Volkswagen — the world’s biggest automaker, since beating back Toyota — seems to finally be waking up to the seriousness of the complete reversal of fortune it experienced only months after triumphing in the global marketplace. Let's hope so, anyway.
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Hans Dieter Poetsch, VW’s new chairman, said the company could be in an “existence-threatening crisis.” I’d say there’s no doubt about it. There's even talk that the VW Group will have to shed some brands — I'd jettison Bugatti, if I were them. But there’s no guarantee that management — even the new leadership that took over after the diesel duplicity was revealed — will make the right steps now.
Let’s consider a similar turning point. Both General Motors and Chrysler were threatened with oblivion in 2009 when decades of complacency and wishful thinking led them to bankruptcy. Did they go to Congress in sackcloth and ashes, with begging bowls tearfully extended?
Not a bit of it. Clearly, they thought they were too big to fail. The two CEOs flew in on corporate jets. They neglected to bring along any sensible bailout strategy, which enraged Congress and led directly to the firing of then-GM chief Rick Wagoner.
Steve Rattner, Obama’s car czar, describes events this way:
[Wagoner] set a tone of “friendly arrogance” that seemed to permeate the organization. Certainly Rick and his team seemed to believe that virtually all of their problems could be laid at the feet of some combination of the financial crisis, oil prices, the yen-dollar exchange rate, and the United Auto Workers. It seemed completely obvious to us that any management team that had burned through $21 billion of cash in a year and another $13 billion in the first quarter of 2009 could not be allowed to continue.
Volkswagen had culture problems, too, and by many accounts has been run more like a family fiefdom than a modern corporation. This hasn’t made much difference to American consumers, who loved the company’s small cars for their combination of quality materials, sportiness and fuel economy. Reliability meant that considerable trust in VW has been built up since Beetle days.
That’s all gone now. A new Kelley Blue Book survey finds that more than half of Americans (53 percent) say they have a “complete” or “general” lack of confidence in the brand, and reports are that sales are down dramatically at dealerships. “Automotive consumers are well aware of the diesel emissions issue, and they have Volkswagen squarely in their sights as the manufacturer at fault; as a result, the company's brand image is taking a hit,” said Rick Wainschel, vice president of customer analytics and insights for Kelley Blue Book.
Things have gotten so bad that VW is offering American owners a $2,000 "loyalty bonus" towards the purchase of their next Volkswagen — and it doesn't have to be a diesel.
VW officials are, of course saying the right thing. "Under my leadership, Volkswagen will do all it can to develop and implement the strictest compliance and governance standards in the whole industry," new CEO Matthias Mueller, right,said in a statement.
But automakers, which have far too much self-policing control over emissions testing in the U.S., can’t be trusted to do the right thing. Dan Becker and James Gerstenzang, in a USA Today op-ed, thinks that huge fines will get the company’s attention. “The government must levy the strongest allowed punishment on VW,” they wrote. “Anything less than roughly $18 billion — reflecting the maximum allowable fine of $37,500 per vehicle—would be inexcusable.” Prosecuting the executives responsible wouldn’t be a bad idea also, they say.
The irony here is that VW was seen as one of the good guys, especially on environmental issues. A recent Union of Concerned Scientists study on the greenest automaker operating in the U.S. put VW in fifth place. Talk about disgrace, VW diesels twice won the Green Car of the Year Award from Green Car Journal—the 2009 Jetta TDI and the 2010 Audi A3 TDI. Both have now been stripped of their titles, and new winners will be named.
Some commentators have said that VW’s actions need to be seen in context, that the company’s cars didn’t kill anybody (think Ford’s exploding Pintos, the Toyota ignition crisis, etc). But, in fact, pollution-spewing VWs probably did kill people, reports a study conducted by Carnegie Mellon University for the Associated Press. “Statistically, we can’t point out who died because of this policy, but some people have died or likely died as a result of this,” said Carnegie Mellon environmental engineer Peter Adams.
So there’s no names, but there is a number. Remember that VW has put nearly 500,000 of these defective diesels on the road since 2009, each one producing up to 40 percent the legal limit of nitrogen oxide. And that could have lead to as many as 94 deaths, said the CM study.
In case you need a refresher on how the cheating software, read my earlier piece here, or take a look at this video: