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VW Crisis - The Saga Continues

As the fortunes of VW decline on a daily basis, more worms emerge from the proverbial can with the latest news that the company now admits to its US regulator, the Environmental Protection Agency (EPA), that 85,000 more cars were fitted with illegal “defeat device” software including the newest models of Audi.  As I predicted, the taint is not limited to the VW marque but likely the entire family.

Even more telling is the fact that these ethical misjudgments are by no means the first by the company: in 1973, Volkswagen admitted to having sold cars with embedded defeat devices.  Clearly the persistence of a corporate culture focusing on costs over compliance lives on.

Having advised global brands for the last 3 decades on building trust and reputations, we now have a business school case study in Volkswagen as it decided fraud was a better alternative to complying with regulations.  This raises a number of questions for any company forced to decide on doing right by the customer versus doing right by financiers, including:

  • betting on the obvious winners and losers from this dramatic turn for the global car industry.  No doubt Tesla, Zipcar, hybrid vehicles, bicycle makers, green NGO’s and materials science engineers win as first world consumers will look to place their trust in feel-good choices.  Losers will include the oil industry with a shift towards greener modes of public and private transport;
  • the other marques in the Volkswagen business (Audi, Bentley, Bugatti, Lamborghini, Porsche, SEAT, Škoda, Volkswagen, Ducati, MAN, Scania amongst others) now also carry the same taint of fraud.  Once consumers and investors doubt one part of the “family,” doubt about the entire family  necessarily spreads given the shared DNA;
  • each of these marques needs its own independent but integrated recovery plans that reassure customers, dealership networks, fleet managers amongst other wide-ranging stakeholders so as to contain the extent of the contagion and restore trust if that's even possible;
  • unlike even a decade ago, what happens now in one part of the world for a global brand is now seen/heard/watched in all parts of the world.  The fact Volkswagen took 3 days to use social media or its own website to acknowledge the story (finally adding a robotic video from then CEO Winterkorn) sows doubts about the leadership’s ability to create and execute a concrete recovery plan.  It also allows the public and media to shape Volkswagen's agenda while speculating spuriously about the underlying causes of the crisis;
  • clearly Volkswagen’s culture of suppression, hierarchy and loyalty to financiers over customers is one where fraud on a global scale could take place, allegedly unbeknownst to its leaders;
  • recalling and fixing 11 million cars around the world most probably will bankrupt this company and create the largest death of a global brand in history;
  • former CEO Winterkorn’s short, contrite website video makes sober viewing, especially for Americans who culturally expect raw emotional displays to communicate true contrition.  The lessons from Akio Toyoda’s equally stoic US congressional testimony from February 2010 should be remembered, as his performance was seen as culturally inappropriate, similarly emotionally-restrained and unempathic;
  • new CEO Matthias Müller now needs to explicitly articulate his action plan to restore trust – if that’s even possible – in the company's ability to fix its culture, cars and customer orientation;

So what are the lessons for your business from this Volkswagen car crash?  At a minimum, that your leaders have sufficient confidence and self-awareness to sustain a healthy culture that encourages dissent and focuses on doing right by the customer at all times.

Image by: Francis Storr

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