while they were causing air pollution. In 2017, the company admitted its wrongdoings and was forced to settle for $4.3 billion (Shepardson, 2021, para. 12). These activities also undermined the confidence of the public and customers, who thought the business was making sincere efforts to cut emissions and safeguard the environment. These facts speak in favor of the conclusion that Volkswagen’s actions can be considered greenwashing.
In conclusion, the Volkswagen emission cheating scandal and its misleading “clean diesel” campaign are clear examples of greenwashing. As the climate crisis continues to worsen, it is important for companies to be transparent and genuine in their efforts to reduce their environmental impact. It is unfortunate that corporations prefer to engage in deceptive marketing practices that undermine public trust and the efforts of genuinely sustainable companies.
The present paper provides an analysis of Volkswagen AG, a world-famous car manufacturer that makes and sells cars primarily in Europe, North America, South America, and the Asia-Pacific. The company operates in four market segments, including passenger cars, commercial vehicles, financial services, and power engineering (Yahoo Finance, 2021a). I became interested in the company after the scandal in 2015 when Volkswagen admitted that it cheated on emission tests in the US using special software. I believe that the company handled the scandal really well by making a commitment to green manufacturing. Today, Volkswagen AG makes environmental and social responsibility a top priority (Volkswagen AG, 2021). This strategy allowed the company to stay profitable during the time of the pandemic when the automotive industry experienced a significant recession (Yahoo Finance, 2021a). I decided to select Volkswagen AG for the analysis, as I am thinking about investing in it.
When assessing the risks associated with investing in the company, it is crucial to consider a company’s beta. According to Vernimmen et al. (2017), beta is a measure of the volatility of a stock in comparison with the industry average. In other words, beta is a coefficient that demonstrates how much a stock price is expected to change in comparison with the market trends. Beta is calculated retrospectively by regressing the stock returns against the market returns (Vernimmen et al., 2017). Coefficients higher than 1.0 are associated with greater volatility of a stock in comparison with the stock average. Such stocks are associated with greater risks and higher returns (Vernimmen et al., 2017). Therefore, the higher the beta for a stock, the more risk-tolerant an investor should be to invest in a company.
According to Yahoo Finance (2021a), Volkswagen’s five-year beta was 1.4, which is significantly above the threshold of 1.0. Thus, investing in the company is associated with greater risks in comparison with the industry average. However, it would be unfair to say that the company is a high-risk investment. The problem with the five-year beta is that it is a retrospective view, which is hardly modified by the recent changes. According to Infront Analytics (2021), the two-year beta of the stock was 1.18, which is only somewhat above 1.0. Thus, beta analysis demonstrates that investing in Volkswagen AG is associated with slightly above-average risks.
The analysis of absolute changes in the stock prices of the company demonstrates that it was highly volatile during the past year. In particular, the minimum price of Volkswagen’s stock was $154.5, while the highest price was $480 (Yahoo Finance, 2021a). The range of the stock price change was $325.5, which was associated with significant risks. However, the changes in the stock price were associated with the COVID-19 pandemic, which had a significant impact on car sales in 2020 (Volkswagen AG, 2021). A five-year analysis demonstrates that the lowest price of the stock was $104.7 in March of 2020 (Yahoo Finance, 2021a)1. Before the COVID-19 crisis, the highest stock price of the company was $210, and the lowest price was $135 (Yahoo Finance, 2021a). Thus, it is clear that, at the moment, Volkswagen’s stock is a risky investment due to the COVID-19 crisis. As soon as the situation with the pandemic stabilizes, Volkswagen’s stocks will become a less risky investment.
When comparing Volkswagen to other companies in the industry, it becomes clear that it would be safer to invest money in Volkswagen’s competitors. The three major competitors of Volkswagen are Toyota, Ford, and General Motors. All three companies have lower five-year betas in comparison with Volkswagen AG (Yahoo Finance, 2021a; 2021b; 2021c; 2021d). In particular, Toyota’s beta is 0.64, General Motors’ beta is 1.33, and Ford’s beta is 1.14 (Yahoo Finance, 2021b; 2021c; 2021d). Thus, Volkswagen’s stock has the highest comparative risk among the company’s competitors. Toyota’s highest stock price during the past 12 months was $185.99, while its lowest price was $129.28 (Yahoo Finance, 2021b). General Motors’ highest stock price during the past year was $63.44, while its lowest price was $28.24 (Yahoo Finance, 2021c). Finally, Ford’s stock’s highest price was $16.45, while its lowest price was $6.41 (Yahoo Finance, 2021d). Thus, it is clear that Volkswagen is not the safest bet among the competitors.
If I were to decide among the four companies discussed in the present paper, I would prefer to invest in Toyota. The risks associated with the investments are minimal, as the volatility of the stock was comparatively low even during the pandemic. Since I am not an experienced investor, it would be more appropriate for me to select stocks associated with minimal risks. However, if I were an experienced investor with high tolerance to risks, it would be more appropriate for me to invest in Volkswagen, as its stock is associated with higher potential earning. The analysis demonstrates that the investment decision depends on the risk tolerance of every individual investor, as everyone needs to solve the risk/return tradeoff individually.
References
Infront Analytics. (2021). Levered/unlevered beta of Volkswagen AG. Web.
Vernimmen, P., Quiry, P., Dallocchio, M., Le, F. Y., & Salvi, A. (2017). Corporate finance: Theory and practice. John Wiley & Sons, Incorporated.
Volkswagen AG. (2021). Annual report 2020. Web.
Yahoo Finance. (2021a). Volkswagen AG. Web.
Yahoo Finance. (2021b). Toyota Motor Corporation. Web.
Yahoo Finance. (2021c). General Motors Company. Web.
Special treatment for prioritization of projects in funding amounts to a critical dilemma that Matulovic needs to solve before making any response to the phone calls from his ELT peers.
Concerns were high that the newly unveiled prioritization criteria was error prone, something that forced the people working for the ELT members challenge the “ the supposed categorization mistakes that penalized their business units” (Rose, 2007, P.18).
Every penalty on any unit had substantial repercussions to the core object of the business of Volkswagen of America (VWoA). On the other hand the requests were more informal than formal which reflects, less treatment of preliminary evaluations of the proposed projects so as to examine their feasibility and if possible predict any foreseeable challenges before the implementation of the plans.
The scenario proved rather more complicated by the fact that the finances at disposal were limited to $60 million against the cost of the proposed 40 project plans amounting to cost of $210 million.
Furthermore, trade-offs between the process of prioritization of the new projects and the core of the business was to be brought into picture. Before giving a direction Matulovic, needed conviction that, the decision he would have made was the right one for VWoA business.
Even though Matulovic seemed fully aware of the challenges at hand, he focused on organization of systems that addressed the goals of his company. On the other hand, his peer executes proved predominantly occupied in making of IT related prioritization decisions.
The executives calling him had the company’s mandate to support the core business goals of the company. If they adequately held the believe that the company’s goals both within VWoA and VW AG made no imperative sense in comparison to their demands, they should have channeled their aggrieved concerns to other prioritization process team members such as PMO, DBC, ITSC and ELT but not Matulovic.
On his part, Matulovic should have made a proposal for the funding to come from VWAG, since the supply flow project was shrouded within global strategies whose decisions did not lie squarely within his reach.
The other unit executives should have realized the importance of aligning the IT projects resource allocation with the business objectives bearing in mind the fact resources are limited I supply and there the most requisite choice needs to be made. The choice made should be for better performance of the business but not oversee its demise.
Unfunded Supply Flow project
The SCM project absence of any paramount value at the level of VWoA, in comparison to high ranking projects such as NRG goals which included items such as ‘improve vehicle value’ saw it not receive funding.
Stopping the project would pose a stalemate to the initiative geared towards enhancement of globalization at VWoA level. Consequently, conflicts between VWoA and the Volkswagen parent company in Germany could have emerged.
VW AG’s strategies to permit diversification of product lines inform of new models both in Canada and US markets escalated the challenge as it “emphasized on the need for effective and sophisticated supply chain management” (Austin, 2007, p.451). What should Matulovic have done with unfunded Supply Flow project?
In the light of all the challenges, at one point Matulovic should have considered reopening the new prioritization process. However, this deems being not the most appropriate option given the risks that are not worthy in taking, strategic fitness and the financial status of the business attractiveness.
“The SCM project doesn’t show sufficient enterprise value and reopening the process could challenge the merit of the new prioritization process” (Tallon, 2007, p.80). Total cost in implementing SCM process would be anticipated to eat off a substantial portion of $ 60 million set aside for 2004 IT budget.
The option would also see Matulovic face stiff resistance accompanied by unnecessary resistance from his fellow business executives both in Volkswagen group in Germany (VWAG) and VWoA. In his myriad of other options, Matulovic, would firstly, choose to look out for funding the yet unfunded SCM from alternatively other projects that were funded and neglect reopening the prioritization process.
Secondly, he could have left “the funding problem to the supply flow area to work out what to do about the SCM projects” (Rose, 2007, P.18). Alternatively, he could have sought for a process of exceptional handling. This way, immense aid on how to seek funding for SCM projects could have gone to the executives belonging to the supply flow unit.
