Yale School of Management

What Caused the Volkswagen Scandal?

Poynter Fellowship in Journalism

When Jack Ewing was first assigned by the New York Times to cover the Volkswagen emissions scandal, the story didn’t seem like it would last more than a few weeks. Initially, the automaker said that about 500,000 cars had been affected. That number would eventually grow to more than 11 million.

It didn’t take long, Ewing said, for him to realize that the scandal was as big as large corporate scandals like the Enron accounting fraud.

“There was continued massive deception that was international in its scope,” Ewing said during the Poynter Fellowship Conversation on October 10. “Initially, they thought the fines for the scandal would reach about $5 million dollars. In the U.S. alone, the scandal has cost almost $25 billion.”

Ewing visited Yale SOM to discuss his new book on the scandal, Faster, Higher, Farther: The Volkswagen Scandal, which details how Volkswagen intentionally created software designed to fool regulators about the car’s nitrous oxide emissions during routine emissions tests. The talk was moderated by Deputy Dean David Bach.

In the years leading up to the scandal, Ewing said, VW was driven by a desire to become the largest car company in the world. That would require increasing the company’s market share in the United States.

The company set out to expand sales of its diesel-based technology, already popular in Europe, in the U.S., marketing it as a fuel-efficient, more environmentally friendly alternative to traditional gas-burning vehicles. However, what worked in Europe wouldn’t work in the United States, because regulators in Europe and in the United States focus on different types of emissions.

Top executives put pressure on engineers to design something palatable to Americans without changing the vehicle’s overall design. Eventually the engineers found a solution: a technology used in Audi vehicles to quiet the motors, which also reduced emissions temporarily.

“The corporate goals and the physical reality had collided,” Ewing said. “They decided to cheat rather than face the underlying emissions problem.”

The scandal has caused enormous damage to the Volkswagen brand. And the continued costs to the company of repairing and repurchasing affected vehicles will likely affect its ability to compete in a changing marketplace where new technologies like self-driving and electric cars are gaining hold, Ewing noted. Through it all, Volkswagen has made few changes in its corporate leadership model.

For now, the company is treading water. “They’ve managed to keep sales up,” he said, “but dealers are also giving a lot of incentives just to hang on to the market share they already have.”

One lesson that can be learned from the scandal, Ewing said, is the importance of the behavior of senior-level managers and the signals it sends to others within the organization: “Whatever compliance system you have, rules and code of ethics are all pretty meaningless if management is clearly behaving in a different way, which clearly was the case at Volkswagen.” 

About the Event

Please join us on Tuesday, October 10 for From “People’s Car to Public Fraud: A Conversation About the Volkswagen Scandal,” a Poynter Fellowship Conversation with Jack Ewing, European economics correspondent, Frankfurt, the New York Times. Ewing will be joined in conversation by David Bach, deputy dean and professor in the practice of management.

The Poynter Fellowship plays a unique role in the educational life of Yale University. Nelson Poynter (Yale, M.A. 1927) established the program to enable Yale to bring to its campus distinguished reporters, editors, and others who have made important contributions to the media.

This event is open to the public.
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