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VW And The High Cost Of Corporate Deception
August 4, 2016
Driven by a relentless corporate culture that issued ambitious mandates with instructions to meet them, or else, perhaps it’s not so surprising that Volkswagen AG finds itself in its current predicament. With their careers at stake, management and engineers sacrificed integrity for short-term results built on fraudulent methods in an effort to make VW the number one automaker in the world. As with many an ambition built on hubris and deception, VW’s backfired spectacularly and will end up costing the company tens of billions of dollars, if not its very existence.
When the EPA discovered that VW was masking the emissions output on its supposedly clean diesel models is 2015, analysts, consumers and others instantly wondered how much the scandal would end up costing the German giant. The answer, unsurprisingly, is a lot. This week here in California attorneys representing VW owners sought approval for an agreement that would have the automaker spending up to $10 billion to buy back or repair the 475,000 VW and Audi models equipped with 2-liter diesel engines. As part of the settlement, owners of those cars will also receive between $5,100 and $10,000 in additional restitution. Additionally, VW must also spend $2 billion promoting electric vehicle technology that will invariably benefit its competition, such as the Chevy Bolt.
While German law prohibits companies there from being prosecuted under criminal charges, if prosecutors are able to determine that VW execs violated their responsibilities leading up to the fraudulent activity, fines could be levied against the company and include the profits made from the offending autos. Shares for VW have already dropped by 16 percent this year, and stiff fines both in the Europe and US won’t do anything to help.
Earlier this year, the VW brand was valued at US$31 billion, making it the world’s 3rd most valuable auto brand. Another auto giant, Toyota, recently weathered its own expensive recall scandal in an effort to become the world’s number one automaker, but has since rebounded to become just that.
As David Haigh, CEO of brand valuation and strategy consultancy Brand Finance puts it, “The cost of recalls and fines could be far more significant than those Toyota faced, whilst the apparently deliberate nature of VW’s actions compounds the impact on its credibility. Its sins of emission are sins of commission. This sits particularly badly with Volkswagen’s brand identity which is founded on reliability, honesty, efficiency (both efficiency of production and fuel economy) and more recently for environmental friendliness via models such as the Polo Bluemotion and XL1. Brand Finance therefore estimates that as much as $10 billion has already been wiped off the value of the brand.”
To help dig themselves out their $10 billion dollar hole and hopefully restore their reputation along the way, the automaker is looking to become the global supplier for electric car batteries. Part of this plan would include opening a state-of-the-art factory in the Lower Saxony region of Germany, which owns 20 percent of VW stock, along with plans to roll out 30 unique electric vehicles in the coming decade. Including Audi and Porsche models under the brand that effort could result in up to
1 million new electric vehicles out on the roads of the world.
“We are using the current crisis to fundamentally realign the Group,” VW’s CEO, Matthias Müller, told EU parliamentarians in Brussels in January. “I strongly feel we now have the chance to build a new and better Volkswagen.”
For the sake of their planet-friendly electric vehicle plans, let’s hope so.
Image via Flickr courtesy of user markheybo at https://flic.kr/p/gi1qzW