The latter option is the most appropriate since it takes into consideration the risks that are not worthy in taking, strategic fitness and the financial status of the business attractiveness.
Most crucial, consultation stood out as essential in as much resistance from respective business units was to remains at bay. Attempts to avoid potentially evident stalemate between VWAG and VWoA due placing impediments to the VWAG’s globalization initiatives through non-completion of SCM are catered for by the option.
The option therefore consistently blends itself well with the prioritization process governing IT projects.Essential to point out is that “SCM, project is critical to the global objectives of VW in Germany and shows a high value at the level of Volkswagen” (Austin, 2007, p.452).
SCM is of paramount importance to the entire Volkswagen Company and whole umbrella of cooperate strategies. The idea of aligning corporate strategies with the goals of a company forms a major boom to enhancement of critical governance strategies.
The option fails to specify the amount of money that requires to be raised from alternative sources and thus posing no significant threat to IT budget of $60 million for 2004 fiscal year.
However, involving Klaus (a key person in the supply flow projects), would have facilitated solicitation of more funding from both within VWoA and the parent company: VWAG in Germany. Being leading manager, “…he is entitled to take part in the leadership and the responsibility of making key challenging IT decisions” (Austin, 2007, p.462).
On conviction, Klaus could have facilitated negotiations for additional funding right from the Germany’s IT department in an attempt of trying to raise more fun ding within VWoA.
Matulovic could have chosen not to fund SCM project and therefore heralding it. Unfortunately, the anticipated conflicts with the parent company make it not a thing to go by.
Nevertheless, he could have chosen “to reopen the prioritization process with a consequence of cutting other projects funds” (Austin, 2007, p.444). However, two options rejection is evident due to “the fact that other projects which are important to VWoA strategic goals would be neglected” (Rose, 2007, P.18). The solution would be to revert to a methodology, which implies a mechanism of exceptional handling.
References
Austin, D. (2007). Volkswagen of America: Managing IT Priorities. Harvard Business School Case 3-2, 2(3), pp.449-455.
Rose, T. (2000). Prescriptions for Managing IT Priority Pressure, Information Strategy: The Executive’s Journal, 17(1), p.18.
Tallon, P. (2007). Does it pay to focus? An analysis of IT business Value under single and multi- focuses business strategies. Journal of strategic Information systems, 16(3), pp.57-105.
Volkswagen (VW) is a giant vehicle manufacturer that was accused of rigging its diesel engine to misrepresent its emission levels. The defeat device was meant to deliver counterfeit results of emission tests with the hope that VW vehicles would not appear to be emitting many pollutants. As VW was to find out, part of the corporate responsibility involves being cautious about the potential adverse effects that arise from the actions of a corporation (Matten & Crane 2005). As the paper reveals, in installing the defeat device in its cars, not only did VW act unethically but also broke laws, even though the outcome of the company’s action could have been positive.
Objectives
The objectives of this paper include determining whether VW’s move to use the defeat device was wrong and to establish the unprincipled standards of behavior within the company with the view of analyzing areas where it went wrong.
Methods
To achieve the above objectives, the paper will incorporate normative ethical presumptions and frameworks in the field of business principles. Such theories and models will be critically assessed in the context of the Volkswagen emissions scandal. The paper will also address the restrictions and applications of the theories and methods deployed. Specifically, the paper will adopt the normative ethical theory in examining VW’s emission scandal.
VW’s Unethical Actions
VW acted unethically when it installed the defeat device, which purported to give false emissions test results. Corporate dishonesty is a major challenge today given that companies are expected to be the custodians of ethics in society. The defeat device or the ‘diesel dupe’ turned out to be software installed in VW cars that were sold in the United States to influence the way the vehicles’ engines behaved (Burki 2015; Ewing 2015). When the software detected that the engine was being tested on emissions, it would alter its (engine) performance to show different results. The discovery of this software by the Environment Protection Agency (EPA) was widely described as corporate dishonesty (Schiermeier 2015; Hakim & Bradsher 2015). The breakthrough led to a large drop in sales for the company, as people were dismayed with the outright fraudulence (Breenkert 2010).
The EPA ordered VW to recall over 600000 of its cars suspected to have been fitted with the software from the American market (Rhodes 2016). The company was required to compensate the owners of the recalled cars (Barrett et al. 2015). The company suffered massive losses since the cars affected by the software covered a range of different models manufactured between 2009 and 2015. They included Jetta, Passat, and Beetle. In June 2015, VW stated that it would spend roughly $10 billion to purchase back the affected cars in the American market. The cars totaled about 475,000. The theory of stakeholders is a major pillar in the management of corporations today. It posits that the voice of all stakeholders should be heard regarding all matters of consequence.
In other words, no major decision should be undertaken by the organization without involving the stakeholders for whose benefit the organization is constituted (Gibson 2012). This theory takes away from the traditional view that only the shareholders matter and that the objective of a corporation is solely to increase the value for shareholders (Gelter 2016). About the VW emissions scandal, many stakeholders were affected, for instance, customers, shareholders, the environment, and the government. VW customers were affected since they suffered the inconvenience of having to wait for their cars to be replaced. Additionally, VW exposed them to pollution since the cars produced up to 40 times the allowed amount of nitrogen emissions (Oldenkamp, van Zelm & Huijbregts 2016).
Installing the defeat device breached various laws regarding the protection of the environment. One of the laws broken by VW is the Clean Air Act (CAA). Section 203(a)(3)(b) of CAA prohibits the use of devices that knowingly circumvent the detection of the breach of emission standards (Elson, Ferrere & Goossen 2015). The EPA has been keen on ensuring that imported vehicles, particularly those that run on diesel, conform to the set standards. As such, VW was found to be guilty of introducing into the US cars that did not satisfy the regulations governing emission standards. For this reason, it was speculated that the company could be fined up to $37,000 for each car that contained the defeat device (Kollewe 2015).
In total, VW would be liable to pay nearly $18 billion as fine to the EPA over the said breach. Additionally, according to Kollewe (2015), some activists have urged that the VW executives in charge of the American branch should be prosecuted for flouting the CAA knowingly. The natural law theory posits that legal authorities are set based on the existing moral standards. Scholars such as Thomas Aquinas have held that law and morality overlap to the extent that they cannot be separated (Carlson 2013). In a relationship with this view, environmental protection laws are based on the belief that polluting the environment not only harms people but also threatens the survival of future generations. Thus, VW violated the tenets of morality by failing to act as the custodian of integrity. From a critical point of view, VW’s actions were devoid of goodwill. In pursuit of profits, many MNCs deliberately neglect their unspoken responsibilities to society and the environment.
Arguably, all laws, whether natural or enacted by humans, exist for the sole purpose of maintaining order in society. This position is backed by the assertion of numerous natural law theorists. The theorists deny the notion that the law stands alone without the influence of morality. The view by the proponents of natural law theory holds if one considers that many illegal acts also carry an immoral aspect. For instance, theft is both a crime under federal law and a moral wrong (Ryff & Singer 2013). This simple fact proves that it is nearly impossible to eliminate morality from the law without severing the basic tenet that supports the said regulation. Thus, based on having acted immorally, VW undoubtedly broke the law. Further, the ‘Golden Rule’ requires people to act in a manner, which results in desirable outcomes, even to themselves. In other words, a person should do to others what they would be comfortable having it done to them (Ryff & Singer 2013).
Karl Llewellyn’s legal realism holds that the law results from what the judges do while they are deciding cases. Given this view, judges are likely to consider the moral aspects of any case before making their ruling. From a critical perspective, it is crucial to appreciate that even though judges are viewed as being above the emotional influence, the truth is that emotions play just as much of a role as the facts of a case. At the same time, emotion appeals to natural law more than it does to state-made regulations. This concept supports the argument that VW was in breach of natural law. Professor Hart and Lord Devlin argued that law is informed by morality. For his part, Hart believed in a connection between crime and sin. Hence, the law should be concerned with how to enforce morals. On the other hand, Devlin maintains that some moral guidelines are put in place for the good of the society in a manner that their breach should be punishable in the same fashion as any law (Pojman, Pojman & McShane 2015). Devlin was contributing to the belief that public morality exists. In other words, morality is not always a matter of private concern. Similarly, Professor Dworkin supported the view that morality is intertwined with law, although he differed with Hart and Devlin on morality aspects that shape the law.
VW’s actions contravened the commonly accepted normative ethical theories, which concern themselves with how one should act from a moral perspective (Anand, Ashforth & Joshi 2004). Such theories offer a systematic attempt to explain what is morally right in any given circumstance. The general presumption is that a morally correct action should result in a positive outcome. In particular, consequentialism holds that the conduct of an individual must form the basis of evaluating the rightfulness or wrongfulness of his or her act (Dierksmeier 2013; Vaughn 2015). In this respect, the intention of an act may be good. However, if the result is undesirable, the actor cannot be said to have done the right thing (Banaji, Bazerman & Chugh 2003).
