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The news has just been getting worse for Volkswagen following the September announcement of a EPA probe finding that millions of the German automaker’s vehicles contained illegal software designed to circumvent air emissions standards. Millions of cars will need to be recalled, CEO Martin Winterkorn has resigned, at least 10 senior executives have reportedly been suspended and the firm stands to lose millions in financial damages — in addition to the harder-to-quantify cost of a severely tarnished public image.
Wharton management professor John Paul MacDuffie recently appeared on the Knowledge@Wharton radio show to discuss the fallout from the Volkswagen crisis. The K@W show airs 10 a.m.-12 p.m. Eastern time Monday-Friday on Wharton Business Radio on SiriusXM channel 111.
“I don’t know of anything quite like it,” MacDuffie said on the show. “The other recalls in the auto industry have been much more safety [related] kinds of violations…. This is much more pernicious because you have this deliberate deception and you have all of this increased pollution, which is the kind of pollution that we know causes asthma, lung disease and the like. So it’s kind of a hidden cost for society.”
In addition, MacDuffie said, Volkswagen under-invested in hybrid and electric vehicle technology “because they were such believers in the superiority of clean diesel.” With the limitations of clean diesel exposed, the firm is faced with trying to beef up its R&D investment in those other areas, while also shouldering the huge costs of dealing with a crisis of this magnitude.
But MacDuffie said this likely isn’t the end of the line for the 78-year-old company. “Volkswagen is too big to fail in the sense that it has a diverse enough set of markets, including places where this story won’t play as big as it has [in the U.S.]”