“Dieselgate” Scandal One Year Later – Can Volkswagen Recover?
Hayley Winter, Dartmouth Business Journal
The repercussions of the alleged “diesel dupe” from last September are still evident in the global market economy, now that information is revealing just how short Volkswagen fell of its promised objectives from last autumn to completely repair all of its vehicles affected by the emissions scandal. As new specifics reveal the depth of the scandal, it is difficult to anticipate a way for the company to make a full recovery in either its U.S. or European markets. However, by utilizing the shift in marketing approaches outlined in its recently released “Strategy 2025,” the company has the potential to transform its brand capital and write a new chapter in its corporate history. Volkswagen can potentially exfoliate its tainted reputation by calling attention away from diesel and emissions altogether and embrace its marketing of electric cars instead, thus redefining its company’s mission statement entirely.
The high costs that have stemmed from both legal compensation and falling sales revenue have crippled Volkswagen’s market brand. As of last August, the German corporation reported as much as a 56 percent drop in post-tax profit. Exposed in September of last year, the German auto-making company exploited software modules, referred to as “defeat devices,” to manipulate the results of a diesel vehicle’s emissions test. The modules would display a vehicle as operating within the legal limits of the United States Environmental Protection Agency’s (EPA) guidelines when in reality it was emitting as much as 10 to 40 times the approved amount. Government agencies were prompted to pursue an investigation after the EPA began to question the results produced by Volkswagen’s emissions tests. Once exposed, Volkswagen issued statements admitting to the manipulation of the engines of over 11 million vehicles, 600,000 of which were sold in the U.S.
“We’ve totally screwed up,” said Volkswagen President and CEO Michael Horn in response to the scandal’s exposure. “Our company was dishonest.”
In the wake of the exposé, Volkswagen diesel owners have faced a median of a $1,500 decrease in the resale value of their cars. To offset this, consumers can bring their cars into a Volkswagen dealership to have the emissions deficiency corrected. However, this leads to a sharp drop in fuel efficiency, an asset that had been promised in return for a higher price of a diesel vehicle. The Federal Trade Commission ordered Volkswagen to begin a mass-recall of all of its EA189 diesel engine vehicles built between 2009 and 2015. The company also agreed to receive all affected vehicles and repair them free of charge in a year’s time, as stated by Volkswagen UK’s managing director, Paul Willis. However, the year deadline has been exceeded and the German automaker has yet to attain even 10% of their alleged goals. Fewer than 110,000 affected vehicles have undergone remedial action.
Volkswagen’s failure to comply with its promises was deemed “simply unacceptable” by the UK’s Labour MP and chair of the Transport Select Committee, Louise Ellman: “One year on from the Volkswagen emissions scandal, nine out of 10 drivers are still waiting for their car to be recalled. Time and time again, Volkswagen’s schedule has slipped… People deserve to know when they can expect their vehicles to be corrected and returned to them. It’s time Volkswagen came clean with its customers. If it refuses to do so, the government must act.”
A statement made in June claimed that the automaker had been ordered to buy back or fix affected vehicles by December of 2018 and fork over nearly $15 billion to settle U.S. claims. Consumers can also expect to receive between $12,500 and $44,000 for Jettas and Audis respectively, as promised by the Federal Trade Commission. However, Volkswagen’s greatest threat to recovery is located on the opposite side of the Atlantic, where European consumers are frustrated that the same compensation has not been guaranteed to them.
“One year [later] and Volkswagen customers in the UK will be questioning why US consumers are getting compensation while nothing is on the able for the 1.2 million owners affected in this country,” stated Alex Neill, director of policy and campaigns at a UK consumer group. “The Government has had a year to address this issue, they now need to urgently ensure that UK customers are treated fairly.”
The company’s argument states that UK consumers have no need to be compensated, as repairing their cars will not negatively affect the performance of their vehicles. However, the Department for Transport spokesman stressed that the government is continuing to push for Volkswagen to take action to protect and compensate their customers in the UK. Volkswagen has claimed that the majority of European consumers can expect to have their cars repaired by the end of this year, but that quite a few will have to continue to wait until mid-2017.
Manfred Bort, Volkswagen’s European manager, stated to their consumers that the company will “inform all affected customers in Germany by the end of the year that the technical solution is available.”
What else is at stake for the car-making company? In the past year, Volkswagen has faced a drastic shift in leadership. As a consequence of the scandal, many of the upper level executives faced suspension and expulsion, including the chief of engine development, the head of American operations, their control executive and several other high-ranking employees. The company has also been hit by a crippling drop in sales revenue and stock prices — not to mention the money spent to combat legal challenges. In 2015 alone, Volkswagen lost as much as $18 million, while class action lawsuits continue to plague the German manufacturer’s funds as they navigate these murky waters.
However, an opportunity to turn around the fate of the company has been presented in Strategy 2025. This marketing strategy outlines the details of the company’s divisional financial targets and its goals to reform and improve upon their fatal flaw. Among the list of topics that covered, the report addressed potentially merging with other component-making companies. Since Volkswagen makes almost all of its parts, it faces more cost-cutting pressures. However, by taking part in joint-unions with other companies, Volkswagen can share the burden of part-making and realign its business apparatuses.
CEO Matthias Müller stated in a comment regarding Strategy 2025 that “the Volkswagen Group will be more focused, efficient, innovative, customer-driven and sustainable — and systematically geared to generating profitable growth.”
To alleviate some of the sting from the diesel disaster, the company’s basic SWOT analysis (Strengths, Weaknesses, Opportunities, Threats) has shown that it can transform its core business by rallying behind the distribution of their electric cars. The electric car market has grown by 13 percent since last August alone. By keeping up with the rapidly growing trends of today’s most attractive market segment (electric cars) Volkswagen can tap into an entirely different stream of sales revenue while shifting the focus away from their diesel line and consequently the emissions scandal. By changing their targeting and positioning strategy, Volkswagen can capitalize on their 3.5 percent market share of electric car sales, chasing down leading competitors (Chevy and Tesla) and using those profits to counteract the debt from the scandal’s legal compensation procedures.
RBC’s most recent survey of consumer perceptions found that favorable views of Volkswagen have dropped by 33 percent since May, but most related that in context to diesel vehicles. If Volkswagen can successfully detract away from this image by exploiting their electric car sales, they can foster the loyal customer satisfaction they still have and take advantage of the relatively low drop in customer satisfaction.
Strategy 2025 also detailed that the company will be streamlining its international relations by investing in more associations with the Asian market and its development of the self-driving vehicle. This could improve Volkswagen’s strategy to get back on track in two ways: it will allow the company to expand from its currently problematic relationship with the European market while also rallying behind a state-of-the-art product that holds great potential to transform the future of auto-making.
“We’re working to make things right,” stated President and CEO of Volkswagen, Michael Horn, in over 30 newspapers across the US. “We sincerely hope you see this as a first step toward restoring your invaluable trust.”
It is critical that Volkswagen utilizes its potential marketing opportunities while concurrently reconstructing its reputation, as it would not only provide more sources to recover their losses but also prove to the public that the company is still holding strong. A year has passed and Volkswagen has fallen short on its recovery goals, but by focusing their energy on the future of their market, the German automaker can work towards transforming its culture and establishing preventative measures to prevent future scandals.