In other words, consequentialists believe that the end justifies the means. However, this Machiavellian assertion may face much opposition in today’s society where cheating to gain an advantage is frowned upon. Going back to VW, the company’s action was wrong because it resulted in the concealing of another bad actor in the name of unauthorized emissions. Conversely, the unilateralism theory looks at the contentious action from the perspective of one individual. For instance, VW could have been justified that its defeat device resulted in positive results for its case. As such, it could be least concerned with how its actions affected others.
Nevertheless, the challenge of utilitarianism is that the actions of one person usually affect other people, particularly regarding pollution. The environment does not belong to a single individual. Hence, no one person can be allowed to perpetrate acts that are harmful to the environment. Thus, VW’s actions cannot be defended based on utilitarianism because their impact was far-reaching. However, while consequentialism differs significantly from unilateralism, VW could have relied on Dobrin’s 8 questions (Shain & Newport 2014) to establish the right action to take. Importantly, Dobrin’s 8 questions also require the actor to think of the possible justification for his or her action (Fontrodona, Sison & de Bruin 2013). As such, a person does not jump into action without thinking about how it will affect others. Had VW utilized Dobrin’s 8 questions, it would have realized that the defeat device would hurt innocent people.
Notwithstanding the consequentialist arguments, some actions are wrong, even though they provide a positive outcome. In other words, a wrongful action cannot be deemed right simply because the outcome it produces is desirable to some people. Deontology is the approach of ethics that focuses on the rightfulness or wrongfulness of action, as opposed to the expected outcome. Therefore, from the deontological perspective, VW was wrong for the simple reason that its action propagated deceit. It does not matter that the company benefited by avoiding the detection of excessive emissions. What matters is that the whole process was based on software that advanced a lie. The justification of this view is that the right deeds outweigh what is deemed good.
An example is where a person proposes to kill all people inhabiting a land, hence making the said land not to support agriculture. While the remaining population would benefit from the actions by having sufficient food, a deontologist will still find such action wrongful. VW was motivated by the desire to make money. Hence, it did not consider the impact that its action would have on the aforementioned stakeholders. Modern deontology, as proposed by Immanuel Kant, introduces the concept of the categorical imperative (Dierksmeier & Celano 2012). The concept states that some actions are compulsory. For example, when one is thirsty, the person must drink water. Any good action should appear so to all people that it affects. Similarly, Kohlberg’s stages of ethical reasoning explain that some actions may be taken as good if they are in pursuit of greater excellence.
What VW did constitute a lie since the company produced a fraudulent item. The move to install the device contravenes the virtue theory, which emphasizes the need to promote virtues or moral characters. The feminist theory argues that relationships are important and that actions should be geared toward protecting them. VW did not care for its relationship with its stakeholders. Instead, it engaged in actions that could sever the relationship held with its key pillars, namely, customers and the government. This position is in contrast with the theory of egoism advanced by Adam Smith positing that action is positive if the doer decides freely to undertake it (Broad 2014). This theory by Smith is not justified, particularly in the case of the emission scandal. From a pluralistic perspective, VW, which has close to 120 manufacturing bases and a huge number of workers, would have demonstrated its interest in engaging in ethical actions that do not affect its business locations and employees and consequently its CSR agenda (Rorty 2006).
VW acted against the Corporate Social Responsibility (CSR) theory, which places various obligations upon corporations, including economic, legal, philanthropically, and ethical accountability. In this respect, the CSR theory maintains that for every major decision that a corporation makes, it must involve all its key stakeholders (Rhodes 2016). Therefore, VW needed to have consulted all key stakeholders, most important customers, and the US government. The underpinning argument for the CSR theory is that corporations control vast resources. Hence, they must be accountable for their actions. Additionally, companies are seen as citizens in a community who must then act in the best interests of all other members for smooth co-existence. VW’s unethical behavior was a total disregard of the ethical aspect of the CSR theory.
Conclusion
VW acted unethically by introducing the defeat device in its cars to avoid detection by emission tests. The action threatened any efforts made so far to protect the environment. By so doing, the company was only interested in raising profits. Hence, it was unconcerned with the moral issues that arose from its ill-driven move. Consequentialists believe that even if a wrongful action brings about a positive result, it will remain wrong. Many philosophers support this view by arguing that the law and morality are inseparable. Hence, VW not only broke various laws but also interrupted its relationship with stakeholders.
Reference List
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Volkswagen is an international motor vehicle company that has subsidiaries across the world. Volkswagen of America is the company’s subsidiary in the North American region that oversees the regional operations.
This paper seeks to review the new process for managing priorities of the subsidiary. The paper will carry out an assessment of the new management priorities, review criticisms for the new priorities and compare the new process with the subsidiary’s old process.
Review of the Subsidiary’s New Process
The Volkswagen Company is an old company that realized it automobile model in the second quarter of the twentieth century. The company then started its operations but was to wait till the years of 1960s for a boom in the market for its market products.
The company’s productivity however was then startled with an up and down trend in its sales and revenues after the boom period. The introduction of a new brand in the year 1977 witnessed an improvement in the company’s performance that again fell later on.
This led to the perception that the company’s management was only relying on new products as a solution to the company’s problems. This trend was continued with the diversification of product brands after the year 2000, a move that made the Volkswagen of America to institute strategies into adjusting to the changes.
The management of the group’s American subsidiary also based their operation management on marketing and sales of products. Information technology was overlooked and its expenditure and personnel even cut down. This however relayed a long term effect as the impact of insufficient knowledge in IT was evident in the company.
The company then resorted to the development of its IT which was then established to be the basis of managing its priorities. In the new strategy, established IT departments would collaborate with consultants prioritizing projects for the group. Under this approach, questions such as why, who, what, where and when would be employed by the experts to establish ground for prioritizing the projects.
The new development ensured a comprehensive consideration of the entire group with respect to opinions, functions and information in departments.
The established IT teams were the major players in the use of the new system for prioritization of the subsidiary’s projects that included invitation for projects presentation and identification of dependencies of various projects, the formal presentation of projects by departments and the final work by the IT teams over the submitted projects.
The team would then work out the proposals to give them an organizational perspective contrary to departmental ones before prioritization were made to the funding of projects. This process however led to poor funding of projects that were critical to the groups operations calling for adjustments for their funding.
Assessment of the New Process
The integration of information technology into the management system of an organization is very instrumental to the operational processes. One of the primary benefits of information technology is the developed level of efficiency in processes.
This is coupled with a significant level of information that the management is offered from the application of technology. The process of decision making with respect to prioritizing projects of the Volkswagen Company of America would thus provide the management with more information that relates the projects together so as to establish a base for informed decision making process.
The use of information technology is also beneficial in the sense that it aids planning. By bringing the organization’s departmental proposals together and running a review into their relationships, a better understanding into the correlation of the processes is established for a final decision making (Joia, 2003).
Application of information technology into a management’s system is also characterized with an increased level of productivity of processes. Whether in the production processes or in decision making process, information technology will improve the productivity level.
Better knowledge of processes through analysis and monitoring of information is another tool to accurate decision making. Better information models can also be achieved through the capacities of information technology. The efficiency as realized in the use of the technologies also reflects on the time taken to attain required analysis into decision making (DuBrin, 2008).
The use of information technology is however identified to be more applicable in service oriented organizations than in manufacturing industries. Its application in such commodity based organization as Volkswagen of America is therefore expected to at least face a few challenges. Justification of application of information technology in such is also a challenge to manufacturing organizations (Akpan, 2007).
Discussion and conclusion
The new management process at the Volkswagen of America is satisfactory in terms of the analysis that proposals are accorded with respect to the objectives of the organization. This ensures that projects geared to the attainment of the organizations objectives such as increasing sales are prioritized.
Criticisms to the systems are justified due to its inability to prioritize all projects. This is however not significant because the benefits of the system outweighs its failure and shortcomings.
The new system which incorporates analytical approaches is in general terms better than the old system in which regards were only made to marketing and sales initiatives that actually had not proved successful to the firm.
References
Akpan, E. (2007). Strategic Alignment: The Business Imperative for Leading Organizations. Mustang: Tate Publishing.
DuBrin, A. (2008). Essentials of Management. New York, NY: Cengage Learning.
Joia, L. (2003). IT-based management: challenges and solutions. London, UK: Idea Group Inc (IGI).
Starting off as a small German car manufacturing company that was founded in 1937, VW (Volkswagen) has expanded into becoming the third largest car manufacturer in the world at present which focuses on the development of compact and affordable cars (Bagshaw, 2013).
Company Strengths
The strength of VW lies in the compact design of its cars along with their general affordability which makes them an ideal choice for potential customers that live within many of today’s cities and have the need for a cheap, small and reliable vehicle (Bagshaw, 2013). As a result, the company mainly caters to mid- and low-income consumers and leaves the development of larger SUVs and luxury cars to its competitors.
This focus on designing compact yet aesthetically pleasing and affordable cars has resulted in the company consistently winning the car of the year award from 2009 to 2013, which shows investors that in terms of creating a good product, VW can be ranked as one of the best car manufacturers around the world with a great potential for returns on investment (Bagshaw, 2013).
