Volkswagen’s Clean Diesel Dilemma case W04C84

case W04C84

revised November 1, 2016

Published by WDI Publishing, a division of the William Davidson Institute (WDI) at the University of Michigan.

©2016 Christopher Monti, Vitor Lira, Jefferson Sanchez, and Namit Jhanwar. This case was written under the supervision of Andrew

Hoffman (Holcim Professor of Sustainable Enterprise at the Ross School of Business) at the University of Michigan by graduate

students Christopher Monti, Vitor Lira, Jefferson Sanchez, and Namit Jhanwar. Secondary research was performed to accurately

portray information about the featured organization and to extrapolate the decision point presented in the case; however, company

representatives were not involved in the creation of this case.

“Regardless of whether there is an upturn or a downturn going on, our goal is to ensure

the Volkswagen Group reaches the top of the automotive industry by 2018 — in both

economic and ecological terms.” 1

— Martin Winterkorn

CEO, Volkswagen Group

Martin Winterkorn, CEO of Volkswagen Group, had just received stunning news. The U.S. Environmental

Protection Agency (EPA) and the California Air Resource Board (ARB) had notified Volkswagen that they

would begin investigating claims that some of the company’s diesel engine vehicles were violating emissions

standards. His sources informed him that this revelation was based on a study conducted by an independent

research firm in West Virginia.

Sitting in his office in Wolfsburg, Lower Saxony, Winterkorn began to reflect on the ramifications this

could have on his company. Since becoming CEO in 2007, Winterkorn had tried to make Volkswagen a global

leader in car production as well as sustainability and clean transportation. The company had invested billions

of dollars in research and development to create best-in-class diesel engines for the highly competitive

North American automobile market.

If these claims were true, what would Volkswagen’s next steps be? How could such violations be taking

place in an organization of Volkswagen’s prestige and reliability? How would this affect its brand and

sustainability strategy? What will this mean for company leadership and governance? How can the damage be

repaired with employees, the government, and its customers? And, as the company tries to look beyond this

scandal, it must wonder whether it would have any cascading effects throughout the German economy and

the auto sector? And more directly, what does this mean for the future market for diesel-powered vehicles?

The Volkswagen Group

Along with the Autobahn, the Volkswagen, or the people’s car, was to be one of the linchpins for Adolf

Hitler’s “motorization” of Germany.2

In 1934, Hitler commissioned automotive designer Ferdinand Porsche to

create a car that could be affordable on a worker’s wage as well as seat a family of five.