Chapter 18, Problem 18.12AC

Summary Introduction

Case summary:

In the year 2015, September, Company V was in the middle of firestorm. Company V is a popular car manufacturer and 70% of the diesel-powered passenger-car market of Country U were caught under the cheating of diesel emission test. Over earlier days, Company V had installed a software in many cars that is half a million diesel car in Country U and 10.5 million all over the world.

The company had defect device which will switch the operating mode and allows to pass the test. Company V pitched its cars as non-pollution vehicles and as efficient one. But in the year 2008, the rules in Country U on the diesel exhaust becomes very strict and Company V was unable to meet the new rules and standards.

So it installed the secret device. Once the scandal came to know to all the company sales were plunged along its reputation. Then the company stopped the affected cars sales and postponed the clean diesel advertisement and marketing. To diminish the damage the Company offered a ‘Customer Goodwill Package’ and offered other facilities.

It reaches a settlement of more than $15 billion with Country U regulators to match the costs of vehicle buy backs and other corrective actions. The harm to Country V’s reputation and performance of the market remains to be there.

Characters in the case:

• Company V
• Country U

To discuss: The competitive thinking which moves Company V to cheat on giving off the standards instead of complying with it and the ways Company V prevents such a scandal and the lesson to the other firms.