Business Writing

Section I: Introduction

Since the beginning of the industrialization of Italy, Società Anonima Fabbrica Italiana Automobili Torino, or Fiat, has played a leading role in the automotive industry since its creation in 1899. Giovanni Agnelli, a member of the board of directors at Fiat’s inception, quickly separated himself from the group, becoming the Managing Director of the company in 1902. By 1908, Fiat opened what is known as the Fiat Automobile Company in the United States. The brand was considered a luxury item in the U.S. As time passed, Fiat continued to develop its brand internationally with a commitment to innovation, production, and technology (Fiat History, 2017).

Much younger than Fiat, Chrysler’s history begins with an organization known as Maxwell Motor Company, Inc.. After a series of recessions, debt, and unfortunate business decisions, Jonathan Maxwell, owner of Maxwell Motor Company, convinced Walter P. Chrysler to help rejuvenate the failing company. The two men seized another auto company, and created covetable automobiles the very next year. The Maxwell Motor Company swiftly became the Chrysler Corporation, and became the Fiat of the United States in 1928. Much like Fiat, as times progressed, the company faced success and hardships such as WWI and WWII, and oil crisis with Japan, and, more recently, the rescue plan completed by President George W. Bush to prevent the crash of the “Big Three” automakers: Chrysler, General Motors, and Ford (Iacocca, 2014).

It was swiftly after this government relief, Chrysler announced that Fiat would acquire most of their assets, and 20% stake, creating a joint venture between the two companies. As Fiat Chrysler Automobiles (FCA), the company “designs, engineers, manufactures, and sells vehicles and related parts and services, components and production systems worldwide through 159 manufacturing facilities, 87 R&D centers, and dealers and distributors in more than 140 countries” (FCA Design Center, 2017).

Chrysler and Fiat were put under investigation for the use of the same defeat devices that were used by Volkswagen in order to lie to the federal government about the emissions that were produced by their cars. This incident was brought to public attention last January. The scandal could cause a losses of about 460 million, or upwards of 1 billion dollars due to settlements, fines, penalties, and recalls. The scandal, however, was not isolated to the USA. According to an article titled “EU Starts Legal Action Against Italy” by Francesca Piscioneri, and Agnieszka Flak; Robert-Jan Bartunek, the EU has gone as far as to launch legal action against the entire country of Italy, as opposed to simply the automobile group (2017). However, this was not the only legal action taken against Fiat-Chrysler. The US government’s department of Justice started an investigation and court case against Chrysler-Fiat. In the article, “U.S. Sues Fiat Chrysler, Accusing it of using Software to Pass Emissions Test” by Neal Boudette, Fiat Chrysler was put under investigation by the EPA. The EPA found that Fiat-Chrysler had used a “Defeat device” in order to help their trucks, mainly Ram Pickup trucks and Jeep Grand Cherokees, fall under the guidelines set out by the EPA for emissions. This software was found to help Fiat-Chrysler lie to the EPA, in a way that made their trucks and jeeps seem more environmentally friendly than they actually were. Furthermore, this scandal also caused major problems in Fiat Chrysler’s production line. They were ordered by the EPA to stop production on diesel-powered trucks and Jeep Grand Cherokees, which directly impacts their sales of these automobiles. Fiat Chrysler has fought this accusation for the past year. According to the article “Fiat Chrysler in Hot Seat vacated by VW” by Nicholas Iovino, Fiat Chrysler have been making claims that they are not, in fact, responsible for the use of defeat devices. Fiat Chrysler went so far as to say that they never claimed their product was more environmentally friendly. Fiat Chrysler said that the use of their term, “ecodisel” was just a term they were using for marketing, and that they placed no scientific significance behind it.

· Support your claims with evidence from all three articles - NEED SUPPORT FROM THE OTHER 2 ARTICLES.

Section II: Analysis

Geert Hofstede defines long-term orientation as “[standing] for the fostering of virtues oriented towards future rewards, in particular perseverance and thrift. It’s opposite pole, Short Term Orientation, stands for the fostering of virtues related to the past and present, in particular, respect for tradition, preservation of ‘face’ and fulfilling social obligations” (2001, p. 359). This is an important aspect to note in understanding the European Union's response to the falsified emission levels within Fiat-Chrysler’s cars. When analyzing country members of the European Union, the membering countries average a score of 53.32, with an outlier in Ireland and Portugal of 24 and 28 respectively. Now, with this score of 53.32, compared to the United States’s score of 26, countries within the European Union can be described as long term oriented, with a preference toward planning the future, and sacrificing the present for the needs of the posterity. Due to this insight, this explains the crucial differences between the actions of the United States against the Fiat-Chrysler Group Automobiles, as opposed to the EU’s reaction to the entire country of Italy.

