Answer-first summary for fast verification
Answer: Volkswagen deliberately programmed emission controls to activate only during regulatory testing but not during real-world driving.
## Explanation Option A is the correct answer because it accurately summarizes the core issue in the Volkswagen emissions scandal: - **Deliberate Programming**: Volkswagen intentionally programmed their diesel engines to detect when they were undergoing regulatory emissions testing and activate emission controls only during those tests - **Real-World Deactivation**: During normal driving conditions, these emission controls were deactivated, allowing nitrogen oxide emissions to greatly exceed legal limits - **Systematic Deception**: This was not an accidental quality control failure but a deliberate strategy implemented across millions of vehicles worldwide from 2009-2015 **Why other options are incorrect:** - **Option B**: Incorrect because this was not a quality assurance failure but intentional deception - **Option C**: Incorrect because Volkswagen did not disclose problems immediately or cooperate with regulators initially - **Option D**: Incorrect because Volkswagen's share price did fall significantly as the scandal unfolded This case demonstrates how operational risk (specifically conduct risk) can lead to significant reputational damage and financial consequences.
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In September 2015, the United States Environmental Protection Agency (EPA) announced that Volkswagen had programmed certain emissions controls on its diesel engines to be activated only during regulatory testing but not during real-world driving. Thus, while nitrogen oxide levels would meet U.S. standards during regulatory testing, they greatly exceeded these standards when the cars were actually on the road. From 2009 through 2015, Volkswagen put this programming in place in over ten million cars worldwide (500,000 in the United States alone). The scandal unfolded with significant financial repercussions and massive reputational damage to the company. Its reputation, particularly in the important US market, took a severe hit. The reputational effect extended beyond the company itself as German government officials expressed concerns that the value of the imprimatur 'Made in Germany' would be diminished because of Volkswagen's actions. Which of the following most accurately summarizes the Volkswagen emissions case study?
A
Volkswagen deliberately programmed emission controls to activate only during regulatory testing but not during real-world driving.
B
Volkswagen did not conduct adequate quality assurance (QA) on its emission controls and consequently, a meaningful percentage of them failed during real-world driving.
C
The Volkswagen case study illustrates how reputation risk can materialize despite the good intentions of managers who disclose problems immediately and cooperate with regulators.
D
Though Volkswagen's credibility was largely affected by the scandal, the share price of the company didn't fall too much as the scandal unfolded.