When a US congressman called Volkswagen the “Lance Armstrong of Automakers”, I couldn’t help but imagine the Texan cyclist wondering what he had done to deserve the comparison.
It has been a rough month for the group; VW shares lost more than a third their value (or A$44bn wiped off), CEO Martin Winterkorn “resigned”, word got out that a Hollywood movie is being planned with Leonardo DiCaprio set to produce, and for six whole days Volkswagen out-trended Kanye West on Twitter.
I should probably confess; I love the brand. Four years living in Germany has left me sharing the national psyche and love for the People’s Car. The question many are now asking though is whether Volkswagen can survive the scandal. Can the trust that has been built up over decades be restored?
Scandals are not new to the auto industry. What makes this one stand out is its pre-meditation. This is not a faulty pedal and slow response. It was a calculated and sophisticated lie – and a lie that had to have been known by many people.
It was a deception made worse by our industry. The cars were advertised as achieving the seemingly impossible – great performance, diesel efficiency and low emissions. Clean Diesel: a technological breakthrough that only German engineering could credibly promise. I feel for the agencies and individuals who must now cringe seeing their work and knowing it was built on a lie.
But this will be more Deepwater Horizon to BP, than Enron to Arthur Andersen.
Volkswagen will obviously take a hit: fines, class actions and recalls. It may never recover in North America. And it will lose sales and possibly the loyalty of a generation – especially if resale values are cut or performance hindered through a firmware fix.
But predictions of the group’s demise are premature.
We talk a lot about trust, but product will count more. For Arthur Andersen, the former Big Five accounting firm found guilty of criminal charges relating to its auditing of Enron, its entire reason to exist was as a trusted auditor. Loss of trust was existential.
There is precedent among carmakers. In 2009, Toyota recalled millions of cars for a series of issues around accelerator pedals, which some allege to have led to accidents and deaths. Toyota’s market share in the US took a substantial hit but it remains the third largest carmaker in the market and it continues to grow market share.
People will be just as quick to forget if Volkswagen returns with great products.
The more interesting question in this story, however, is not the what, when or who. It is the why – why did Volkswagen take such a risk? And the answer is strategic.
Volkswagen bet heavily on diesel as a solution to tightening carbon emission requirements and fuel efficiency. Building efficient diesel cars without compromising performance was critical – it just turns out VW could not do it without breaking rules.
When Tesla Motors co-founder Elon Musk was asked whether he thought people might lose faith in green technology following the scandal, he stated: “I think it’s the opposite, because what Volkswagen is really showing is we’ve reached the limited of what is possible with diesel and gasoline.”
He is undoubtedly biased but it doesn’t make him wrong, and it may be Volkswagen will agree with him; scaling back on diesel and investing in electric.
Within two years I expect Volkswagen will be back and firing on all cylinders, and Elon Musk may discover he has a competitor with a point to prove.
By McCann Sydney planning director, Ian McDonald