In May 2017, the EU “launched legal action against Italy… for failing to respond to allegations of emission-test cheating by Fiat Chrysler in a procedure that could lead to the country being taken to court” (Reuters Staff, 2017). What is important to note about the EU’s actions is the entity being sued. As opposed the United States, which has taken up legal action against the car company, the EU has decided to bring legal action against the entire country of Italy. This reaction to the emissions scandal can be explained due to the EU’s deference toward sustainability, and planning for the future. The falsification of the test directly affects the sustainability of the future, and the EU has made it a point to place a whole country responsible for negative initiatives and actions which counter these convictions. The defeat devices used in the Fiat-Chrysler cars were outlawed by the EU in 2007, and is therefore holding the country responsible for not holding the company accountable.

Conversely to actions taken by the EU, the United States is addressing the emissions scandal differently. Because the United States cannot sue itself, and does not have the power to sue Italy, the federal government is simply suing the company for the illegal engine-control software. The actions taken by the U.S. federal government can best be explained by the type of economy and legal system the United States enjoys. First and foremost, the United States is a market economy which is defined as an economic system whereby individuals, rather than the government, make most decisions (Daniels, Radebaugh & Sullivan, 2015, p. 194). A market economy is anchored to the doctrine of capitalism, and the principle that private ownership confers inalienable property rights that legitimize the profits earned by one’s initiative, investment, and risk (Daniels et al., 2015, p. 194). Given this foundation, Fiat-Chrysler was fully capable of choosing to make the decision to use the defeat devices. It was their conscious decision to place these in their vehicles, with the hope of not being caught. Ethically, one can explain this behavior as immoral. Companies are called to be ethical as it is capable of developing competitive advantage, and preventing companies from being perceived as irresponsible (Daniels et al., 2015, p. 447). Fiat-Chrysler, unfortunately, failed to behave this way. Even with the precedence set by Volkswagen in their billions of dollars of fines and settlements due to the use of the same defeat device, Fiat-Chrysler rolled the dice, and attempted to fool the system again. Given their actions, the United States legal system had to step in to apprehend the company.

The U.S. operates under a common law system which is defined as, “system legal system based on tradition, precedent, and custom and usage, in which the courts interpret the law based on those conventions” (Daniels et al., 2015, p. 854). Under common law, specifically related to this event, Fiat-Chrysler violated the Clean Air Act. According the the United States Environmental Protection Agency, “this legislation authorized the development of comprehensive federal and state regulations to limit emissions from both stationary (industrial) sources and mobile sources” (2017). Given the Act, it set forth a precedence in the U.S. law system which then required the nation to follow. Volkswagen initially felt the effects of this Act with its own emissions scandal beginning in 2015. The German company used defeat devices, which, according to Nick Iovino from Court House news, was, “created by German auto parts maker… Robert Bosch to mask nitrogen dioxide pollution during emissions tests… The cars [using these devices] spew up to seven times more pollution on the road than when hooked up for tests” (2017). While using these devices, the company globally advertised these vehicles as environmentally friendly (Iovino, 2017). Not only did the company disregard the clean air act, but also made false claims about the cars to their consumers. As a result, Volkswagen had to pay up to $20 billion in U.S. penalties and fines, with an executive facing jail time of six years (Iovino, 2017). Rather than head the warning and precedence set by the U.S. courts in the Volkswagen case, Fiat-Chrysler risked their brand name and recognition to use the very same defeat devices found in the German cars.

When companies decided to sell their products domestically, or abroad, it is crucial to understand the laws and regulations set forth by the government. If a country, like Italy, operates under civil law, the rules and regulations are directly and explicitly written. This allows companies to be very clear on what obligations they are required to follow under the law. Conversely, if a company chooses to operate in a market with a common law system, like the United States, it must understand the system of precedence, and must look at all possible cases and laws that may be pertinent to the business. In Fiat-Chrysler’s case, the company should have seen the precedent set not only by the Clean Air Act, but also by the ruling over the Volkswagen case. If Fiat-Chrysler would have had consulted a legal team, or investigated the Volkswagen case further, they company may have realized their actions were similar in nature, and therefore could have been punished similarly. As this case has moved through the courts, it was decided a settlement could be reached between the U.S. court system and the car company if substantial fines are paid, and 104,000 cars (including Jeep Grand Cherokee SUVs and Ram 1500 pickups from years 2014-2017) are recalled. In addition, the fines will be less than those of Volkswagen because, “Clean Air Act violations are assessed on the number vehicles affected” (Beene, 2018). These fines could reach between $460 million to $1 billion dollars when the settlement is all said and done (Beene, 2018). The company, in hindsight, should have spent the effort and money into investigating these devices more and the possible effects it could have on the company in terms of possible lawsuits, goodwill, and market share.

