Folks’ car who let down his folk. Volkswagen has been rigging environmental tests for diesel emissions in the US and Europe. Financial costs of the fraud are notorious but the long-term consequences for VW’s reputation are yet to be seen. VW is the symbol of trust and integrity. When the manifestation of trust misuses public’s trust for evil causes there is a lot to be done to rebuild what one once had.
Volkswagen had installed illegal software to cheat emission tests in order its diesel cars exported to the US market to hide the producing of up to 40 times more pollution than allowed. The US government has ordered VW to recall 482,000 diesel cars.
In addition to repair expenses, other immediate consequences of the fraud include a major fine, estimated to be up to 16 billion euros. The share price has collapsed around 23 % after the crisis. Problems keep snowballing: authorities of other markets including France, Germany and South Korea have already initiated their own investigations and the fraud is expanding.
And of course there will be layoffs, starting at the top. The CEO Martin Winterkorn has already resigned. Did he or did he not know about the cheating? Winterkorn claims not to have known. One way or another, it is alarming that such corruption has been nurtured inside the company.
However, layoffs, paying the fines and fixing the cars will not be enough to polish the reputation and get the share price running again.
What are the long-term consequences of the fraud for VW’s reputation and brand? Germany’s reputation as the most reliable and trustworthy car manufacturer will suffer the biggest damage. What we have learned about VW in the past few days is in major contradiction with the earlier brand image; everybody’s car, built on trust, offering long-lasting and carefree partnership.
According to Edelman reputation affects greatly how interest groups will react to negative news about a company. When negative news of company with a good reputation, such as VW, hits the news merely 25 % of interest groups believe the bad news right away. Whereas, negative news on a company with bad reputation to start with is believed to be true by 57 %. The good reputation of VW offers the brand some protection and more time to react.
Nevertheless, the illegal software was sophisticatedly and deliberately created to misrepresent emissions. What we have seen so far may be just the beginning. Even if no other corruption would reach the daylight, VW has a rocky road ahead to regain its reputation as an honest household name.
Moreover, the reputation setback affects the credibility of German manufacturing at a whole. Frankfurt’s stock analysts have already decreased the forecast of overall index for 2015. Before, designed in Germany equaled quality. Now there hangs a cape of mistrust.
Competitors, then again, will benefit. The car manufacturers with diesel technology now have a million dollar chance to ride on the crisis if they seize the opportunity right away. Interesting to see which brands start running for president of the most trustworthy diesel car.
Where does VW go from here? What should be done to regain reputation? Firstly, the company should come out with a comprehensive and transparent strategy that would make further malpractices impossible in the future. Concrete and grand actions in product development should take place in order the brand to regain its first league position. Business built on trustworthiness requires, first and foremost, actions.
The role of communications in such reincarnation is pivotal. VW should actively share each of its steps to regain its reputation as a car manufacturer with the best intentions for sustainable future. The company should put into practice the refreshed vision and operation model internally in order for all the employees to share the same vision and work ethic.
Crisis drives change. Working from bottom up offers opportunities for crucial innovation.