“As the world’s largest automaker, Volkswagen in some ways better resembles a country than a mere corporation,” writes Businessweek (April 2, 2018). At more than 100 factories worldwide, the company’s 12 brands make 355 models in millions of color and trim combinations, employing more than 600,000 people who generate $284 billion in revenue.
It’s hard to imagine that such a robust firm could ever be at risk of collapse, as it was less than 3 years ago, when VW was consumed by one of the largest scandals in automotive history. The systematic effort to cheat on emissions tests—employees wrote software that made diesel cars appear cleaner than they were—brought the company to its knees.
And yet today—$30 billion in compensation and repair costs and 11 million affected vehicles later—VW is comfortably defending its global sales crown from a challenge by Toyota. Consumers’ willingness to forgive VW is remarkable, given the enormity of its wrongdoing: Scientists at the MIT estimate the extra pollution generated by its rigged cars will contribute to more than 1,200 premature deaths. (VW was also fortunate that the vast majority of the affected cars were sold in Europe, where emission rules are less stringent than in the U.S. Germany and the EU ruled that VW could simply modify the 8 million polluting vehicles.)
Emboldened by this unexpectedly rapid rehabilitation, VW late last year embarked on by far the largest program of electrification in the global car industry, pledging to spend $25 billion to develop battery-powered or hybrid variants of every one of its models by 2030. The goal is to make EVs cheap and commonplace, inspired by its 1960s Beetle. From next year, the company plans to release a new EV or hybrid model every month.
The diesel crisis may ironically prove to have been a good thing: a trauma that forced VW to ask hard questions about its operations and strategy and what a carmaker will need to look like to survive the 21st century.
Classroom discussion questions:
- What factors will impede the new VW strategy?
- Examine each of the 10 OM decisions. How they will be impacted by an EV strategy?