VW Dieselgate: Beginning of the end of a German auto-industry powerhouse?

Who doesn’t love a slick, trendy-looking car to go around town or for a nice drive out of town. At the top of its achievement, Golf as the most popular variant of Volkswagen family, was awarded car of the year tittles for two consecutive years in 2009 and 2010 by one of the most influential national car researchers organization, Drive.

Volkswagen-Golf-GTI-5dr

Like most of consumers who don’t know much about particular products they are buying, more often than not, they rely on brand. Iacobucci argues that brand conveys information to customers (2013, p.78). It conveys many things, from attributes of its products (for example: consistency, durability and reliability) to status symbol.

And as part of our cognitive process, we learn associating brands with particular perceptions and often biased, depend on either personal experience or experience of other trusted source, often referred as operant conditioning (Poulos, p. 138).

MadeinGermany

For Volkswagen, fortunately, it has a long history as a German car manufacturer since 1904. With no surprise, in Australia we associate German cars with good build quality, sophisticated engineering and superb craftsmanship, this is backed by country brand index 2014 – 15 (slideshare.net)

Germanbrands

One bad news after another, the latest emission scandal has claimed Volkswagen long serving CEO and has provided $10bn to cover the cost of its latest scandal earlier in the year (www.abc.net.au).

As a brand, Volkswagen could very quickly loss its credibility. In fact, it probably has! There is a point where lost of reputation will reduce demand for the brand’s products, therefore affect profit, cash flow and its viability. Shortly after the diesel-gate scandal unfolded, VW market value plummeted by about 30% or around 20bn Euros.

VWgroup

Thanks to House of Brands approach adopted by VW group where each brand’s performance and reputation are independent from one to the other. This is evident where strong performances of VW stable-mates, namely Audi and Porsche, have propped up group result. VW group sales were down only by 2% in 2015 compared to prior year. The sales of VW branded vehicles alone have dropped by 4.8% year on year and 7.9% in December 2015 compared to December 2014.

In the case of VW, how much damage really has been done? It’s not easy to quantify how much reputation damage really costs a business, however it is not impossible for it to recover from it. How it responds to current owners, lawmakers and consumer in general would determine its future.

Evidently from Australian perspective, the last two scandals involving VW branded cars, VW Australia has handled mishaps and media very badly. In 2013, it failed to immediately issue a recall even after a conclusive investigation, which involved a death of a female VW driver in 2011 (www.driver.com.au). And with the most recent emission scandal (having a personal experience for being an owner of affected vehicle), communications to current owners were slow and issue has not been fully rectified and won’t be until the second half of 2016, which is close to twelve months after the scandal unfolded.

In line with Classical Conditioning Theory, where consumers learn through repetition and association, this could be the end of VW as a reputable brand as consumers start to associate VW brand with deceits, unethical and environmentally unfriendly.

Beijing

In other parts of the world, a recent survey completed by German Marshal found 46% of US citizens no longer trusted VW brand (abc.net.au) and furthermore with lawsuits from lawmakers from around the globe, including Chinese environmental group, could see compensation cost to reach $23bn (www.theage.com.au).

Could this be the end of VW brand? Or could this be the undoing of German Auto industry as a whole? A recently published article reports that another reputable brand, Mercedes Benz, is also facing similar scrutiny (www.theage.com.au).

Written by: Johan Rudtio who was a fan VW brand.

References:

Au.news.yahoo.com. (2016). VW says own-brand sales down in first quarter. [online] Available at: https://au.news.yahoo.com/a/31363817/vw-says-sales-down-1-3-in-first-quarter/ [Accessed 23 Apr. 2016].

Ausick, P. (2016). Global Volkswagen Sales Fall 2% in 2015. [online] 247wallst.com. Available at: http://247wallst.com/autos/2016/01/08/global-volkswagen-sales-fall-2-in-2015/ [Accessed 23 Apr. 2016].

Dans, E. (2016). Forbes Welcome. [online] Forbes.com. Available at: http://www.forbes.com/sites/enriquedans/2015/09/27/volkswagen-and-the-failure-of-corporate-social-responsibility/#16fac1246128 [Accessed 23 Apr. 2016].

Heberden, T. (2016). Volkswagen: quantifying the reputational damage. [online] Griffithhack.com. Available at: http://www.griffithhack.com/ideas/insights/vw-quantifying-the-reputational-damage/ [Accessed 23 Apr. 2016].

Iacobucci, D. (2013). MM4. Mason: South-Western.

McCathie, A. (2016). $10bn set aside to cover cost of VW emissions scandal will fall ‘woefully short’. [online] ABC News. Available at: http://www.abc.net.au/news/2016-04-14/volkswagen-10-bn-to-cover-emissions-scandal-costs-falls-short/7324452 [Accessed 23 Apr. 2016].

Melissa Fyfe, A. (2013). Death prompts VW owners to speak out. [online] Drive. Available at: http://www.drive.com.au/motor-news/death-prompts-vw-owners-to-speak-out-20130530-2nexi.html [Accessed 23 Apr. 2016].

Niedermeyer, E. (2016). VW’s diesel crisis is now a global threat. [online] The Age. Available at: http://www.theage.com.au/business/world-business/vws-diesel-crisis-is-now-a-global-threat-20160422-goddey.html [Accessed 24 Apr. 2016].

Poulos, M. (2007). Buyer behaviour. Frenchs Forest, N.S.W.: Pearson Education.

Sharman, A. (2016). Volkswagen brand car sales fall 4% in the EU in January – FT.com. [online] Financial Times. Available at: http://www.ft.com/intl/cms/s/0/758e9434-d4a9-11e5-8887-98e7feb46f27.html#axzz46cZqzP6X [Accessed 23 Apr. 2016].

Slideshare.net. (2016). Country Brand Index – Report 2014 2015. [online] Available at: http://www.slideshare.net/massimoclementini/country-brand-index-2014-2015-report [Accessed 23 Apr. 2016].

Writers, S. (2016). VW recalls 2.6m cars, over 44,000 in Australia. [online] CarsGuide. Available at: http://www.carsguide.com.au/car-news/vw-recalls-26m-cars-over-44000-in-australia-23110 [Accessed 23 Apr. 2016].

 

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