Volkswagen in Need of an Alignment
November 6, 2015
When I was in the fifth grade, our class clown was a kid named Warren. Our teacher, Mr. Rush, was a strict disciplinarian, so Warren was often in trouble. After a day or two of “trying to be good” and avoid yet another trip to the principal’s office, Warren lamented that he was being judged by his “old reputation.” Mr. Rush put his arm around Warren’s shoulder and said, “It takes a lot longer to earn someone’s trust than it does to lose it.”
It’s too bad the folks in charge at Volkswagen (the ones who green-lighted “defeat devices” in 11 million diesel engines, and then lied about it to federal regulators and their customers) ignored this valuable life lesson. It’s going to cost their brand in immeasurable ways.
When the automaker’s transgressions were made public, Volkswagen announced it would set aside $7.3 billion to deal with fallout from the scandal (i.e., fixing the emissions problems, reimbursing owners, and settling civil and criminal lawsuits).
Volkswagen’s new chief executive now warns that amount will not be enough. He said it’s impossible to calculate the cost (and he’s probably right) but a JPMorgan analyst put it at around $45 billion. Credit Suisse estimates $25 to $87 billion.
Despite these staggering figures, Fitch, the international ratings agency, said its biggest concern was the “reputational damage” to the VW brand. This means significant downgrades in:
- Volkswagen shares
- Company value
- Credit ratings
- R&D investments
- Future sales
Other companies (including automakers) have had to deal with big scandals and shown that it’s possible for Volkswagen to rebound. But as my old classmate, Warren, learned, restoring trust in your brand doesn’t happen overnight. Volkswagen should have considered that their actions would either reinforce and build upon its brand promise, or completely destroy it.
Author:
Jeff Doggett is a Principal of Doggett in Charlotte, North Carolina. In 2007, Jeff became a Certified Brand Strategist and member of The Brand Establishment.
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