Hitt 13e Case Teaching Notes
Case 17: The Volkswagen Emissions Scandal
Case Synopsis
In September 2015, a scandal of epic proportions hit the auto industry, affecting both the
United States and Germany. Volkswagen (VW), which had only recently assumed the position of
top automaker in the world, was forced to admit that it had been fitting diesel cars with “defeat
devices” that allowed the cars to pass emission tests when, in fact, they did not meet U.S.
emission standards. Hundreds of thousands of cars were recalled, Volkswagen paid billions in
fines, and top-level leaders faced criminal charges for the deception.
When CEO Martin Winterkorn assumed leadership of Volkswagen in 2007, he developed a
vision called Strategy 2018. The goals of the decade-long plan were: (1) to sell more than 10
million cars a year, (2) to become the world leader in quality and customer satisfaction, (3) to
achieve an 8% return on sales, and (4) to be the most attractive employer in the industry.
Winterkorn, under the mentorship of previous CEO and family owner-shareholder Ferdinand
Volkswagen’s deceitful solution—to program its diesel vehicles to meet emission standards
under test conditions but not on the open road—came to light when researchers from the
International Council on Clean Transportation noticed discrepancies between the performance
of diesel vehicles in the United States and in Europe. Their subsequent investigation produced
Learning Objectives
• Define strategic competitiveness, strategy, competitive advantage, above–average returns,
and the strategic management process. (Chapter 1)
• Describe the competitive landscape and explain how globalization and technological
• Define an agency relationship and managerial opportunism and describe their strategic
implications. (Chapter 10)
• Explain the use of three internal governance mechanisms to monitor and control managers’
decisions. (Chapter 10)
• Discuss the nature and use of corporate governance in international settings, especially in
Germany, Japan, and China. (Chapter 10)
Strategic Issues and Suggested Discussion Questions & Answers
1. How did changes in technology and globalization lead to the Volkswagen scandal?
Technology and globalization are two of the most powerful forces in business today, and they
have certainly had an impact on automotive manufacturers like Volkswagen AG. In the past
several decades, as the world’s supply of oil has diminished, there has been a global drive to
2. Explain how a supervisory board should work as a mechanism for corporate
governance in Germany. Why did Volkswagen’s board fail to prevent this case of
managerial opportunism?
In Germany, owners and managers are often the same, but firms employing more than 2,000
people are required to have a two-tiered board that separates the owners from the managers
and maintains the same type of oversight responsibility found in typical, Western boards of
3. What are some of Volkswagen’s long-standing capabilities and core competencies?
What are the firm’s values? What new competencies and values does the firm need to
develop?
One of Volkswagen’s core competencies would have to be engineering excellence. In fact, the
company promoted itself on the tagline of “the power of German engineering.” Given the firm’s
4. What factors within the Volkswagen organization’s culture do you think led to a group
decision to engage in illegal practices and an international deception?
A few descendants of the original founders are still active in Volkswagen’s leadership, primarily
former CEO Ferdinand Piëch, who was known for his tough, authoritarian management style.
Additional Resources
Reuters’s company profile gives in-depth background on Volkswagen’s current financials,
leadership, valuation, news, and more:
In December 2017, NPR filed this follow-up report on arrests related to the Volkswagen
scandal:
Quartz published this report on “dieselgate’s” possible effect on the future of electric and
hybrid vehicles:
The Verge created this video explanation of how the “defeat device” works: