Essay Summary of Automotive Industry
Auto is a large industry which mainly engaged in manufacture, design, development, sales and marketing of vehicles. Globally, it is one of the most crucial economic sector. According to the researchers, there are 806 million vehicles includes cars on the road in 2007, which consumes 980 billion litres of petrol and diesel yearly, (Wikipedia. 2018).
Therefore, automobile is a major mode of transportation for many country economies. In this industry, safety is crucial means the user or manufacturer do not meet any risk from motor vehicle or its parts. Thus, automobile have to follow with the rules and regulations. The standard ISO 26262 is the most proper practice framework to reach automotive functional safety, (Wikipedia. 2018).
However, in safety issues, the product may flaw or fault during manufacturing, hence the manufacturer can ask to return the vehicle. This is called as ‘product recall’. Product and operation inspections have many levels to avoid the products recalls by ensure security, (Wikipedia. 2018). Despite, the automotive industry really concern about recalls, which cause financial problems.
Volkswagen Volkswagen is a German auto manufacturer which founded by German Labour Front under Adolf Hitler in May 28, 1937, (Wikipedia. 2018). Its head office located in Wolfsburg, German, (Volkswagen. 2018). Volkswagen is one of the leading automotive manufacturer and biggest producer in Europe, (Volkswagen. 2018).
As well as, it is biggest sales marque of Volkswagen Group which is the largest automaker in worldwide, (Volkswagen. 2018). It is in charge of many brands includes Volkswagen, Audi, Lamborghini, SEAT, Scania, Ducati, MAN, Bentley, Bugatti and Skoda, (Volkswagen. 2018).As great achievements, Volkswagen performed sales record of 6.29 million vehicle in 2010 with market share at 11.4 percent, (Wikipedia. 2018). Volkswagen also is the third biggest automaker in year 2010 and second greatest manufacturer in the world in the year 2012, (Wikipedia. 2018).
In addition, Volkswagen has manufacture facilities in many countries includes United States, Russia, Mexico, China, India, Malaysia, Indonesia, Argentina, Brazil, Portugal, Poland, Spain, Bosnia, Kenya and South Africa, (Wikipedia. 2018). Volkswagen is one of the successful company that listed by Forbes Global 2000 in 2011, (Wikipedia. 2018). Therefore, Volkswagen has goal of become world’s greatest auto manufacturer by 2018, but its emission scandal issue caused the organization to drop of market capitalization, (Volkswagen. 2018).
Volkswagen Emissions Violation The International Council on Clean Transportation (ICCT) which a non-profitable council tried to provide independent research to environmental regulation agencies, (Zhou, A. 2016). Therefore, it selected West Virginia University to conduct the emission tests. Volkswagen encouraged it diesel cars as an environmental friendly and fuel efficient vehicles, which earned some high revenue.
However, one of the professor named Arvind Thiruvengadam noted that Volkswagen has some fraud on diesel emissions, (Zhou, A. 2016). As continuous research, the ICCT suspected that Volkswagen has fixed fault device, (Zhou, A. 2016). Generally, computer on test accept the changes in how the emissions control system and vehicle can choose only few.
But, Volkswagen’s device can do more. Therefore, the ICCT summarized and submitted all the gathered information to Environmental Protection Agency (EPA). On September 2015, the EPA issued a notice of Clean Air Act to Volkswagen Group, (Wikipedia. 2018). The Volkswagen had violated the Clean Air Act by illegally installed software into diesel cars to cheat emission tests, (Zhou, A. 2016).
However, this test to control the nitrogen oxide level, but it released up to 40 times more nitrogen oxide when driving, (Zhou, A. 2016). Moreover, Volkswagen also admitted that had been applied this software in 11 million cars worldwide, (Zhou, A. 2016). Later, EPA also found modified software fitted into Porsche, Audi and some Volkswagen models, (Zhou, A. 2016).Responses In order to compensate, Volkswagen commanded voluntary recall, make public apology and the CEO with other directors of the organization resigned, (Zhou, A. 2016).
The Volkswagen Group is also facing lawsuits and criminal charges and hence future of the organization is hopeless, (Wikipedia. 2018). As a step towards to solve, Volkswagen former CEO Martin Winterkorn released a video apology when the company under fire. In his statement, “I apologize sincerely to our customer, regulatory agencies and the public for misbehaviour”, said by Winterkorn in German, (Groden, C. 2015).
More than that, Volkswagen current CEO Matthias Muller also has apologized for emission test cheating, (France, A. 2016). Beside public apologies, Volkswagen promised to reserve 6.5 billion euros to use make cars follow with pollution standards, (Zhou, A. 2016). Although, its looks big amount, but it is only the half year of company profit.
Furthermore, Volkswagen meet 3.3 billion euro lawsuit and experience some criminal cases, (Zhou, A. 2016). In the United States, the company encountered fine up to $30,000 per car, (Zhou, A. 2016). In addition, the share price of Volkswagen fell over 20 percent, (Kollewe, J. 2016).
