Volkswagen: More Corporate Wrongdoing

I recently wrote a blog about whether corporate crime paid.  The ink was barely dry before the Volkswagen scandal broke in the news media.  The size, scope and audacity of Volkswagen’s fraudulent scheme are breathtaking.  Volkswagen deliberately used “stealth software” in its diesel vehicles that made it possible for its vehicles to deceive government regulators in emissions testing.  The software sensed when the car was being tested and made it appear that the vehicles were passing clean air standards.   In real life driving, the vehicles were actually emitting 40 times the legal pollution limit, but were capable of higher performance, which pleased consumers.  The software was installed in 11 million diesel vehicles.  Volkswagen says it is withdrawing its unsold 2015 diesel vehicles from the market and will not market a diesel vehicle in the U.S. in 2016.  The company’s market value fell by 25 billion Euros in two days.  The potential for billions of dollars in fines, penalties, lawsuits, and costs of curing the defect is still being calculated.  It is truly a mind-boggling scandal.  Amazingly, after the CEO, Martin Winterkorn, made a public confession, he asked the public to trust Volkswagen going forward.

Senator Bill Nelson said:  “Has the corporate culture in what is an automobile society shrunk so low that we can’t be up front when our products are defective or when we are trying to gain competitive advantage?”  It wasn’t clear which “automobile society” he was referring to (ours or Germany’s) since the government’s case against GM for covering up ignition switch defects was closed last week just as the case against Volkswagen became public.  Nelson called for more and better regulation, but you know that idea won’t get far in Congress.

On Wednesday, September 22, 2015, the CEO resigned, although he denied personal knowledge of or participation in the scheme. Those most familiar with the inner working of the company and the CEO’s hands-on management style are skeptical of the CEO’s claim of ignorance.

It will be interesting to see where the evidence leads and whether individuals are prosecuted.