Afterthoughts: Volkswagen's Comedy of Errors

[William Maley]

Over the past six months and numerous articles with the ‘As the Diesel Emits’ in the title, we are no closer to have a fix for the around 600,000 Volkswagen diesel vehicles with illegal emission software. Instead, we have been treated a first-rate performance of ‘How not to handle a crisis’. From Volkswagen’s delay of admitting the illegal software to CEO Matthias Muller seeming very oblivious to what happening in an interview. It seems the German automaker is getting one black eye after another.

 

The past month or so has seen the crisis cranked up to eleven.

• New documents revealed that senior managers, including former CEO Martin Winterkorn, were alerted about the U.S. probing some of their TDI models back in 2014
• This was followed up by a letter from last year alerting Winterkorn that the Volkswagen did use a defeat device in their diesel models - two weeks before the official EPA announcement.
• A U.S. Federal Judge has given Volkswagen until March 24th to give an answer on where they stand on a possible fix.
• Volkswagen of America CEO and President Michael Horn suddenly stepped down from his position.
• With Horn’s departure, dealers want answers as to what happens next or a mutiny could happen.
  

Ever since this scandal came to light, there has been a question that has been floating around in my head: Does Volkswagen know how much trouble it is in? On the surface, it seems they do and are trying their best to rectify this issue. But dig a little bit further and there are very troubling signs.

 

For example, the Associate Press last week learned from a couple people that Volkswagen’s management in Germany resisted the plan set by Horn to offer $1,000 in gift cards to owners as a gesture of goodwill. Thankfully management relented and the program was instituted. Then there was Volkswagen’s first proposal to fix the affected vehicles in the U.S. which got rejected by the California Air Resources Board as it was “incomplete, substantially deficient and fall far short of meeting the legal requirements to return these vehicles” to compliance. Since then, Volkswagen has been working on a new solution to present to CARB and the EPA, though we haven’t heard anything about it.

 

These concerns bring up another question about Volkswagen: Do they know what their place in America is? Last September, Automobile Magazine ran an excellent editorial titled Volkswagen Has Never Understood its Place in the U.S. In the piece, the author argues that Volkswagen is seen by many Americans as something out of the mainstream - original Beetle, Microbus, Golf GTI, and their diesel lineup. Because of this, Volkswagen has a small, but loyal fanbase, But Volkswagen sees themselves as something different; a mass-market brand capable of selling many vehicles around. Except in the U.S.

 

A few years ago, Volkswagen set an ambitious goal of selling 800,000 vehicles in the U.S. by 2018. To achieve this goal, the automaker decided to build vehicles tailored to the marketplace. What we ended up with was a Passat and Jetta that were appealing as stale bread because that is what the company thought would sell. At first, the strategy worked as sales of Volkswagen vehicles increased. But in the past couple of years, sales have dropped precipitously. The company has been scratching their heads as to why this is happening. It goes back to Volkswagen not understanding their place in the U.S.

 

That last sentence can be extended further into the diesel emission crisis. The way Volkswagen has handled this crisis is nothing short of disastrous. If you are a company dealing with a massive crisis, the key thing you should be doing is keeping everyone somewhat abreast of what is happening. Volkswagen has barely done this and has given the impression that they are really not doing anything, despite all of the reports saying Volkswagen is conducting an internal investigation and working on a fix.

 

This one quote from the Automobile Magazine editorial partly sums the predicament Volkswagen finds itself in.

 

“That left the small clique of devoted enthusiasts, folks who bought Volkswagens because they were Volkswagens, and often because they were Volkswagen “clean” diesels. These are precisely the people Volkswagen just kicked in the teeth.”

 

They’re not the only group that Volkswagen has caused pain. Dealers who bought into Volkswagen’s vision of being a mass-market brand and spent close to a billion dollars, only to see sales fall apart are not very happy. There also seems to be a disconnect between dealers and Volkswagen as this quote from Bloomberg illustrates,

 

“The suggestion was startling: Maybe VW should give up on selling cars to America’s masses.

 

It was late January, at the Detroit auto show, and Herbert Diess, the global chief of Volkswagen AG’s namesake brand, was sounding out U.S. dealers as the company grappled with the biggest crisis in its modern history. Perhaps, Diess wondered aloud, VW should stop trying to compete with the likes of Toyota Motor Corp. in America and go back to focusing on higher-end models.

 

“It was near crickets in the room,” said Alan Brown, chairman of VW’s U.S. dealer council.”

 

Volkswagen is now at a crossroads with seemingly everyone angry with them in one form or another. There are so many things the company could have done to be in a better place than they are currently. But the Volkswagen’s mindset and not fully understanding the U.S. put them in a the place where they are now. Whether or not they learn from this experience and make the necessary changes to survive remains to be seen.

 

The one thing we are sure about is that Volkswagen lost a lot of trust from various groups because of this scandal. As anyone will tell you, regaining trust is a seemingly impossible task.

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[G. David Felt]

Lovely, I see that the Stockholders have now Sued Class Action ShareHolder lawsuit asking for minimum of 3.7 Billion for lost Value due to the deceit by the board and CEO.

 

I wonder if VW will be forced to declare bankruptcy?