Macro Environment
Despite its origins as a European car manufacturer, a majority of VW sales are primarily outside Europe (particularly, in developing countries within Asia or industrial countries, such as the U.S. and China).
This is a good move for the company given the current consumer predilection of Europeans to prefer more cars with long body than the primarily compact VWs, however, it should be noted that VW also has a considerable amount of sales within its local market, Germany as well as the U.K. (Rieger, 2010).
Investment Thesis
This report believes that VW is an attractive investment due to the consistency of its products as well as its expansion into the developing markets of Asia. When referring to consistency, this primarily centers on the awards it obtained for car of the year from 2009 to 2013 as well as the fact that despite being several decades old, the VW Beatle still continues to rank as one of the most popular motor vehicles.
This is indicative of the fact that the company has good fundamentals in terms of creating products that appeal to its target consumers and is able to get into the markets where it can develop the greatest amount of profitability (Rieger, 2010). The evidence of this can be seen in its expansion into Chinese market, which is a focus of many of today’s automakers, resulting in VW gaining 22% of the local consumer market.
Risks
One of the risks, when investing into VW, is the current economic climate and its potential to reduce demand for cars, regardless the affordability or the mileage. Based on the article “Volkswagen AG SWOT Analysis” (2012), it was seen that at the onset of the 2008 financial crisis and two years thereafter, demand for private vehicles plummeted as a direct result of the tumultuous state of the global economy.
Car manufacturers, VW included among them, found themselves with an excess amount of stock and invested millions of dollars in profit losses from 2008 to 2011with 2012 acting as a rebound period for these companies (Volkswagen AG SWOT Analysis, 2012). At present, there has been a trend among private vehicle manufacturers to expand into the growing markets of Asia (especially China), in order to take advantage of the recent influx of middle income and newly rich potential clients.
The problem with this trend is that studies, such as those presented in the article “Company Spotlight: Volkswagen AG” (2012), show that there is a real possibility for a sudden collapse of Chinese economy brought about through “overheating” in its local real estate industry.
For years, rapid real estate development has been the crux by which China’s economy has expanded; however, this has resulted in an influx of overpriced real estate units (average of $365,000 per unit) with normal Chinese worker being unable to afford them (average salary of less than $320 per month). This has created a glut in a real estate market with over 170 million unsold real estate units (i.e., homes and apartments) within China.
This has created a property bubble on the verge of collapsing within the next few years as the debts that were taken to finance the construction of such units come due. The potential “popping” of the Chinese real estate bubble and the current expansion of VW manufacturing facilities in order to take advantage of the supposed increase demand on Chinese market create a real potential for VW to raise a supply of cars to a local market on the verge of collapse (Company Spotlight: Volkswagen AG, 2012).
Taking this into consideration, this shows VW as a potentially risky investment if it decides to enter into Chinese market. One way of mitigating such a risk would be to expand into other regional markets within Asia, such as the Philippines, which has an economy that is currently being considered one of the fastest growing in the world. Should VW continue to focus on China, investing in the company in the long term would not be considered advisable.
Reference List
Bagshaw, M. (2013). The People’s Car: A Global History of the Volkswagen Beetle. Library Journal, 138(12), 79.
Company Spotlight: Volkswagen AG. (2012). MarketWatch: Automotive, 12(6), 7-17.
Rieger, B. (2010). From People’s Car to New Beetle: The Transatlantic Journeys of the Volkswagen Beetle. Journal Of American History, 97(1), 91-115.
Volkswagen AG SWOT Analysis. (2012). Volkswagen AG SWOT Analysis, 1-10.
Volkswagen Aktiengesellschaft (VW) is a car manufacturer and vendor that operates in Europe, the Asia-Pacific region, and both Americas. It offers passenger cars, trucks, buses, motorcycles and their parts; apart from that, engines and turbines, as well as chemical reactors, are developed and sold by the company. VW is a group of eleven brands including “Volkswagen Passenger Cars, Audi, ŠKODA, SEAT, Bentley, Bugatti, Lamborghini, Porsche, Ducati, Volkswagen Commercial Vehicles, Scania, and MAN” (“Volkswagen Ag” par. 1).
VW is of vast importance for its home country, Germany: one in seven of the workers of the country are employed by the company (“A mucky business” par. 4). The main competitors of the company include Toyota and General Motors; until recently, VW was outperforming these two enterprises (“A mucky business” par. 15).
The recent emission scandal, however, has had a significant impact on the company’s reputation and is bound to affect its future; in fact, it has been described as a “catastrophe” (Reiter and Rauwald par. 7). The crisis resulted in the change of the CEO; now it calls for a revision of the company’s strategies as well. This paper is devoted to the alternatives that VW can choose while it attempts to overcome the crisis and stay competitive.
The Emissions Scandal
The fact that VW cars had a means of deceiving the America’s Environmental Protection Agency (EPA) was suggested two years ago by the International Council on Clean Transportation that has run independent tests on VW cars and discovered that the NOx emissions were much higher than what was expected or allowed.
This year, EPA has received confirmation of this fact and made VW explain that the trick was possible due to specific software installed in the tested cars. EPA seeks to improve the monitoring of car testing for all manufacturers and characteristics, suspecting that VW was not the only company to have come up with such an idea (“A mucky business” par. 8-16). In the meantime, VW has to face the consequences.
According to “Group Strategy 2018”, the ecologically friendly cars were considered to be the company’s main competitive advantage (par. 1-4). Since the cars turned out to be a fraud, the company must have lost its competitive advantage and needs to come up with a new one. The shares of the company decreased by one-third while the fines and recalls will cost the company billions of euros (“A mucky business” par. 2).
VW has admitted its flaws while pointing out that relevant documents must have been withheld since top managerial levels claim to have been misinformed. As a result, the new CEO, Matthias Mueller, intends to revise the company’s corporate culture along with other relevant aspects (Reiter and Rauwald par. 5-6).
The Crisis. While the description of the notion of crisis varies from company to company, certain aspects that define it could be singled out. Those include the number of the shareholders involved, the time that the company has for the reaction, the media interaction specifics, and, obviously, the nature of the event that triggered the crisis (Heller and Darling 154).
The stages of a crisis or its “anatomy” may include the pre-crisis stage (when the crisis can be prevented through proper diagnostics), the acute crisis stage (the most noticeable part), the chronic crisis stage (which should be avoided when possible), and the crisis solution and recovery stage (Heller and Darling 155).
These stages appear to correspond with the stages of crisis management: during the preliminary stage the detection and prevention of the crisis are possible; during the next stages, a response is needed to control the damage and contain it; the final stage includes the recovery-related actions and the learning process (Heller and Darling 159-165). At the same time, the learning can be carried out throughout the crisis period.
For Volkswagen, the crisis is all-encompassing. The nature of the trigger event results in the loss of reputation and customers’ trust. Apart from that, the event must have affected the global environment. The size of the company ensures the possibility of handling the situation and allows VW take its time, but the competition in the field makes the problem more urgent.
The reaction of the media corresponds to that of most shareholders; apart from that, it is through media that the company will have to emphasize the actions that are taken to eliminate the problems.
The stage of the crisis is most certainly acute; at the same time, it should be pointed out that the technological difficulties and the supposedly corrupted corporate culture are in chronic crisis, which means that much time will be needed for the proper recovery of these aspects. It could be said that the acute, most visible aspect of the crisis is the reputational crisis. All these aspects need to be attended now as the preliminary stage opportunities have been lost.
Analysis
Analysis Tools. PESTLE is an abbreviation that is used to name the tool for environmental analysis which includes Political, Economic, Social, Technological, Legal and Environmental (Ecological) aspects of the company’s surroundings. It should be pointed out that variations of the tool exist: for example, the first four aspects can be assembled in the STEP tool. Apart from that, PESTLE can be called STEEPLE, and, in this case, the ethical aspect is also added to the analysis (Harrison 15).
SWOT is an analysis tool typically used for strategic planning. It included investigating the company’s Strengths, Weaknesses, Opportunities, and Threats. Occasionally, Trends are also added to the analysis, turning the tool into SWOTT (Simerson 155). It is not difficult to grasp that the two former dimensions can be considered internal while the rest are environmental. Indeed, it is not uncommon for investigators to combine PESTLE and SWOT which will be attempted in this paper as well (Hopkin 159).
As widespread as it is, SWOT has been widely criticized. It has been accused of being vague and overly simplified, superficial and generalized, even elusive (Helms and Nixon 229-234). Similarly, an opinion has been expressed, that PESTLE is but a simple tool that can be only used as a ground for environmental analysis (Harrison 15).
Still, it should be pointed out that the tools for research must suit the purpose of the research. The criticized simplicity of the methods could be also described as a convenience; their generalized nature allows the researcher to have a look at the big picture without being distracted by the details. In the case of this research, the two tools appear to be perfectly applicable.
To sum up, the current position of VW is caused by internal difficulties (weaknesses), but it has had a major impact on the company’s environment. Both aspects of the problem are going to be analyzed with the help of PESTLE and SWOT tools.
Volkswagen: PESTLE. From the political point of view, it should be noted that the German government relies on the car manufacturing industry very much (Münchau par. 1-5).
