by Philip Mattera
Volkswagen went from Adolf Hitler's pet project—the “people's car”—to a symbol of 1960s counterculture, to one of the world's leading automakers. It became Europe’s largest carmaker, and with production facilities in more than 20 countries, one of the most globalized players in the industry. In recent years, it has struggled with a corruption scandal and a protracted takeover battle with Porsche in which it finally prevailed. Yet in 2015 a much bigger controversy erupted when it came to light that the company had been rigging its cars to evade emissions controls.
Environment and Product Safety
Like other European automakers, VW long resisted a move into hybrid vehicles, preferring instead to tout its relatively fuel-efficient “clean” diesel engines. It made an exception for China, where there was resistance to diesel technology. Eventually, the company bowed to growing consumer demand for cleaner cars. In February 2009 VW began previewing a hybrid version of its Touareg SUV, and in May 2009 it announced plans to partner with China’s BYD Co. to work on hybrid and electric vehicles.
In 2005 Volkswagen of America agreed to pay $1.1 million to settle federal charges that the company failed to promptly announce and correct defective oxygen sensors in more than 300,000 of its 1999-2001 Golfs, Jettas, and New Beetles. VW also agree to complete a voluntary recall of the affected cars at a cost of $26 million. Vehicles with the defects may release large quantities of air pollutants.
In 2007 the organization GermanWatch filed a complaint against VW, accusing it of violating environmental portions of OECD Guidelines for Multinational Enterprises by increasing its output of larger automobiles that contribute more to global warming.
In September 2015 the U.S. Environmental Protection Agency accused VW of installing software in its diesel-powered cars to evade emissions standards, raising the possibility of fines up to $18 billion. It came out that VW at first maintained that a technical error was involved, but the EPA pressured the company to admit that the deception was intentional.
The scandal went beyond the United States as VW disclosed that the cheating systeme had been installed on some 11 million cars sold worldwide. The company's CEO Martin Winterkorn was forced to resign, and his successor Matthias Muller admitted than the $7 billion that had been set aside to resolve the situation would not be enough. Volkswagen later admitted that some of its cars with gasoline-powered engines were also involved in the deception.
The scandal spread to other countries, and officials in Germany determined that the system used by VW to disguise the emission levels of its vehicles was illegal. Yet VW maintained that its practices were legal in Europe.
In January 2016 the U.S. Justice Department filed its case against VW but chose not to bring criminal charges and not to cite any individuals in the company, even as prosecutors accused the company of impeding and obstructing the investigation with "material omissions and misleading information." The company began citing German privacy laws as the basis for refusing to comply with demands from state attorneys general for internal documents and communications.
Internal company memos later came to light suggesting that the company pursued a strategy of delay and obfuscation after first being confronted by U.S. regulators in 2014. Another memo that had been sent earlier in the year to Winterkorn contained information about the emissions situation, but VW claimed it was not clear whether he had read the document.
In March 2016 the Wall Street Journal reported that the Justice Department was putting together a fraud case against VW in connection with the emissions issue.
In June 2016 DOJ announced that Volkswagen would pay $14.7 billion in a partial settlement of allegations against the company. The sum included $10 billion to repurchase vehicles and $4.7 billon for environmental mitigation and green vehicle research. The settlement did not resolve the criminal investigation against VW. The company also faced lawsuits brought by various state government in the United States.
In August 2016 a lawsuit filed in federal court in San Francisco alleged that auto parts supplier Robert Bosch GmbH played a role in developing the software that enabled VW to engage in its emission cheating. That same month it was reported that VW had offered its U.S. dealers up to $1.2 billion to compensate for the decline in value of their businesses due to the scandal.
In September 2016 a VW engineer pleaded guilty to U.S. criminal charges relating to the emissions fraud.
In a second partial settlement with the Justice Department in December 2016 VW agreed to recall 83,000 vehicles and spend $225 million to mitigate nitrogen oxide emissions.
In January 2017 the U.S. Justice Department announced that VW would plead guilty to three felony counts relating to the emissions fraud and pay a criminal fine of $2.8 billion as well as $1.5 billion to resolve civil allegations. At the same time, criminal charges were filed against six company executives.
In March 2017 VW agreed to pay $157 million to ten states to settle environmental lawsuits relating to the emissions cheating.