Moreover, Volkswagen officially announced ‘vehicle recall’ which recalls the 83,000 three litre diesel vehicles with model year between 2009 and 2015, (Berkeley, L and Christine, W. 2016). Volkswagen also spend $225 million to reduce nitrogen oxide emissions, (Berkeley, L and Christine, W. 2016).
The company also give $25 million to California Air Resources Board to support the free emission vehicles, (Berkeley, L and Christine, W. 2016). Apart from that, Volkswagen Group CEO Martin Winterkorn resigned and head of brand development Heinz-Jakob Neusser, Porsche research and development director, Wolfgang Hatz, and Audi research and development director, Ulrich Hackenberg were suspended, (Wikipedia. 2018).
Further, the Volkswagen headquarter and other branches were raided for further investigation, (Zhou, A. 2016).It Is Effective Although Volkswagen responded with public apology, lawsuit and voluntary recall on its emission violation, it is not much effective ways to overcome from the reputation risk. The Volkswagen still not regain the consumer trust. The organization should use the business continuity plan to recover the business with higher profit.
Alternative Solution Volkswagen Group is still facing many problems of establishing credibility to their customers. Hence, I suggest business continuity plan (BCP) that can apply into the Volkswagen business. The BCP is a plan to help that business process can continue during the disaster. In this case, Volkswagen emission scandal is man-made disaster whereby the business is not able to continue in normal conditions.
The 5 Business Continuity Planning PhasesProject management and initiationVolkswagen need to identify the risks behind the issue of emission scandal. Therefore, the primary risk of this company is image risk as known as reputation risk. Reputation risk can loss result from damages to the company’s reputation.
Thus, this risk affected the Volkswagen company’s revenue which is went drop, increased operating expenses including compensation and fines and also kills corporate trust of consumers and stakeholders. Next, legal risk is also one of the main risk which also need to consider. Volkswagen need to face legal risk includes fine and criminal charges to cheat the government.
Moreover, the Volkswagen also need to establish new management team. Management team includes IT coordinator, business continuity coordinator (BCC), crisis manager. IT coordinator to provide advice on best programming and provide technical support for system. In this case, the IT experts of Volkswagen installed defeat device.
They cheated on programming writing code. Next, Volkswagen can hire business continuity coordinator who develop and maintain the business continuity plans. They also responsible for the critical situation which identify the risk, and provide solution to minimize the risks. Volkswagen also can hire crisis manager who responsible for disaster recovery and responsible for communication with insurance agent. Business Impact AnalysisAs an impact of reputation risk, Volkswagen loss trust credibility among the customers and shareholders.
More than that, Volkswagen became the target of regulatory investigations in many countries. In fact, one of the German newspaper labelled this issue as “most expensive act of stupidity in the history of the car industry”, (Zhou, A. 2016). After this news, immediately Volkswagen’s stock price fell, (Zhou, A. 2016).The Volkswagen also affected on legal risk which facing some lawsuits and fines, (Edwards, J. 2016).
The United States Justice Department has sued Volkswagen with $48 billons under environmental laws, (Edwards, J. 2016). It also give $14.7 billion as penalties to the Clean Air Act violation, (Zhou, A. 2016). However, the total loss of Volkswagen Group based on this emission scandal issue is almost $90 billion which is consider the deep loss in Volkswagen history, (Edwards, J. 2016).
Beside financial loss, it also polluted the environment. The scandal tragedy released extensive amounts of nitrogen oxide. It is polluted the environment. Moreover, nitrogen oxide cause smog, greenhouse effect, acid rain and tropospheric ozone which associated with health effect such as respiratory problem includes lungs irritation, wheezing, asthma, emphysema.
Nitrogen oxide also cause damaging vegetation which reduce growth of plants.Recovery strategiesThe Volkswagen Group primarily affected by reputation (image) risk. It damaged its image and facing problems of establishing credibility to customers and stakeholders. Thus, to recover from this issue, have some recovery solutions such as Volkswagen can restart the business in new name, partnership with independent agency and issue the bond, (Zhou, A. 2016).
Volkswagen should use these solutions to restore credibility to its company.Re-brandingAs known as, Volkswagen is a worldwide brand and it is the largest car company in the world. Hence, the scandal issue is not forgotten easily, unless restart the business with new name. Re-branding may improve the brand image and it make easier for the business to speed up efficient program, (Zhou, A. 2016). However, re-branding is an expensive and have high risk, but it will reduce bad publicity of the organization, (Zhou, A. 2016).
If Volkswagen ready to rebrand its business, it should develop company with greener environment and corporate social responsible (CSR), (Zhou, A. 2016). The company reputation will increase when it give more importance for environmental friendly and sustainability. Thus, the re-branding company should collaborate with Federal Trade Commission which give importance to sustainability work, (Zhou, A. 2016).
