Can a tarnished VW emerge successfully from #dieselgate?

VW tarnished

The global #dieselgate crisis engulfing German car maker Volkswagen may well produce significant and disruptive change in the governance and regulation of the auto industry and publicly-listed companies in that industry (likelier in Germany than anywhere else, I’d say), although it’s far from clear what the consequences and outcomes will actually be.

What’s extraordinary – except, maybe it isn’t anymore – is, on the one hand, the speed with which the unravelling of VW’s reputation is happening; and on the other, the lethargy in the time it took for the CEO to fall on his sword which he finally did late yesterday.

Briefly, here’s what’s happened, beautifully summed up in this image by Vox:

Here’s a little more, in the introduction to the Wikipedia entry on Volkswagen emissions violations:

In September 2015, German car maker Volkswagen AG was caught using software to cheat on emissions tests for 11 million of its diesel engine Volkswagen, Porsche[1]– and Audi-branded cars sold between 2009 and 2015. The deception resulted in engines passing United States Environmental Protection Agency (EPA) standards during testing and yet having vehicles emitting up to 40 times the legal limit of nitrogen oxides in real world driving. The company has apologized for the scandal and is now facing legal proceedings, regulatory investigations, and class action lawsuits in multiple countries.

That’s not a bad summary. Of course, it’s a hugely complex event, still evolving, and worth knowing in full (about what’s known so far) in order to better understand the potential and likely consequences for Volkswagen, its employees, investors, customers, the wider auto industry, etc.

Note the effect on VW’s share price as portrayed by Fortune magazine:

VW share price Sept 16- Sept 23, 2015

Looking around, you will find any number and manner of reports and commentaries with opinion galore on what it all means. Some of the thoughtful pieces I’ve seen today include these:

  • The Volkswagen ‘Dieselgate’ scandal is a new low in corporate malfeasance (Fusion): What’s different about the Volkswagen lies is the sheer scale of the deception. Volkswagen cars account for one of every ten passenger vehicles sold in the world. By wildly understating the emissions of its passenger diesel fleet, Volkswagen spit in the face of regulators, falsely advertised to millions of customers all over the world, and effectively undid years’ worth of work to responsibly lower emissions targets and mitigate the effects of health-damaging smog and climate change.
  • Volkswagen’s appalling clean diesel scandal, explained (Vox): Since 2009, Volkswagen has sold more than 482,000 clean diesel cars containing a four-cylinder turbocharged direct-injection engine. This included versions of the Passat, Jetta, Golf, Beetle, and Audi’s A3. Except, as it turns out, VW was lying about its clean diesel cars.
  • VW emissions scandal is personal for many Germans (Financial Times): What really matters is whether Germans see this as affecting them personally because they have a VW car or because they believe that the environment here has been polluted. A strong legal assault from the US authorities, who uncovered the cheating, could prompt Germans into a bit of a patriotic/defensive reaction. People will ask why the Americans, who don’t really care about the environment, are attacking a German institution.
  • Volkswagen recall: The damage runs deep as car giant pollutes its reputation (Independent): “Brands are all about trust and it takes years and years to develop. But in the space of 24 hours, Volkswagen has gone from one people could trust to one people don’t know what to think of,” the brand consultant Nigel Currie said. Marcel Fratzscher, the president of the German Institute for Economic Research, warned that the financial cost to VW could represent just a fraction of the wider problems arising from the scandal. “The damage is not only to VW’s image in the US, but globally. This means jobs at VW and many of its suppliers in Germany will be at risk. VW has been a showcase for ‘Made in Germany’,” he said.

And the inevitable magnet for more criticism (and no doubt more reputation damage to address):

  • Volkswagen CEO Likely to Get $32 Million Pension After Leaving (Bloomberg): Winterkorn’s pension had a value of 28.6 million euros ($32 million) [about £21 million] at the end of last year, according to the latest annual report, which doesn’t describe any conditions that would lead the company to withhold it. And under certain circumstances, he also can collect severance equal to two years of “remuneration.” He was Germany’s second-highest paid CEO last year, receiving a total of 16.6 million euros in compensation from the company and majority shareholder Porsche SE.

An FT report earlier today confirms that amount (and notes without irony that Winterkorn is entitled to a company car as part of a severance deal).

The latest news seems to be reports from Germany that emissions test cheating also took place in Europe. If that’s true, then this scandal begins to assume epic proportions.

In all of this, I wonder what VW’s communicators (and their external advisers) are working on that will help its many constituents understand how this has happened, what will happen to the perpetrators, and what will become of Volkswagen, both the car maker and the group that owns some of the most valuable, widely-respected and iconic car brands in the world including Audi, PorscheBentley, Lamborghini, Ducati and Bugatti.

There’s a phrase to note: “widely-respected.” And also worth noting that it, along with words like “reputation” and “trust,” are all earned over time, not assumed or automatically be an integral part of a brand.

As the financial crisis that began in 2007 has shown, reputation recuperation as evidenced by customers continuing to buy your product or service can come quite quickly in certain circumstances (although subsequent events such as the HSBC tax scandal earlier this year shows how fragile corporate structures, cultures and behaviours really are).

Yet, as the News International phone hacking scandal also showed us, reputation death can also happen where the deeds done were so repulsive in society that recovery can never come (and going back a few decades, think of Enron). Instead, termination is the outcome and jail for the corporate leaders.

Where does Volkswagen and its leadership sit in this scenario?

To be continued. And in the meantime, study this

Edelman - Trust matters

(Image at top via Autoblog.)