In the scheme of great corporate crises, the Volkswagen debacle could scarcely be greater, yet who would bet against the German giant surviving and perhaps even thriving from the outcome of its appalling lapse?
VW’s handling of the revelation that software in up to 11 million of its diesel-engined cars had been doctored to evade regulatory emissions tests continues to dominate the headlines.
The fact that this company, arguably the strongest brand at the popular end of its industry, had resorted to such naked cheating to minimise recording of noxious nitrogen oxide emissions remains shocking.
VW is in an emergency situation but manages somehow to avoid the panic button – so far.
The company has promised that every one of the millions of its affected cars will have been recalled, repaired and returned to owners at some stage during the 12 months of 2016. Such a task might overwhelm lesser manufacturers but it will not be pain free.
The first bad news for VW workers is that every area of the company will be scrutinised to pay for the £4.8 billion initial cost of the recall programme. That will probably mean significant job losses.
VW prefers to talk about cancelling or postponing ongoing research projects and saving “massively” from a review of every brand. . Incoming chief executive Matthias Muller told 20,000 workers at the company’s Wolfsburg headquarters that cuts would help “manage the consequences of the crisis” and preserve the group’s superior credit rating.
With 600,000 employees, job cuts are inevitable. The German car making industry may make some of the best vehicles in the world, but it is nowhere near as “lean and mean” as its Japanese competitors.
But it has a peerless reputation for quality and brand. German marques retain a strong reputation for reliability and design. Although many rivals have much improved, there is still a certain cache to owning a German car. Consider the VW Golf, one of the strongest mass market brands worldwide.
None of this will be of comfort to the mainly European workers across the continent as they come under severe pressure to help the company survive at the top, even when many will feel their livelihoods threatened in the process. Stripped down next year for that recall, the core of VW’s task during 2016 will be to sort out errant software – that now infamous “defeat device” – as well as continue to build cars for just about every customer in every market, and hope that nobody takes umbrage and switches to another make.
The company’s new chairman, Hans Dieter Poetsch, emerged from a board meeting reluctant to say much about the ongoing investigation into who caused the scandal. So far just four personnel have been suspended. "Nobody is served by speculation or vague, preliminary progress reports," he said, refusing to take further questions.
Today, Michael Horn, head of the car giant’s US operation, will testify on the scandal before Congress. He cannot expect an easy ride, although a lot depends on whether and how far politicians there will seek to punish VW for the horrendous transgression.
Will they accept VW’s plea that the defeat devices were the work of a handful of wrong-headed employees rather than a case of outrageous corporate cheating? Can they resist the temptation to batter VW, presumably to the benefit of an embattled US car industry that has failed so often to compete effectively in its own market?
What happens next will be watched closely by VW’s competitors. There has been speculation, so far unfounded, that other car makers have been playing similar games to avoid proper emissions checks.
There is a problem, too, with diesel technology. More than a decade ago we were urged to switch to diesel because of its relatively lower carbon emissions, compared to gasoline, and better mileage returns. The creation of extra nitrogen oxide emissions – directly causing more deaths from respiratory diseases – was ignored.
So is it the end for the reputation of German industry? Perhaps not. VW shares, having dropped by more than 30 per cent in recent weeks, recovered by around five per cent on the recall programme news.
Germany took on the mammoth task of re-unification two decades ago and succeeded. To the surprise of some commentators, the VW scandal does not appear to have affected sales significantly, as yet. Western drivers know a good product when they see one. Perhaps they may be ready to forgive VW, as long as it responds promptly and effectively to this crisis, and is seen to be doing so.
It is far too early to write off a brand that was created by Adolf Hitler and has driven the nation’s post-war economic recovery for so long.
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