The current slogan for Volkswagen is “Das Auto”, the English translation of which is “The Car”. This may seem to be a bold tagline, however if anyone could pull it off, it would be VW. That is, until a few weeks ago. Volkswagen Group, the parent company of Volkswagen, is the second biggest car manufacturer in the world, behind General Motors, owning and producing some of the most globally recognised brands, including Audi, Lamborghini and Bentley. Ultimately, with such a broad reach the emissions scandal that erupted within Volkswagen a few weeks ago was going to have broad ramifications.
The Environmental Protection Agency (EPA) found that many VW cars being sold in America had software installed in diesel engines that detected when the engine was being tested and adjusted the performance to improve results, creating emissions figures completely unconnected to reality. This was perhaps particularly grating in the US as VW had gone on a charm offensive for the fuel and according to the BBC, the primary focus of the campaign had been the benefits of diesel’s low emissions.
So how did Volkswagen handle the scandal initially?
Initially, the scandal was handled quite well. The Guardian reported that Martin Winterkorn, the then CEO of Volkswagen Group had apologised stating that Volkswagen was “endlessly sorry” and Michael Horn, CEO of the US arm of the business similarly acknowledged that Volkswagen had “totally screwed up”. There appeared to be a united front in the VW camp, however, from this position of strength, the story quickly unravelled. Winterkorn was forced to deny rumours that he was set to be replaced by Porsche chief Matthias Müller, however, a few days after the scandal broke the rumours were proven true as Winterkorn was indeed replaced with Müller. On the other side of the pond Michael Horn is clinging to his job, when, from the Company’s perspective, it might have been better for him to fall on his sword. As details of the scandal emerged, VW fronted up, and admitted that in fact 11 million cars could have been affected not the lesser figure of almost 500,000, as outlined in the EPA report.
The Company, initially, appeared to get ahead of the scandal and be upfront about mistakes, potentially garnering some positive public opinion. However this was quickly lost, as more details of the scandal emerged and the initial response seemed to no longer be up to scratch, and instead reflected at worst deception and at best that those at the top were out of touch with their own organisation. VW has lost nearly €30 billion off its market cap since the scandal emerged, and has set aside €3.7bn to cover costs. As a result, the Company has posted its first quarterly loss for 15 years of €2.5bn. As the scandal has gone global, The Telegraph reported that 1.2 million cars in the UK were fitted with the illegal emissions-cheating software. And now a fresh scandal appears to be brewing, as a poll of 2,000 of the affected drivers revealed 90% of them believed they were entitled to compensation, whilst Paul Willis VW’s UK boss has said that it is “premature” to talk about refunds. In addition the German government is now urging the car giant to retest all of its vehicles in order to clear up the scandal – the dramatic fall in the VW share price has pushed down the entire German market forcing the government to get involved. Finally, it was hoped that Matthias Muller’s appointment from Porsche would be untainted by the scandal, however, as new details of the crisis emerge it is clear that Porsche is also affected. According to Reuters, up to 800,000 cars sold in Europe could be affected by the deception.
Ultimately the full repercussions of the VW scandal are as yet unknown. It is unclear whether the brand has been irreparably damaged or if it will recover over time. One thing is for certain, it is a long road for Volkswagen to get back to its pre-crisis share price of €134.81. At its lowest point, so far, during the crisis the share price was €68.51, with more loses predicted. From all this, we can see that VW have produced neither the “people’s car” or even “the car”, they have created a situation from which it may never fully recover.