More than that, the re-branding company should concentrate on minimizing energy consumption, saving water, minimizing carbon emission and reducing waste. Further, the re-branding company can engage with communities or NGOs to show the public that they have care about society, (Zhou, A. 2016).
However, these are helpful to use social marketing as a recovery strategy that increase the company’s image. Partnership with Independent Verification AgencyEven though Volkswagen have its own audit team to inspect their vehicles emissions, the organization should partnership with the external independent agency to regain the customer’s trust.
Thus, there are some independent verification agency includes Fair Labour Association (FLA), World Business Council for sustainable Development (WCSBD), Landfill Methane Outreach Program (LMOP) and the Federal Trade Commission (FTC), (Zhou, A. 2016).
As more information of these independent agencies, FLA has own Code of Conduct and sustainable compliance methodology, (Zhou, A. 2016). The WCSBD is a global network which handle recent sustainable development issues, (Zhou, A. 2016). LMOP is a voluntary program which focus to reduce the methane emissions from land by using renewable energy, (Zhou, A. 2016).
Finally, FTC that mainly focus on customer protection, (Zhou, A. 2016).However, if Volkswagen partnership with any independent verification agency, then not only can rebuild the consumer trust, but also can get rewards and recognition from NGOs based on CSR practices. More, if Volkswagen partnership with prestigious global organization will give stronger credibility.
Issue a bondAnother recovery method to achieve again the customer trust is Volkswagen should issue bond. This is because bond is benchmark of credibility. Also Volkswagen can announced that if again the cheating is happen, they will pay a bond to the European Commissions, (Zhou, A. 2016). This will motivate the regulators to be strict in audit.
Hence, the amount can use for develop environment good vehicle, decarbonisation of engine and information technology infrastructure. Volkswagen should issue high price bond, thus customer will know that the company regret on emission scandal issue. This is because Volkswagen Company have many assets. In order to invest this bond, Volkswagen should sell its assets or any branch.
For example, oil price in increasing rapidly, thus Volkswagen should sell its companies to make environmental good vehicles such as electric vehicle. If Volkswagen can capitalized, then it became the great company in automotive industry.Information technology infrastructureVolkswagen should use advance information technology.
Therefore, it made advancement in infrastructure of vehicles includes emission control system, safety features and audio system. After this scandal issue, people do not buy Volkswagen car, thus using technology in emissions control system will attract customers. Volkswagen may use technologies to control nitrogen oxide includes selective catalytic reduction (SCR), Exhaust gas recirculation (EGR), Lean NOx traps (LNTs) and Lean NOx catalysts (LNCs), (MECA. 2007).
The SCR is a reducing agent which able to reduce nitrogen oxide from 75 to 90 percent, (MECA. 2007). EGR technology reduce lowest engine emission which can reduce 50 percent of nitrogen oxide emissions, (MECA. 2007). Moreover, LNTs is more efficient technology which able to minimize up to 80 percent meanwhile LNCs is only able to reduce 10 to 40 percent of nitrogen oxide from emission which using hydrocarbon in exhaust, (MECA. 2007).
Plan design and developmentAfter recovery strategies, Volkswagen should plan to publish the recovery plans. For example, Volkswagen interacting with external groups includes customers, and media. It can use social media and advertise the new plan through Facebook, YouTube and watt sap. Makes everyone knows about the new plans of Volkswagen.
Therefore, people may forgot the previous scandal issue and this will improve the Volkswagen’s image as well.Testing, maintenance, awareness and trainingHowever, measure the success by testing. Volkswagen can test the plans which execute by the company. This will also improve the plans.
There are several kind of tests includes checklist test, walk through and recovery simulation test. Let say, if the company found any problem while testing they can do maintenance. Meaning can modify the technical problems and for more efficient can do internal and external audit. This will identify the mistaken of the process.
Meanwhile, it is also important to Volkswagen to having business continuity plan training and awareness. This will increase the value of the company and reduce costs by managing risk. For example, Volkswagen should provide training and awareness campaign to all level of employees who working in the company.
Hence, this will improve the business continuity knowledge and skills among the staffs.Recommendation In order to overcome the reputation risk, first Volkswagen should focus on contract design of agent that make penalty or rewards. For example, European Commission or Environmental Protection Agency are non-profitable agencies, (Zhou, A. 2016).
Therefore, Volkswagen should have up to date information detailed outlines. Next, screening and selection mechanisms to minimize the irregular information, (Jesus, N.D. 2015). For evidence, if the Volkswagen hired trust employees then this emissions scandal may not happened. Furthermore, Volkswagen should manipulated by agents, (Jesus, N.D. 2015).
The agent can carry out random audits to monitor the company.In other hand, Volkswagen should comply environmental regulations, (Jesus, N.D. 2015). This will increase company’s reputation. Meanwhile, Volkswagen’s managers and employees are responsible for law and order to get corporate governance outcome. If the corporate governance standard is high, then company such as Volkswagen do not able to fraud in future.