Undoubtedly, this means that the scandal of W becomes a problem of the nation; in fact, German officials appear to be concerned with the image of German export in general (“A mucky business” par. 4). At the same time, this means that the government can be expected to assist VW and stabilize it.
This can be regarded as a potential strength for the company. The economic situation in Germany has been regarded as a stable one for the past several years (Münchau par. 10-15).
This, however, may change due to VW problems. The oil prices (that are still rather low and are not expected to rise significantly soon) mean lower prices for fuel, which might have an impact on cars demand, the two products being compatible (“Rising oil prices” par. 2-4). Still, given the fact that there are other car suppliers, this aspect appears to be of little significance.
The social aspect of VW’s environment includes the public outrage concerning the deceit that has been uncovered. The damage that the company’s reputation has suffered will make it rather difficult for VW to recover. The social aspect is influenced by the three following ones. For example, from the technological point of view, the company is not living up to expectations.
When it was expected to be advanced, it appears to have neglected the most important sphere of product development which increases the customers’ disappointment. This is a major weakness. From the point of view of the law, particularly, the US law, the company is an offender. The fines that the company has paid and will pay are going to inflict financial damage; besides, this fact does nothing to improve VW’s reputation.
Apart from that, there is a significant chance that the company’s products will not be certified by EPA in the next year which will effectively reduce VW’s presence in the US market that has been described as “crucial” for the expanding company’s strategy (“A mucky business” par. 2).
Finally, from the ecological point of view, the company is also an offender that has knowingly increased the volume of dangerous gas emissions into the environment. Naturally, the actions of VW cannot be called ethical, and the resulting disappointment of the customers is understandable.
Therefore, the environmental situation for VW is not favorable. While German government may provide support, other PESTLE factors can be considered as threats rather than opportunities for VW.
Volkswagen: SWOT. The strengths of Volkswagen include its size and prominence, the reputation and confident position in the markets all over the world (particularly, in the first-world countries).
The main problem, however, is that part of these strengths are being turned into weaknesses (for example, the reputation). It is not believable that the company will lose all its customers, but their dissatisfaction is well shown by the rapid decrease in the company’s share prices. Still, the mentioned strengths allow the company to have some time to react and recover.
The major weakness of VW is, of course, the research and development (RD) difficulties. It is apparent that this weakness is to be eliminated as soon as possible; however, the fact that the company has been deceiving EPA for years suggests that VW’s RD has fallen behind its competitors.
That is true unless emission cheating is a common practice among car manufacturers. In this respect, the crisis can be regarded as an opportunity to develop the company’s innovation mechanisms forcefully. Perhaps now, when there is no other way out, VW will pay enough attention to RD.
Other opportunities of VW are difficult to find; in fact, since the situation of the company right now is described as “crisis” it is likely that it will be governed by the strategy of avoiding and eliminating threats. Those are numerous indeed: even though the main threat to the company’s performance is internal, external ones should be taken into account.
Those are presented above and include legal threats (fines and recalls, the threat of not receiving EPA certification), the financial threats (reducing share price), and that of competition. The final one appears to be the most significant external threat: there is no doubt that every misstep of VW will be used by that or another rival. Therefore, despite the difficulties and the necessity to eliminate the internal problems, VW needs to stay competitive.
Growth Strategy Analysis. Some would suppose that VW has no time for growth right now. It might have been so if the company in question was not a highly competitive leader of the field; also, this thesis may depend on one’s definition of growth. Securing what is left to secure is obviously necessary, but the same competition that demands swift reaction to the crisis also demands that VW proceeds to strive forward. Therefore, the following strategic options can be suggested for VW.
Among the strategies that are typically suggested for growth, the one that could be used by VW is product development, that is, “developing and launching new products for sale in existing markets” (Lancaster and Withey 58). Given the fact, that many of the company’s products will be now considered deficient, a new properly certified product could be an option worth considering.
While its sales would still be affected by the reputational crisis, it would not be connected to the other product names, which is a plus. In fact, an improved diesel technology that the company will have to propose could be regarded as this new product. Product diversification, however, is a risky strategy that most certainly should not be considered by the company in an acute crisis; possibly, it could be chosen after this period is left behind.
Apart from that, market penetration can become the current growth strategy for the company since VW is bound to become underrepresented in the already gained markets (mostly the North American one). It is not likely that VW and all its brands are going to be wiped out from a market, but the company’s presence is going to decrease as the result of the loss of customers’ trust.
Market penetration (“expanding the sales of existing products in existing markets”) is likely to be impossible with deficient products; however, depending on the market legislation (that, for example, differs for US and Europe) and the actual products, it is possible (Lancaster and Withey 58).
Conclusion and Recommendation
Having ignored the preliminary crisis stage despite the fact that the information about emissions was available two years ago, VW has to face the consequences of several years of cheating its customers. The major threats that company has to avoid now are caused by its main weakness, that is, the difficulties in the field of RD. The main consequence of the scandal is that the company’s reputation cannot be considered a strength anymore as the customers’ trust has been effectively shattered.
It is undeniable that the RD weakness of the company must be eliminated, and reputation needs to be improved; however, given the fact that the scandal has deprived VW of its competitive advantage while the competition in the field is tough, the company needs to improve its competitiveness. Such a goal may be pursued through any of the strategies suggested above; in fact, a giant company like VW can afford to carry out a system of actions aimed at increasing its competitiveness.
Organizational and Marketing Implications. A balanced crisis management and growth strategy implemented simultaneously are going to be very resource-consuming. VW has lost enormous sums through fines and recalls and is bound to lose more, but a company of this size can afford allocating resources to the solution of the current problems.
What is more important, the company cannot afford not allocating these resources in the current situation that has been described as a catastrophe. Even though it is too early to speak about the future strategy of VW, the company appears to be preparing for the change, which has been reflected in the election of the new CEO. His words about revisions are promising indeed, but it is apparent that recovering from this crisis is not going to be easy for VW.
Harrison, Andrew L. Business Environment In A Global Context. Oxford, United Kingdom: Oxford University Press, 2010. Print.
Heller, Victor L., and John R. Darling. “Anatomy Of Crisis Management: Lessons From The Infamous Toyota Case.” European Business Review 24.2 (2012): 151-168. Web.
Helms, Marilyn M., and Judy Nixon. “Exploring SWOT Analysis – Where Are We Now?” Journal of Strategy and Management 3.3 (2010): 215-251. Emerald. Web.
Hopkin, Paul. Fundamentals of Risk Management. London, United Kingdom: Kogan Page, 2014. Print.
Lancaster, Geoff, and Frank Withey. Marketing Fundamentals 2007-2008. London, United Kingdom: Routledge, 2007. Print.
This paper aims to overview and investigate several particular issues that are presented in the case study written by Bachmann, Ehrlich, and Ruzic (2018). It is stated that the emissions scandal, which was caused by Volkswagen’s production, had a vast adverse impact on the company’s reputation and sales (Griffin & Lont, 2016). First of all, it is essential to dwelling upon the primary causal aspect of the scandal to put further reasonings in the proper context.
The scandal began to develop in May 2014, when West Virginia University’s Center for Alternative Fuels Engines and Emissions discovered significant discrepancies between Volkswagen diesel cars’ earlier test results and on-road emissions (Bachmann et al., 2018). The on-road emissions were considerably higher than the ones from the lab tests. When the California Air Resources Board (CARB) conducted a new series of tests in May 2015, the on-road emissions were again significantly higher than the test-box results (Bachmann et al., 2018). After Volkswagen was informed that their 2016 diesel cars could not be certified for the American market, the company admitted that they used “a defeat device in their software”, which allowed regulating the emissions, and thus the cars were capable of producing fake results in the test box (Bachmann et al., 2018, p. 5).
This brief outline of the events, which has led to the outbreak of the scandal, was provided to give a proper context for the explanation of the primary cause of the adverse effect, which this situation had on the reputation of Volkswagen (and other German automobile manufacturers, too). In my opinion, the public sentiments about the scandal were so profoundly frustrated in tone because the company was considered to be an immensely reliable and trustworthy car manufacturer (Strittmatter & Lechner, 2017). German engineering was a definite benchmark of high-quality products, and this aspect was widely used in Volkswagen advertising. It is also evident that the society was so frustrated with the scandal because the emissions had an immensely adverse impact on public health (Barrett et al., 2015; Oldenkamp, van Zelm, & Huijbregts, 2016).
Corruption: Individual Mistake or Cultural Trend?
Further, it is critical to investigate whether corruption, which caused the outbreak of the scandal, represents an individual mistake or an ongoing cultural trend. Firstly, answering this question, it is essential to mention that the situation under discussion was one of the automobile industry’s major scandals in several decades (Bachmann et al., 2018, p. 5). Therefore, it could be suggested that this event represents a unique situation, which could hardly be considered a trend. However, it is also possible to overview the problem from a different standpoint. The article by Aurand et al. (2017) provides considerable insight into the company’s internal culture and work ethics.
