VW Makes a Mistake for the Ages

Beelte 2My company has a small office in Germany. I travel to the country regularly. And my respect for German manufacturing and engineering takes a back seat to no one.

But I have to tell you, the people at Volkswagen behind the decision to install software that allowed the company’s diesel engines to beat emissions tests in the U.S., while allowing them to then spew large quantities of pollutants (up to 40 times more than the federal standard) under normal driving conditions, made a decision that in a best case scenario might merely result in few hundred million dollars in fines. But in reality, those German execs so outsmarted themselves, and so proved to be tone deaf to the American market, they may just have literally killed their company in the process.

VW TDIBecause now, we’re no longer looking at an executive decision that may take down VW. According to the latest reports, the scope of the EPA probe has been expanded to include both Audi and Porsche diesel engines as well (both of which are manufactured by VW). As a result, this horribly calculated gamble may end up being responsible for doing irreparable harm to not one, but three, iconic car brands.

And should you think I’m just overreacting or simply blowing smoke, consider. Many people forget that VW is a car with its roots in, of all places, Nazi Germany, or that the company was launched under a personal directive from Hitler himself. All most know is that in the 1960s the VW Beetle emerged as a marketing phenomenon, if not a cultural icon. And while some of that was a result of that funny looking little car being embraced by the counter culture, the bulk of it owed to the fact that the Beetle became the centerpiece of what the editors of Advertising Age once called the single most brilliant and successful ad campaign in the history of Madison Ave.

VW NazisSo it’s not, in other words, like VW in an U.S. company with its roots squarely planted in the early days of American industry, much less the American psyche. To the contrary, its roots trace back to a guy we equate with evil. As a result, all the brand equity VW has spent nearly 60 years creating could be taken away like that.

And as far as Audi and Porsche go, while terrific cars and status brands, in this country both remain niche products for niche audiences. For that reason, their demise, while making an impact on the world economy, would likely only cause a whimper up and down Main Street America.

Estimates are that, since the diesel engine in question cannot be effectively retrofitted, a total recall could cost VW anywhere between $7.5 billion and $40 billion – and those were the figures that industry experts were bandying about before the news about Audi and Porsche broke this past week.

greenwashingConsider this immediate fallout, all of which has happened within a few weeks of the scandal breaking:

  • VW’s stock priced has dropped almost 10%.
  • Citing the company’s betrayal of the public trust and its corresponding loss in consumer confidence, Moody’s has downgraded VW, which will further hamper its ability to secure the kind of credit necessary to execute the extensive recall undoing this mess would require.
  • While VW sales figures actually rose 1% in September from the year prior, most auto manufacturers saw double-digit growth following the news, with the industry average for all manufacturers being just north of 16%.
  • Even though it is only weeks after the news broke, already dozens of lawsuits have been filed against VW, most of them class action suits, whose cause range anywhere from the environmental damage being done by cars driven by people who bought them under the premise they’d offer up to 97% fewer emissions to the fact that the average resale value of a VW diesel vehicle has deceased over $5,000 in a month’s time.

Time will tell how this will play out, but a few things seem clear even at this early juncture.

VW ProtestFirst, American consumers are a lot greener than many manufacturers want to believe.

Second, for all the talk about bureaucracy and inefficiency, it is clear the U.S. federal government still carries a ton of weight in the marketplace and can be relentless when it unearths something that seems even slightly fishy. (And, for what it’s worth, the EPA has notified all carmakers it intends to extend its probe into emissions and mileage figures to other models and companies.)

Piech WinterkornAnd finally, as important it is for us manufacturers to understand our products, it’s equally as important we know our customers. In fact, for years Ferdinand Piech, a VW advisory board member had been telling his fellow members now-ousted CEO posed a liability for the company.

Why? Because as Piech said to the VW advisory board time and time again, “He doesn’t understand the U.S. market.”

One Comment to “VW Makes a Mistake for the Ages”

  1. marty 10 November 2015 at 11:26 am #

    very good article Perry

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