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What Volkswagen Is Doing Right and Wrong to Address Its Diesel Scandal

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As Volkswagen AG strategizes to keep its business afloat and put its current crisis — the rigging of its “clean” diesel cars to cheat on U.S. emissions tests and misleading customers about its TDI vehicles’ green credentials — behind it, it must face the fact that the debacle will likely dog its reputation for years.

Not only will the actual fixes to diesel cars take two years or more to sort out, but New York Times reporter Jack Ewing has struck a six-figure book deal to write the yarn of what happened. Megastar Leonardo DiCaprio has already signed on to be a co-producer of the film version and might even star in the story. With the book taking a year or so to produce, and the movie presumably taking another year after that to make, VW can count on an epic rehash of the debacle after two years of damage control.

Conversations with several current and former Volkswagen executives over the past week since VW of America CEO Michael Horn testified before Congress portray a company that is vast and layered with bureaucracy, on top of a culture of fear and engineering arrogance.

One longtime executive said, “I can totally see how this could happen and very top managers not know. … I’m not saying that they didn’t know, but it is possible.”

How could that be? “You have no idea how much stuff lands on the desk of these senior guys to approve and sign, and they rely on their underlings to organize it,” said another former executive who now works for a different car company. Said another: “It’s possible, too, that the engineers couched the software addition in language that very senior people who signed off were meant to not see what it really was.”

The myriad of possibilities as to know who knew what and when is why Horn and other VW executives are hedging and seem to be obfuscating when questioned by angry members of Congress, regulators, and the German police, who seized records at VW headquarters last week. Lawyers and investigators are doing their work, and lawyers do not allow executives to say much, especially when all the facts are not yet confirmed.

What is VW doing right now? It is being as forthcoming as it knows how. The company isn’t resisting inquiry. It isn’t stonewalling anyone. So far VW officials are saying that they have traced the source of the fraud to at least a handful of engineering leaders who have been dismissed. They are cooperating in the investigation into high up the chain the conspiracy went.

Volkswagen has also launched a micro-site to deal with inquiries, www.vwdieselinfo.com. When one Googles “VW diesel recall,” that site comes up as the second choice, right behind an attorney trying to reel in VW owners for a class-action lawsuit. But staying at the top of search results, either with paid or organic results, is a good strategy, one employed by Toyota during its unintended-acceleration debacle of 2009-2011. After a period of delay where Toyota did a lot of denying, Toyota moved to catch up, communicated aggressively with customers, and lost comparatively little business, in part because consumers seemed to appreciate the quality of its communications.

What could VW be doing wrong? This is arguable. VW announced today that it will cut investment plans at the VW brand division by 1 billion euros ($1.1 billion) a year and accelerate development of electric vehicles, including making a new version of the Phaeton sedan as an electric.
VW also announced it would speed up cost-cutting at the VW division and put only the latest and “best environmental technology” in its diesel vehicles going forward. Really? It wasn’t doing that before?

The Volkswagen Phaeton luxury sedan, which does not sell in the U.S. because it was an abject market failure when it hit the market, is hardly the vehicle to pin an EV future on to green-wash the company’s image. And to come out so soon with the announcement about EV investment, before the diesel scandal is fully investigated, will strike many reporters and VW enthusiasts as an attempt to redirect the story prematurely.

“In today’s climate, no matter what a company in VW’s position does, it will be declared a misfire in the short term,” says crisis PR expert Eric Dezenhall. “It is impossible to win a media war in a case like this largely because it is seen as a media war when it is, in reality, a fundamental integrity crisis.”

Dezenhall says VW is currently in what he describes in his new book “Glass Jaw” as the “fiasco vortex” — “the stage when one’s enemies are in control of the conversation and there is little you can do to take it back. … When you’re in the vortex everything you do will fail in the short term.”

VW must decide first what it is going to do for its diesel customers. It almost goes without saying that VW will be forced to compensate owners for lost residual value, which may well involve buying all the affected diesel vehicles back at pre-scandal prices. That could cost in excess of $7 billion. The company is also facing Environmental Protection Agency fines and penalties up to $18 billion. Now, China has suspended the sale of VW diesel vehicles, too, along with Singapore.

But the compensation could run deeper. It could be that VW’s responsibility could extend to anyone who owned a diesel vehicle that was rigged in the model years between 2009 and 2015, even if the vehicles were sold. Why? Because those owners paid a premium to own a car they thought was environmentally responsible. (Disclosure: I owned a 2010 VW Jetta Sportwagen TDI that I sold in July 2015.) That extra measure of reimbursement has been suggested by members of Congress.

Even if VW runs the crisis-management playbook 100 percent correctly, repair to its image could take years to fully realize. The company has an in-house case study to reflect on. In 1986, Audi faced accusations that cars were accelerating out of control. Though never verified by official government testing, the damage was done. It took Audi some 25 years after a damning CBS “60 Minutes” program detailed deaths attributed to Audis for the brand to recover and restart sales momentum in the U.S.

No one died in the current VW scandal. And it doesn’t have to be proved that VW screwed up and lied to its customers. It has already admitted that. But the best remedy to VW starting the process of putting this scandal behind it is to break with its own cultural tradition — overcommunicate with customers, be generous and quick with compensation, and take real steps inside the company to make sure that no rogue employees can do such vast harm to the company and its brand ever again.

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