The authors primarily exemplify the management style of Ferdinand Piëch, Chairman, and CEO of Volkswagen from 1993-2002, who told a group of his employees to develop a new Golf body fit in six weeks, or otherwise, they would be fired (Aurand et al., 2017). Martin Winterkorn, Volkswagen CEO from 2007-September, 2015, is reported to have an approach, which is relatively similar to Piëch’s (Aurand et al., 2017). It is stated by the authors that Winterkorn’s high level of ambitions was “notoriously intimidating and demanding” (Aurand et al., 2017, p. 15). Therefore, it is possible to suggest that such a management style could be the cause of the company’s cheating in test boxes. Based on this information, it could be stated that the corruption, which led to the outbreak of the emissions scandal, can be considered a cultural trend since the significantly demanding management style appears to be distinctive for German employers (Aurand et al., 2017).
What Could Be Done to Re-Establish Trust?
Since the primary cause of the scandal and its underlying cultural factors were discussed, a hypothetical situation, in which I am put into the position of a consultant to the board during the period of the scandal, should be observed. In this position, it is essential to propose several steps, which would improve the public image of the company. It is worth mentioning that situations similar to this scandal are difficult to handle since they harm the company’s reputation to a significant extent (Bachmann et al., 2018). However, it is possible to propose several steps, which would improve the situation. First of all, it is essential to recall the cars with the defeat device, even though it implies significant losses for the company (Aurand et al., 2017).
Secondly, the contribution to the improvement of public health and environmental damage should be made since it is one of the most dangerous consequences of the emissions (Barrett et al., 2015). Another solution, which is mentioned by Aurand et al. (2017), is to implement a customer-oriented program of “buyback and approved emissions modifications,” which also implies significant expenses for Volkswagen; however, it would help to re-establish the customers’ loyalty (p. 16). It the context of the situation under discussion, it is more important to prove that the company is striving for the improvement of the situation than to calculate the losses. The reason is that in the long-term perspective the negative public image of the company would bring additional expenditures and an overall decline of demand for Volkswagen production.
Suggestions for the New CEO
The final section of this paper is dedicated to the provision of recommendations for the new CEO of the company, which would help to avoid similar scandals in the future. It is argued that one of the core aspects of Volkswagen’s business, which should be changed, is the corporate culture, ethics, and management style. As it was previously mentioned, there are at least two examples of the Volkswagen CEOs’ managerial decisions and behaviors, which harmed the long-term perspective (Aurand et al., 2017). Therefore, it is essential to change the overall corporate culture to be less strict and demanding toward its employees. It could be hardly doubted that this managerial style has also benefited the company’s success, but it is evident from the case under discussion that this decision has led the company to one of the biggest industry scandals in several decades (Bachmann et al., 2018). It could also be suggested that Volkswagen would implement a more transparent policy on the presentation of its production. The implementation of this approach would help to retrieve the customers’ loyalty and trust in the long-term perspective.
In conclusion, it should be stated that the case under discussion is of critical significance for the understanding of any company’s reputation and responsibilities importance. This paper has discussed the principal causes of the outbreak of the scandal as well as the underlying factors of corruption. Additionally, there were proposed several steps and recommendations for the new CEO of the company, which could also be useful in other similar cases.
References
Aurand, T. W., Finley, W., Krishnan, V., Sullivan, U. Y., Bowen, J., Rackauskas, M.,… & Willkomm, J. (2017). The VW diesel scandal: Engaging students via case research, analysis, writing, and presentation of findings. Journal of Higher Education Theory and Practice, 17(7), 10-21.
Griffin, P. A., & Lont, D. H. (2016). Game changer? The impact of the VW emission cheating scandal on the co-integration of large automakers’ securities. Web.
Oldenkamp, R., van Zelm, R., & Huijbregts, M. A. (2016). Valuing the human health damage caused by the fraud of Volkswagen. Environmental Pollution, 212, 121-127.
Strittmatter, A., & Lechner, M. (2017). Sorting on the used-car market after the Volkswagen emission scandal. Web.
Volkswagen (VW) has been considered a good choice for long-term investment for several reasons. The company’s business model follows a holistic approach as VW not only produces high-quality vehicles but also sells them and provides after-sale services to make sure customers are satisfied with the products (Volkswagen AG, 1). VW is one of the strongest automakers, and its revenues have been growing over the past several years (Statista, 2; Volkswagen AG, 3).
It is also worth mentioning that the organization has a large market capitalization, which is why its stock is less risky than the stock of small-cap or middle-cap companies (Volkswagen AG, 4). For conservative investors, the business entity offers another source of income, such as dividends (Volkswagen AG, 5). This may indicate that the senior management of VW is confident in the future earning power of the company’s stock.
VW stock has been selected for the client, who is a 38-year old family man with the middle level of income. He has a rather low risk tolerance and needs an additional source of income to pay for college for his children. An important factor in choosing stock was the client’s personal interest in cars and his strong concern with the environment. VW produces a new generation of full electronic vehicles, which make a considerable portion of the corporation’s global sales (Matousek, 6; Bullard, 7). Taking into account all the above-said, the purchase of VW stock seems to be a rational choice that is based upon the client’s personal financial goals and preferences and that is within his risk-tolerance level.
Calculation of the Financial Ratios
Even though the rationale for the selection of VW stock seems well-reasoned, a thorough assessment of the company’s financial health should include the estimation of its financial ratios. This will allow for analyzing the firm’s performance in terms of profitability, liquidity, and solvency over the past several years. Financial ratios that will be computed include the current ratio and quick ratio (both are characteristics of liquidity), the total debt ratio (the long-term solvency ratio), the earnings per share, and the price-to-earnings ratio. All the information needed to calculate the financial ratios was taken from the annual reports of VW for 2016-2018.
Current Ratio
The current ratio is calculated by dividing current assets by current liabilities. The current ratio of VW for 2016 was equal to:
The current ratio of VW for 2017 was equal to:
The current ratio of VW for 2018 was equal to:
Quick Ratio
The quick ratio is calculated by subtracting inventories from current assets and dividing the result by current liabilities. The quick ratio of VW for 2016 was equal to:
The quick ratio of VW for 2017 was equal to:
The quick ratio of VW for 2018 was equal to:
Earnings per Share and Price per Share
The earnings per share (EPS) was presented in the annual report of VW. In 2016, the EPS of VW was equal to 10.24, and the price per share was 136.75 (Volkswagen AG, 8). In 2017, the EPS of VW was equal to 22.63, and the price per share was 168.7 (Volkswagen AG, 9). In 2018, the EPS of VW was equal to 23.57, and the price per share was 138.92 (Volkswagen AG, 10). Over 2016-2017, the stock was rather volatile as its market price changed from 136.75 to 168.7.
Price-to-Earnings Ratio
The price-to-earnings ratio is calculated by dividing the price per share by earnings per share. The price-to-earnings ratio of VW for 2016 was equal to:
The price-to-earnings ratio of VW for 2017 was equal to:
The price-to-earnings ratio of VW for 2018 was equal to:
Total Debt Ratio
The total debt ratio was calculated by subtracting total equity from total assets and dividing the result by total assets. The total debt ratio of VW for 2016 was equal to:
The total debt ratio of VW for 2017 was equal to:
The total debt ratio of VW for 2018 was equal to:
Table 1 shows all the financial ratios computed in this section.
Table 1. Key Financial Ratios.
2016
2017
2018
Current ratio
0.88
0.99
1.09
Quick ratio
0.66
0.75
0.82
EPS
10.24
22.63
23.57
P/E ratio
13.35
7.45
5.89
Total debt ratio
0.77
0.74
0.74
Analysis of Financial Ratios
The current and quick ratios were computed in order to analyze the firm’s liquidity. The company’s current ratio increased by 11% in 2017 and by 10% in 2018. This stable annual growth indicates an increase in VW’s current assets and a decrease in current liabilities. Since the current ratio was lower than 1.0 in both 2016 and 2017, the organization was unable to cover its short-term debt with liquid assets.
In 2018, however, the company’s current assets exceeded its current liabilities, which means that it was well-placed to cover its short-term debt obligations. VW’s quick ratio increased by 9% in 2017 and by 7% in 2018 due to an increase in the current assets. Overall, the company’s liquidity is satisfactory, yet it is lower than 1.0, which is why VW may experience problems meeting its short-term debt with the most liquid assets, such as cash and cash equivalents, accounts receivable, and marketable securities.
The earnings per share indicates how much profit is generated by the basic share of the business. Over the past three years, there was a stable growth in the portion of VW’s net income earned by the basic shares. Therefore, one may note that investors were positive about the future growth of the company. It is possible to deduce that VW’s profits increased over the past three years, so it had more money available to distribute to shareholders. Overall, an increase in the EPS and its positive value speak of the good profitability of VW.
The price-to-earnings ratio links the market price of a share with the earnings per share. This financial measure indicates how many times the market price of a share is higher than its current level of earnings. In 2016, the market value of one share of VW was more than thirteen times higher than EPS. In 2017, the market value of one share of VW was 7.45 times higher than EPS. In 2018, the market value of one share of VW was only 5.89 times higher than EPS. Such a decrease in the price-to-earnings ratio is mainly attributable to an increase in EPS and a rather unstable market price per share.