Finally, prior to using these defeat devices, Fiat-Chrysler should have considered the ethical and sustainability concerns of the products. As the world develops in science and technology, consumers are beginning to demand more green, sustainable alternatives. Conversely, competitors in the automaking industry have all began developing green alternatives in terms of transportation. Similar to GE’s Ecomagination, and investment in green technology and products could have been a more profitable route in the long-run, as this would eliminate the cost of the defeat devices themselves, as well as the surmounting costs of recalls, fines, penalties, and settlements. Rather than take the risk in the environmentally detrimental product, FCA could have directed their time and effort to research and development of alternate, environmentally conscious products. According to a study conducted by YouGov for the Carbon Trust, 5,000 individuals were surveyed in the United Kingdom, Germany, and France. The survey revealed that 55%, 50%, and 75% of respondents from the UK, Germany, and France, respectively, would feel more than positive, “about a company that has reduced the carbon footprint of its products” (Edie, 2017).Not only three members of the EU, but also crucial countries with powerful consumers express the importance of green companies. If companies are able to demonstrate their ability to reduce their carbon footprint, and lead more sustainable business practices, companies have a great opportunity to gain a greater market share, not only domestically, but also globally.

Fiat-Chrysler, unfortunately, misunderstood the degree to which consumers are beginning to transform to have a more long-term oriented approach. By failing to realize this, they compromised their ethical integrity by using these devices to falsify their test results. As a result, the goodwill of consumers decreased. According to Zlata Rodionova and Josie Cox of Independent News, “Shares listed in Europe ended the session [after the announcement of the Clean Air Act violation] over 16% lower on the day. Shares in the US fell 16% before being suspended from trading, wiping $2.3 billion off the company’s market value” (2017). Clearly consumers responded negatively to the actions taken by FCA, and the company paid. Moving forward, as the case has developed and consumer response has continued to negatively affect the companies market share, the company has further decided to announce its plan to discontinue all diesel passenger cars by the year 2022. David Kiley of Forbes states:

Fiat Chrysler is the latest company to say it will throw in the towel on trying to market diesel cars in the U.S., joining Toyota, Honda and Ford and others who have said that diesel regulations, costs, and the recent scandal involving Volkswagen [and Fiat Chrysler] diesel engines have killed demand and interest (2018).

Obviously FCA has began taking steps to move toward green initiatives, but it all comes too late. The company cheated, were caught, and must pay the consequences of their actions. Hopefully other auto companies can use Volkswagen and FCA as an explicit example of the repercussions unethical behavior can cause.

Section III: Evaluation

As we already discussed, Fiat-Chrysler failed for follow the rules set by The Clean Air Act. This act was passed to control air pollution in the United States and is something that Italy does not follow. In the Act, it says that it “rules to reduce pollution from vehicle exhaust, refueling emissions and evaporating gasoline”. In Section 203 (a)(3)(b) of the Clean Air Act (CAA), 42 U.S.C. Sec. 7522(a)(3)(b), the Act, “prohibits the manufacture, selling, or installation of any device that intentionally circumvents EPA emission standards by bypassing, defeating, or rendering inoperative a required element of the vehicle’s emissions control system” (United States Environmental Protection Agency, 2016). When important rules and laws are broken, it effects a lot of things. This Act was created to help the world be a better place and when people go around the rules, it hurts everyone. It is important for companies to know that they are not above the law and cannot break it like these companies tried to do. By setting rules and standards like The Clean Air Act, we are trying to make the world a better place (US Legal, Inc., n.d.).

It is also important to learn about the market that you are entering. Different markets and countries have different rules and regulations and it is important to understand the effects. For example, The Clean Air Act is something that only exists in the United States and is not something that is in effect on other countries. If something like this were to happen in the EU, the whole country could be sued. If you want to have a company that operates in different countries, they as a company, you need to understand the rules and regulation of that country. This also relates to the importance of doing your research. Understanding the market and the products you are selling is extremely important if you want to succeed. Fiat-Chrysler knew the implication of the defeat device and used them anyways. They also knew what happened to Volkswagen when they were caught using these devices and went away with it anyways.

· Discuss the limitations of your analysis (What don’t we know? What can’t be known and why? What other information would we need for a better analysis?)

· The reasoning as to why the defeat devices were approved

· If it allowed less pollutions during testing, why isn’t the creator of the devices being punished

· Bosch has not been charged with any wrongdoing.

