One of the worlds largest car manufacturers, Volkswagen (VW), admitted to criminal wrongdoing in 2017. The firm confirmed that it systematically cheated on emissions tests related to its two-liter diesel engines. These engines were designed in 2005 to meet more rigorous U.S. emission standards taking effect in 2007. Apparently, the new engines did not perform as planned and the company then designed a software feature to artificially pass the emissions testing process. Road testing in 2014 uncovered a large difference between EPA-measured emissions and the actual output of the vehicles. This was then further investigated by several legal entities. In September 2015 the CEO of VW lost his job over the scandal. The financial cost to the firm is currently more than $20 billion and could go above $25 billion in fines and consumer compensation for nearly 11 million vehicles with this defeat device software.

1a) The external environment of the global automobile industry is quite complex. Regulations vary from country to country and in the United States even from one state to another. Firms must be prepared to anticipate and respond to these external forces. It appears VWs response to the design issue, in this case, was neither ethical nor legal. Why do you think VW made the decisions it did regarding this emissions problem in the late 2000s? What could VW have done differently?

1b) In January 2017, a U.S. grand jury indicted six current and former VW executives for their alleged role in the emissions scandal and its subsequent cover-up. The U.S. Justice Department decided to bring charges against these executives after a 16-month criminal investigation by the FBI. In the past, it has been rare for executives to be personally indicted for company misconduct. Do you agree with the decision to go after individual managers in this case? Why or why not?

1c) What are the competitive implications of the actions of VW? Does this situation impact the industry rivalry that is discussed in the five forces model, for instance?

2a) What is the appropriate role for governments to encourage or discourage certain purchasing behaviors? You may note many national governments have for decades collected additional taxes on tobacco and alcohol products as a measure to try to moderate consumption of these items.

2b) As a strategist in a major firm, how would you seek to position your company in light of such current and potential future governmental policies?