Over the past three years, the stock price became lower relative to earnings. One may say that in 2016, the stock was more overvalued than in 2017 and 2018. On the other hand, it is also possible to state that investors expected higher earnings in 2016 than in the following years. This means that they were ready to pay more for the company’s stock in 2016 than in 2017 and 2018. However, it is important to consider that one of the main disadvantages of the price-to-earnings ratio is that it does not take into account the capital structure of the business.
Total Debt Ratio
The total debt ratio was calculated in order to measure the company’s level of indebtedness. As can be seen from table 1, VW’s total debt ratio decreased by 3% in 2017 and remained the same in 2018. The firm financed 77% of its current and non-current assets with current and non-current liabilities. In other words, it had to sell 77% of its assets to finance its debt. Since a lower total debt ratio speaks of a stronger financial structure of a business, it would be desirable for VW to repay some of its short-term and long-term obligations.
The Risk Level of the Stock
Despite the fact that there is no real agreement on how unsystematic risk should be measured, several conclusions about the risk level of the VW stock can be made based on the analysis of the financial ratios of the company. The organization shows stable performance, and the trends in its liquidity, solvency, and profitability may be viewed as positive. Considering the EPS and P/E ratios over the past three years, it is highly unlikely that the organization will experience a permanent loss of value or perform worse than expected (Atrill, 11). Even though investors are not prepared to pay more for the stock, they still expect high returns on the investment in the company’s shares. The only drawback associated with this investment decision is the rather high level of indebtedness of VW, which may result in the liquidity problems (Atrill, 12; MarketLine, 13). Overall, the risk level of VW stock may be considered as low or middle.
Recommendations and Key Strategies
This stock may be recommended for investment, but the fund strategy should be blend fund. This means that apart from VW stock, several other stocks need to be chosen, some of them should be growth stocks, and other ones should be value stocks (Kjetsaa, 14). Such a portfolio will be diversified, so the stability of the value stocks will be balanced with the high potential returns of the growth stocks (Baker, 15; Hancock, 16).
As a result, the client will be immune to losses because his assets will be distributed over diverse funds. In such a case, it will be difficult to predict the unsystematic risk of this portfolio due to diversification, yet blend funds usually have low levels of risk. Even though the blend fund is a perspective strategy, value and growth stocks have to be carefully chosen with consideration of their historical performance over the past five years. Among other strategies that can help reduce the risk of the investment portfolio are dollar-cost averaging, which means investing small amounts at regular intervals instead of a large sum at once, and diversification across sectors and regions.
Data gathered from the company’s official site, press releases, and literature analysis.
Data was used to:
describe and analyze the current situation;
determine the company’s crisis strategy.
Our research is qualitative. The information about the core values and strategies of Volkswagen was gained through the analysis of the data from the company’s official site as well as relevant press releases. The data concerning the crisis of Volkswagen was gained through the analysis of press releases. The theoretic information concerning strategic and management that was necessary for the evaluation of the possible strategies was gained through literature analysis.
The gathered data was then analyzed to provide information concerning the company’s environment and strategy.
Summary
The overview of Volkswagen Aktiengesellschaft;
Current crisis;
Current strategy;
Strategic planning options;
Recommendations;
Conclusion.
Upon describing all the factors relevant to the choice of a strategic planning option, the evaluation of the possible options was carried out. As a result, we managed to suggest some recommendations concerning the future actions of the company in the field, and a conclusion was made about the possible outcomes of both adopting and ignoring the proposed ideas.
Volkswagen: Overview
According to Hoover’s (2015), Bloomberg Business (2015):
Almost 80 years of operation.
11 brands.
Volkswagen Group or Aktiengesellschaft (VW) is a group of car manufacturers that develops, produces, and sells passenger cars, light commercial vehicles, motorcycles, trucks, and buses as well as their parts; apart from that, the company offers other machinery like “turbo compressors, industrial turbines, and chemical reactor systems” (Bloomberg Business, 2015, par. 1). VW owns luxury and family car brands, including AUDI, Lamborghini, Bentley, Bugatti, Seat, and Skoda; apart from that, the company’s share in Porsche is 49.9% (Hoover’s, 2015, para. 1).
Competition
#1 in Europe; 10 million cars per year.
According to Hoover’s (2015), VW is the Europe’s #1 carmaker with its annual production amounting to 10 million cars, trucks, and vans. Apart from that, the company operates South and North Americas, and the Asia-Pacific Region. According to Hoover’s (2015) and Morningstar (2015), the list of VW’s competitors includes Toyota Motor Corp and General Motors Company. The company’s board of directors believes that their products are capable of achieving success despite the challenging environment (Volkswagen Aktiengesellschaft [VW AG], 2014).
Competitive Advantage (Beene 2015b)
Official website data:
Environment-friendly cars.
In reality:
Cheating software.
Being an international car manufacturer giant, VW possesses a number of strengths that include, for example, its size and reputation that is compiled of the fame of the numerous unique brands. Still, the main strength that the company used to pride itself on is the VW environmentally friendly cars like, for example, this supposedly clean-diesel Golf TDI (VW AG, 2014). It is the clean diesel that the company used to regard as its competitive advantage, that is, the feature that “sets the organization apart” (Coulter, 2013, p. 46). However, a major fraud that was uncovered recently shattered this ground that VW used to rely on. The fact that, when on the road, VW cars would emit much more dangerous NOx gasses than was declared or allowed was confirmed two years ago by the International Council on Clean Transportation. This year, the fraud was confirmed first by the US Environment Protection Agency (EPA) and then by VW itself.
As it turned out, VW “used special software to manipulate its emissions controls during U.S. emissions tests, effectively doctoring its emissions results on seven model years’ worth of diesel vehicles going back to 2009, in violation of the Clean Air Act” (Beene, 2015b, para. 2). It should be also pointed out that, according to the company’s senior managers, a withdrawal of crucial documents took place, as a result of which the board of directors was misinformed and allowed this to happen (Reiter & Rauwald, 2015).
Emission Scandal in Numbers (Kapadia & Downs, 2015)
Let us get the understanding of the key features of this scandal with the help of this Wall Street Journal video.
Results: Current Situation Analysis
Unexpected amounts of NOx emissioned.
Increased attention to other carmakers (Beene 2015a).
Danger of layoffs and dismissals.
Major crisis for VW: share prices drop, fines and withdrawals, damaged reputation.
The actions of VW have a number of consequences. For the environment, this fraud means that the actual emission of the harmful NOx has been much bigger than expected (“The Volkswagen emissions,” 2015). For the industry, this means that the claims of the manufacturers concerning their self-certification tests will be verified more closely (Beene, 2015a). For Germany this means, that a company which employs every seventh worker is in danger of major layoffs (Münchau, 2015). As for VW, the scandal can cost it over 20 billion euros, its shares price has dropped dramatically, and, most importantly, its reputation has been severely damaged (Reiter & Rauwald, 2015). The problem was described by the company as a crisis, which is understandable in the light of the fact that the company is losing its competitive advantage along with the trust of authorities and, most importantly, customers.
Public Reaction
The reaction of the public was not positive at all. The audacity of the company that had dared to cheat its customers for years has caused a public outcry which is reflected in these pictures. Moreover, the public figures of Germany have expressed their concern about the reputation of the country’s export in Germany since, indeed, VW has become a national brand (“A Mucky Business”, 2015).
VW board of directors labeled the situation as a “political and moral catastrophe” (Reiter & Rauwald, 2015, para. 7). Indeed, the core values that the company had claimed to maintain have been betrayed by VW’s actions, and this is probably one of the main reasons for the damage that was dealt to its reputation. The behavior of VW had been both illegal and unethical, and while the former results in fines and withdrawals and its results can be rectified at the production level, the latter has a more severe impact on the brand’s popularity and is much harder to redeem.
Competitive Disadvantage
The competitive advantage is lost.
Potential loss of US market.
One of the most important results of the scandal is that the so-called competitive advantage of VW is no longer an option since it is obvious now that the company has yet to discover its “clean diesel.” Having lost the trust of the customers and authorities, VW has the chance of failing to receive EPA certification for the next year. As you can see from the figure 2, VW is already underrepresented in the US market when compared to its competitors; lack of EPA certification would reduce the company’s share of the market further.
Pre-Crisis Strategy (Volkswagen AG, 2014)
Aimed at growth (particularly in the US market).
Focusing on R&D and customers’ satisfaction.
Previous CEO, Martin Winterkorn.
According to the official website of VW AG (2014), the strategy of the company before the scandal was aimed at expansion and growth. The company planned to position VW AG as the “global economic and environmental leader among automobile manufacturers” (VW AG, 2014, para. 1). The goals of the company included a focus on the technologies and customers’ satisfaction; the aims of the company dealt with the volumes of sales and return on sales that were to be increased. As it was already mentioned, the company insisted on “focusing in particular on the environmentally friendly orientation and profitability of our vehicle projects” (VW AG, 2014, para. 6). The company’s management claims to be especially concerned with customers’ satisfaction and reports that the company aims at customizing its products to suit the needs of various markets.
In-Crisis Strategy (Reiter & Rauwald, 2015)
New CEO, Matthias Mueller.