· https://www.reuters.com/article/us-volkswagen-emissions-bosch/bosch-concealed-volkswagen-use-of-defeat-device-software-lawyers-idUSKCN11D022

Based on the analysis above, Bosch has concealed and used “defeat device”

software without any notice.

· How this will ultimately affect the automaking industry moving forward as the world moves toward a more green and sustainable outlook

· Will we need to look for more cleverly hidden defeat devices?

· Will consumers lose goodwill with the automaking industry

· Why the explicit line of the Clean Air Act was ignored, or what justification was there to use the devices

· Section 203 (a)(3)(b) of the Clean Air Act (CAA), 42 U.S.C. Sec. 7522(a)(3)(b), prohibits the manufacture, selling, or installation of any device that intentionally circumvents EPA emission standards by bypassing, defeating, or rendering inoperative a required element of the vehicle’s emissions control system.

· Section 203 (a)(1) of the same Act also prohibits the sale of motor vehicles or engines that are not covered by valid certificates of conformity.

· https://www.epa.gov/vw/laws-and-regulations-related-volkswagen-violati ons

·

Section IV: Conclusion

· Summarize your key arguments and take home message.

· US-Short term oriented. VS. EU-Long term oriented

· In Fiat Chrysler case, EU has made it a point to place a whole country responsible for negative initiatives and actions which counter these convictions. However, The United States is addressing the emissions scandal differently because The United States is market economy.

· In The U.S. law, Fiat-Chrysler violated the Clean Air Act. The company disregard the clean air act, made false claims about the cars to their consumers.

· For company, it is important to understand the regulation and law by government when they decided to sell their products domestically or abroad.

· Provide two concrete solutions or action steps for managers of your MNE (how they can leverage the event, mitigate damage ,etc.) using at least one course theory/concept. .

· A team of people to investigate these matters and new technologies

· An apology: Companies should admit their mistakes to the public and recall faulty cars.

· Foundations of Ethical Behavior: Managers need to raise the moral awareness of company personnel.

Section V: References

Beene, R. (2018, February 02). U.S. Seeks Major Fines, Recalls in Fiat Diesel Settlement. Retrieved March 20, 2018, from https://www.bloomberg.com/news/articles/2018-02-02/u-s-said-to-seek-major-fines-recalls-in-fiat-diesel-settlement

Boudette, N. E. (2017, May 23). U.S. Sues Fiat Chrysler, Accusing It of Using Software to Pass Emissions Tests. Retrieved March 20, 2018, from https://www.nytimes.com/2017/05/23/business/fiat-chrysler-diesel-emissions-lawsuit.html

Edie. (2017). Consumer Demand for Green Products Reaches a Tipping Point. Retreived April 22, 2018 from, https://exhibition.edie.net/__media/PDFs/sust5_final.pdf

FCA Design Center. (2017). Group Overview. Retrieved April 16, 2018, from https://www.fcagroup.com/en-US/group/Pages/group_overview.aspx

Fiat History. (2017). Retrieved April 16, 2018, from https://www.lifeinitaly.com/italian-cars/fiat-history.asp

Iacocca, L. (2014, January 22). Chrysler. Retrieved April 16, 2018, from https://www.britannica.com/topic/Chrysler

Iovino, N. (2018, January 03). Fiat Chrysler in Hot Seat Vacated by VW. Retrieved March 20, 2018, from https://www.courthousenews.com/fiat-chrysler-in-hot-seat-vacated-by-vw/

Kiley, D. (2018, February 26). Why Fiat Chrysler And Other Automakers Are Dumping Diesel Cars. Retrieved April 22, 2018, from https://www.forbes.com/sites/davidkiley5/2018/02/26/why-fca-and-other-automakers-are-dumping-diesel-cars/#4b59406765ec

Piscioneri, F., Flak, A., & Bartunek, R. (2017, May 17). EU starts legal action against Italy over Fiat Chrysler emissions. Retrieved March 20, 2018, from https://www.reuters.com/article/us-fiatchrysler-emissions/eu-starts-legal-action-against-italy-over-fiat-chrysler-emissions-idUSKCN18D1DS

Rodionova, Z., & Cox, J. (2017, January 12). Fiat loses $2.3bn in stock value plunge after diesel emissions accusation. Retrieved April 22, 2018, from https://www.independent.co.uk/news/business/news/fiat-diesel-emissions-scandal-accusation-a7524296.html

US Legal, Inc. (n.d.). USLegal. Retrieved April 22, 2018, from https://environmentallaw.uslegal.com/federal-laws/clean-air-act/

United States Environmental Protection Agency. (2016, December 13). Laws and Regulations related to Volkswagen Violations. Retrieved April 20, 2018, from https://www.epa.gov/vw/laws-and-regulations-related-volkswagen-violations