Volkswagen Emissions Scandal: A Lesson In Awareness & Accountability

Sep 28 2015, 9:28 AM5 min read

With Volkswagen caught cheating on emissions tests and its CEO quitting over the scandal, what can it teach us about awareness and accountability?

The past few days have seen the great and good of the automotive industry waxing lyrical in the broadsheets and providing their take on events.

As the Volkswagen board gathered to appoint Porsche’s Matthias Muller as its new chief executive, and amid alarmist claims that it’s a bigger threat to the economy than the Greek debt crisis, questions are mounting over how much ministers knew in advance.

In light of such damning revelations we can expect reverberations to be felt within supply chains for months (even years) to come.

At the time of writing, US authorities predict the scandal affects over 482,000 diesel passenger cars sold in the States between 2008 and 2015. Affected models include the VW Golf, Jetta, Beetle, and Passat as well as the Audi A3. Damningly each car that violates the US Clean Air Act faces a fine equivalent to £24,000 – which equates to a £12 billion bill in US fines alone.

‘An investor’s nightmare’

Both Deutsche Bank and JPMorgan have downgraded Volkswagen -with DB cutting VW from ‘hold’ to ‘buy’ and slashing the price target target to €130 from €260. While JP downgraded its stance on VW’s preference shares to ‘neutral’ from ‘overweight’, cutting the price target to €179 from €253, saying it cannot rule out additional engine investigations and does not have visibility over the total liability for VW.

Citi said: “The regulators (not only the US ones) hold the key to answer the question of potential impact (not only on VW, but also on the global auto industry). We think regulators may not overlook the matter, given their stress on the compliance with environmental regulations.

“At this juncture, lots of uncertainties remain, but we cautiously view that some ‘spill-over’ to other regions/ auto industry is inevitable. Germany and Korea have already begun a probe into the matter for more scrutiny. Depending on the outcome, it could lead to some cost pressure and tighter regulations.

“VW commands ~25% share in the EU market, so it faces a potentially higher negative impact on sales in EU, if similar manipulations were to be found in the region.”

Kevin O’ Marah – commenting on the scandal for Forbes made the following astute observation:

For supply chain professionals however the VW scandal illuminates two important things:

Awareness of global operations is spiralling upward fed by digital technologies and ubiquitous information visibility.
Accountability for what business does, especially in terms of impacts on health, safety and the environment, is something we need to own.

But who really is accountable?

We doubt that talk of the device was included in VW’s procurement plan… Which raises even more questions – namely: who ultimately came up with the idea, and where did it come from? There has to be a paper trail back to the perpetrator, but again, was the true purpose of the device fudged? As we went to press, news sources are even reporting that a Volkswagen engineer warned the company about emissions rigging as far back as 8 years ago…

We’ve covered ethical arguments previously on Procurious – Transforming a bribery-entrenched culture, Rolls Royce accused of ‘buying the business’, Intrigue, money laundering and arrests at the Alhambra and you’ve weighed in heavily using the Discussion forums. Back to that Forbes analysis, which suggests that those involved turned a blind eye.. “Everything from child labour to adulterated foods and conflict minerals come from the same dirty bucket of extended supply chains that make it easy to ignore or even hide bad behaviour. Accountability depends on visibility, which is expanding by leaps and bounds.”

As supply chain professionals, we together should take responsibility and own this. The buck should stop with us. Why then, didn’t this happen?

Here’s a selection of other big stories making headlines in procurement and supply chain this week…

Coca-Cola Co. is overhauling its U.S. supply chain

Coca-Cola said on Thursday it plans to sell nine production facilities to three of its largest independent bottlers as it seeks to unload low-margin assets and reduce manufacturing costs in the United States.
The bottlers, Coca-Cola Bottling Co Consolidated, Coca-Cola Bottling Company United and Swire Coca-Cola USA, will acquire the nine plants, valued at about $380 million, from Coca-Cola Refreshments, which Coke created after buying its top bottler in North America in 2010.
Additionally, Coke said all four entities, along with Coke’s operating group in North America, will form a new supply group to work together on decisions in areas such new packaging launches and ingredient purchases, Coke said. The new group will represent about 95 per cent of the company’s production volume in the United States.
The world’s largest soda maker is facing sluggish sales volumes in the U.S.. It has been selling bottling operations, which partly entail getting its products to retailers, to franchisees to shift away from the capital intensive and low-margin business of distribution.