Main concern: reputation.
Revision of corporate culture: layoffs.
Plans on meeting the production requirements.
It should be pointed out that a proper analysis of the current company’s strategy will need to be carried out later when this strategy becomes obvious in its true form. For the time being, however, we can analyze the current actions and suggestions of the CEO and the company and attempt to deduce how VW is managing its crisis.
The following facts about VW and its CEO’s behavior can provide us with relevant information.
In reaction to the crisis, which is being faced by the company, VW’s strategy is being reformed as the new CEO, Matthias Mueller, intends to revise the company’s policies while sticking to its top values and goals. In fact, the reorganization offered by him was created before the scandal (Reiter & Rauwald, 2015, para. 1-2). The main Mueller’s concern is the company’s reputation while the key to repairing it, in his opinion is related to VW’s corporate culture which is going to be revised. The key suggestions concerning this aspect include increasing the inclusiveness and participation, transparency, and honesty. The decision was prompted by the claim that valuable information concerning cheating has been withheld from the upper managers. In consistency with this suggestion is the decision of allowing more authority to individual brands and regions. Apart from that, a number of employees have been dismissed, but the names are not disclosed (Reiter & Rauwald, 2015). Finally, by October 7 VW was expected to present a plan for making the production meet the requirements. The analysis and evaluation of the strategy are presented in the following section.
Crisis and Crisis Management in Volkswagen (Heller & Darling, 2012)
Since the situation that VW finds itself in should be described as a crisis, it is strategic crisis management that the company will have to carry out. A crisis can be defined as “a significant issue affecting a firm or its stakeholders that, if unattended, can lead to severely negative outcomes” (Penuel, Statler & Hagen, 2013, p. 196). The stages of a crisis include four steps: the pre-crisis stage, the acute crisis stage, the chronic crisis stage, and that of recovery; the guidelines for crisis management correspond to these stages (Heller & Darling, 2012). Therefore, the stages of crisis management may include the detection, preparation and (when possible) prevention, response (that typically includes damage containment and control), recovery, as well as revision (Penuel et al., 2013, p. 197; Heller and Darling, 2012; Andrews, A., Simon, J., Tian, F., & Zhao, J., 2011).
The crisis of VW appears to be three-fold. It would not be an overestimation to say that the crisis of reputation is in its acute stage; the production crisis that covers the creation of flawed cars for several years can be defined as a chronic one. Finally, there is also a corporate culture crisis that VW’s CEO is planning to resolve; its stage appears to be chronic as well. Currently, the company seems to be in the stage of response as it attempts to contain the damage and create planning for the recovery. This is the type of strategy that is going to be discussed in the paper.
Pre-crisis opportunities are missed.
Acute reputation crisis is the primary concern.
Chronic R&D crisis get less attention.
We may conclude that VW has failed to prevent the crisis at the pre-crisis stage, although the information concerning the problem was available two years ago, after the International Council on Clean Transportation tests. As Mr. Mueller claims, poor information exchange has happened between the senior managers. In any case, the opportunities of pre-crisis stage appear to be lost.
It seems plausible that the company has already carried out research, and the conclusions appear to have led the CEO to suggest that the core of the problem lies in the corporate culture difficulties. As a result, he has targeted this problem officially and publically; by demonstrating his efforts he attends the reputation crisis as well. The official information concerning the current VW crisis management strategy is mostly concerned with the values crisis; the production crisis appears to be vastly underrepresented.
The endeavor of demanding transparency and honesty as the company’s ethical conduct guidelines appears to be a rational decision. Even though the question of information withdrawal is hard to check, it is obvious that such a problem must be solved and avoided in future since it is a requirement for a successful business strategy (Neilson, G.L., Martin, K.L., & Powers, E., 2008). Still, by emphasizing the withdrawals, values revision, and corporate culture changes, VW’s CEO appears to avoid describing the strategies of production crisis management.
Alternatives
Current strategy:
Concentration on one of the crisis aspects (most visible/convenient).
Advantages:
lattending to the core of the problem;
lresources.
Disadvantages:
one-dimensional;
the threat of neglecting other aspects.
We draw our conclusions from the fact that VW appears to be concentrating on the cultural crisis which seems to have been introduced for the sake of restoring the company’s reputation. The mission and vision, human capital, and organizational culture are indeed among the key dimensions of strategic leadership (Coulter, 2013). Apart from that it is obvious that all the aspects of the crisis are interconnected and interrelated, and the production crisis appears to be caused by the cultural one. In this light, the strategy of VW seems to be rational, as the core problem is given primary consideration and attended prior to the rest of the difficulties. This strategy would include refraining from changing the current course of action, even though it is still rather vaguely defined. The strategy would involve developing a consistent plan of actions concerning culture revision. The main advantage of this alternative consists in focusing the resources and efforts on one goal; the disadvantage is in a rather one-sided view of the problem which could result in mismanagement of other crisis aspects.
Alternatives and Recommendations
Suggested strategy:
Taking into account all the aspects.
Disadvantages:
dispersed effort;
resource-consuming.
Advantages:
necessary resources are available;
holistic approach.
Alternatively, the company could pay equal attention to the crises without shifting the emphasis on one of them. The possible disadvantage of this alternative lies in the fact that the crisis-management resources are going to be dispersed. However, given the fact that a giant car manufacturer like VW possesses resources in generous amounts, this problem appears to be manageable. In this case, an active production crisis management should be carried out and officially demonstrated to facilitate the process of reputation restoration. At the same time, the demonstration of corporate culture revision would be carried out but neither of the problems would be regarded as the most important one as both of them depend on each other. The official demonstration, on the other hand, is bound to contribute to the solution of the reputation crisis; therefore, all the dimensions of the crisis are going to be attended in this case. The second alternative is the one that appears to be most advisable and, at the same time, manageable for a company like VW.
Discussion
Similar scandals are not to be had in future.
CEO’s actions produce the impression of searching for the “guilty party”.
One of the main advantages of the suggested alternative is the fact that while VW has managed to successfully “cheat” on EPA for years, a second scandal of this kind might be too much for the company, and, to avoid it, all the crises must be resolved. VW pointedly demonstrates active management of the crisis, which is undeniably important for public relations, but instead of focusing on the fraud itself, the CEO makes an impression of searching for the guilty party.
R&D problems are to be solved as soon as possible.
Reputation is difficult to restore.
Opportunity for change?
It would appear most logical for the company to provide the proofs of fixing the production crisis as soon as possible, even though this would not immediately solve the reputation crisis. Given the fact that the corporate culture revision has already been announced, this line of action should also be developed. By attending the crisis as a system, VW has the chance of resolving it faster and more efficiently.
Even though it is obvious that a crisis situation endangers business, it is also often regarded as an opportunity for change (Penuel et al., 2013, p. 187). Since the legal and ethical obligation of providing ecologically-friendly cars was not enough of a stimulus for VW to spur research and develop technologies, possibly, this crisis will allow it an opportunity of revising and improving several aspects of its operation, and, consequently, a new competitive advantage might be found by the company, one that would allow it restore its reputation and position in the world market.
Conclusion
Full-fledged three-dimensional crisis.
Attending to all crisis dimensions is advisable.
Loss of the competitive advantage.
The current strategy is focused on the acute reputational crisis.
With all the things considered, let us sum up this presentation for you. The current situation of VW can be described as a full-fledged three-dimensional crisis. The main drawback of the current strategy is its focus on searching for the guilty party. The suggested crisis management alternative consists in attending to all the aspects of the multidimensional crisis and publically demonstrating this to improve the damaged reputation. Apart from that, it should be pointed out that the competitive advantage that VW had prided itself on has been lost along with the customers’ trust. The problem of searching for a new competitive advantage would be necessary to attend as soon as the damage caused by the crisis is contained and minimized.
Resources are available.
How will they be allocated?
The company appears to have analyzed the situation, but its current strategy is likely to be revised. In either case, VW has admitted having the problem both to the public and itself and appears to be willing to change the situation. It is not unlikely that the company will seize the opportunity of improving its performance and R&D. In several months, we will be able to find out if its strategic decisions and crisis management are efficient.
References
A mucky business. (2015). The Economist. Web.
Beene, R. (2015a). Self-certification under scrutiny. Automotive News, 89(6693), 4. Web.
Beene, R. (2015b). VW faced ultimatum from EPA. Automotive News, 89(6691), 1. Web.
Bloomberg Business. (2015). Volkswagen Ag. Web.
Crash [Image]. (2015). Web.
Heller, V., & Darling, J. (2012). Anatomy of crisis management: lessons from the infamous Toyota Case. European Business Review, 24(2), 151-168. Web.
Hoover’s. (2015). Volkswagen AG Competition. Web.
Largest car manufacturers’ vehicle sales. [Image]. (2015). Web.
Kapadia, D. (Producer, Reporter), & Downs, G. (Producer). (2015). Volkswagen Emissions Scandal in Numbers [Video]. United States: Wall Street Journal.
Reiter, C., & Rauwald, C. (2015). VW’s New CEO Is Moving Forward With a Strategy Shift. Bloomberg Business. Web.
