Volkswagen (VW) is mired in a scandal of rare size and complexity – even by today’s scandal-rich standards.
In short, VW installed emission-cheating software in 11 million diesel cars.
The auto industry has clearly experienced its share of scandals; primarily due to faulty components. In recent years GM, Honda, Toyota and others have been subject to a variety of recalls on a host of faulty parts. (2)
An important distinction of VW’s scandal (AKA “Dieselgate”): VW intentionally developed and installed hidden software into VW cars over many years. (2)
Responsible Parties
The former CEO resigned while claiming no personal wrongdoing. (6) Rather he – and others – have attempted to pin the entire deception on a group of engineers.
In its 80 years, VW has a history of scandals and avoiding prosecution for smaller misdeeds. In Germany, VW operates as a quasi-state entity, subject to little regulatory enforcement. Company culture has centered power in a few hands. Success was a mandate to be achieved at all costs. Now VW will begin to understand what those costs will total. Count on numbers in the billions.*
*April 21, 2016: U.S. District Judge Charles Breyer, responsible for overseeing Volkswagen scandal cases: “Volkswagen plans to offer consumers the option of having their vehicles bought back or modified to meet emissions standards. Those with leased cars can cancel the lease. ‘Substantial compensation’ on top of the buyback or fix will also be awarded to consumers.” (9)
**April 22, 2016: Volkswagen released information that they have more than doubled their reserves to handle this crisis to $18.2 billion (USD).
Scope of the Scandal
Rather than select an external CEO to assume leadership of numerous tasks related to Dieselgate, the board selected an insider, Matthias Müeller. Regardless, the tasks are huge and complex. (8)
Overarching
• Determining who’s ultimately responsible – taking appropriate actions
• Demonstrating strong leadership – direct, clear, immersed
Regulatory, Government, Legal
• Keeping prosecutors from filing criminal charges
• Meeting information demands of regulators globally
• Holding down penalties and legal damage
Internal
• Creating a new top-management team
• Confronting internal culture damage
Stakeholders
• Maintaining calm among restless, powerful labor interests
• Providing information to stabilize stock prices
Brand, Consumers, Dealers
• Addressing damage to global sales and brand equity
• Deciding how to compensate owners of cars with the software
• Developing a new U.S. market strategy
• Retaining U.S. dealers who are beyond frustrated
Mr. Müeller clearly needs to prioritize and focus to attack this monumental list of crucial issues.
Brand Implications
VW dug a deep hole where consumer confidence and brand equity are concerned. VW touted its “Green” virtues – with diesel as a selling point. They were bold enough to run a commercial during the Super Bowl showing their engineers sprouting angel wings! (7)
That arrogance increases difficulty in regaining trust from consumers and dealers. (5)
In Harris Poll’s (1) most recent “Corporate Reputation” rankings for the 100 most visible companies in the U.S. Honda Motors ranked #17, the highest among automotive brand. Volkswagen Group dropped to the very bottom of the list – the only company to receive a “very poor” rating.
Still, many are counting VW as ‘down, but not out’, pointing to other brand disasters where over time the company was able to rebuild the brand. However, doing so will require understanding what will resonate with consumers and creating a brand strategy with consistent messaging that’s spot-on. Regaining trust from consumers and dealers will not be a walk in the park. (5)
Looking Forward
Consumers historically have forgiven brands depending on how they work to regain trust. But, prepare for the long haul. Banks are still recovering from the financial crisis.
1. Make necessary changes to leadership, culture…the list is long.
2. Demonstrate remorse and emphasize a commitment to ‘making things right’ – repeatedly.
3. Begin delivering on the brand promise – without fanfare. Ensure consistency in delivering what is promised.
Action Items:
1. While the grand scale of the intentional deception on VW’s part may be way beyond anything that could happen in your company, ensure there are no situations where you and your leadership team aren’t fully aware of actions taken, and no one on your leadership team is giving direction that doesn’t meet overall company strategic objectives.
2. Review external brand messaging from your organization. Is it well targeted to your selected audience(s)? Direct, accurate, confident – without arrogance?
3. Review your internal “crisis management” plan. While a crisis of this sort isn’t likely, it’s critical to be ready for any crisis. The expectation of leadership and control from the very beginning is now the norm.
4. Assess your company’s relationships with third parties to ensure your organization’s reputation is strong and consistent.
Sources:1. Honda Motor Company Retains Strongest Corporate Reputation Among Automakers; Volkswagen Group’s Reputation Plunges, Harris Poll, February 18, 2016
2. Hakim, Danny, VW’s Crisis Strategy: Forward, Reverse, U-Turn, The New York Times, February 26, 2016
3. Rauwald, Christoph, VW Says Diesel Emissions Fix Progress Makes Trial Unneeded, Bloomberg, April 19, 2016
4. Matussek, Karin, VW Sued for $3.7 Billion in Germany Over Diesel Scandal, Bloomberg, March 14, 2016
5. Smith, Geoffrey, Parloff, Roger, Hoaxwagen, Fortune, March 15, 2016
6. Ewing, Jack, Volkswagen Memos Suggest Company Misled U.S. Regulators, The New York Times, February 18, 2016
7. Hakim, Danny, Kessler, Aaron M., Ewing, Jack, As Volkswagen Pushed to be No. 1, Ambitions Fueled Scandal, The New York Times, September 26, 2015
8. Buss, Dale D., Grading VW’s Mathias Mueller; 6 Takeaways for All CEOs Handling a Crisis, Chief Executive, April 17, 2016
9. Randazza, Sara, Volkswagen Reaches Deal with U.S. Authorities Over Diesel Emissions Scandal, The Wall Street Journal, April 21, 2016
10. Rauwald, Christoph, VW Doubles Provisions for Cheating Scandal to $18.2 Billion, Bloomberg, April 22, 2016