Beginning in the 1950s, VW's German operations adopted paternalistic policies such as profit-sharing, extensive benefits, and provisions for transferring older workers to less strenuous jobs. This, along with legal requirements for union representation on the company's supervisory board, created a relatively cooperative relationship with labor that lasted decades.
VW found a less compliant labor force when it opened its assembly plant in the United States in 1978. Workers were unhappy that they were being paid less than their counterparts at the large American auto producers, and six months after the plant opened, they launched a wildcat strike. Even their union, the United Auto Workers, which had negotiated the wage rates with VW, was caught off-guard. Stopping production of the Rabbit, the workers chanted "No Money, No Bunny."
The workers eventually returned to the job, but labor relations at the plant remained tense as the UAW pressured the company to narrow the wage gap. VW was also confronted with a lawsuit charging that it discriminated against black employees. VW closed the plant in 1988.
Faced with intensified competition and eroding market share in the late 1980s, VW's German operations turned to the powerful IG Metall union and asked for cost savings exceeding $1 billion and equaling 13 percent of VW's labor bill. The union resisted the concessions and by 1990 had negotiated a contract with a 6 percent wage increase and a gradual reduction in the work week. In the early 1990s, however, the company did succeed in eliminating thousands of domestic jobs. In 1993 VW told its workers that they had to accept a four-day workweek with lower pay or see 30,000 jobs eliminated. German unions agreed to additional concessions in 2001.
In 2005 the company also had to contend with a scandal involving bribes paid by VW labor relations managers to labor union officials. Amid rumors of a planned hostile takeover, Porsche AG, a luxury carmaker that purchased key components from VW, increased its small holding in the company to 19 percent, purportedly to help keep VW independent. The move set off a firestorm of controversy in Germany, in part because Porsche was controlled by a family group led by former VW chief executive Ferdinand Piëch, who was also serving as chair of VW’s supervisory board.
In February 2006 the company announced plans to eliminate up to 20,000 jobs, and later that year, it successfully pressured its unions to accept a longer workweek without increasing wages.
In 2008 the former chief labor representative on VW’s board was sentenced to nearly three years in prison for his part in the corruption scandal.
Many of VW's production operations outside of Germany have extensive union presence. In 2002 the company signed a declaration on social rights and industrial relationships with the Volkswagen Global Works' Council and the International Metalworkers Federation. The declaration committed the company to observing International Labor Organization Core Labor Standards at all of its operations.
Yet in 2011 VW opened a non-union plant in Tennessee that paid starting wages about half those of U.S. automakers and also well below what other foreign car companies were offering in their U.S. facilities.
In 2013 it came to light that the United Auto Workers was seeking to organize the plant, and VW management indicated that it would not oppose that effort, in part because it would allow the company to set up a works council like that at many of its other global operations. In a representation election held in February 2014 -- amid strong opposition to the union expressed by elected officials -- the union was defeated. The UAW subsequently asked the National Labor Relations Board to order a new vote because of the outside interference.
In 2016 it was reported that VW management had decided to oppose the organizing drive.
While VW’s links to the Nazi regime were well known, the company was shaken in 1996 by publication of Hans Mommsen's book documenting VW's use of slave labor, including Russian prisoners of war and Jewish concentration camp inmates, for military production during the 1940s. In 1998 VW, facing legal action from Holocaust survivors, agreed to set up a compensation fund.
In July 2008 VW announced plans for a $1 billion U.S. assembly plant in Chattanooga, Tennessee—a deal for which it received an estimated $500 million in subsidies.
Other Information Sources
Violation Tracker summary page
Watchdog Groups and Campaigns
Key Books and Reports
Beyond Expectation: The Volkswagen Story by K.B. Hopfinger (1954).
Bug: The Strange Mutations of the World's Most Famous Automobile by Phil Patton (2002).
Driven by Corporate Responsibility? Ten Top Car Manufacturers--A CSR Analysis (SOMO, February 2010).
Small Wonder: The Amazing Story of Volkswagen by Walter Henry Nelson (1965).
The Amazing Porsche and Volkswagen Story by W. Robert Nitske (1958).
Note: This page draws from a corporate profile originally prepared by the author for the Crocodyl website in September 2009.
Last updated April 12, 2017