Patrick Skarr, Vice President
It has been nearly six months since the U.S. Environmental Protection Agency revealed that Volkswagen had a major problem with the design and functionality of the emissions control on up to 11 million automobiles. Instead of being one of the cleanest diesel vehicles on the road, the cars were emitting up to 40 times the allowed particulates.
Unfortunately for Volkswagen, its handling of this crisis will be studied for all the wrong reasons. Executives often ask crisis communication professionals, “What is the return on investment in pursuing this strategy?” In the case of Volkswagen, the results are telling.
Sales have slowed and the company announced its first quarterly loss in 15 years. Dealers are upset, customers are angry and investors have no ability to weigh just how much this will cost the company.
Some of these outcomes were unavoidable for allowing the faulty emissions control to be placed in 11 million cars in the first place. However, the broader damage is also being exacerbated by how this international corporate behemoth is managing this crisis.
Volkswagen is not the first car company to face an existential reputational threat. In the 1970’s the Pinto made by Ford Motor Co. had an issue with spontaneous combustion. In a much-maligned decision, executives attempted to sweep the issue under the rug. Other car companies learned from this, and other, painful experiences.
When Mary Barra became CEO at GM, she inherited an equally troubling, legally complex, reputation-damaging scandal. GM had defective ignition switch that jeopardized the safety of its vehicles.
Barra was widely credited with spearheading a strategy of transparency and definitive action. GM entered into a deferred prosecution agreement with the Department of Justice and established a compensation fund for victims. GM confronted its challenge with candor, and Barra emerged as principal spokesperson.
For her efforts, Fortune Magazine named Barra 2014 Crisis Manager of the Year. Even more telling, she was elevated to the position of Chairman of the Board of Directors in January 2016. The company is moving forward.
In contrast, it is difficult to describe VW’s response in any short order. Admittedly, after researching the topic for this blog, I’m still not clear what strategy they are pursuing.
Some accountability has been enforced with executives being suspended and the resignations of Michael Horn, head of Volkswagen’s U.S. unit, and Martin Winterkorn, chief executive officer. However, these departures were very slow by U.S. standards in the workplace and media.
German business culture is vastly different than elsewhere in the world. However this transcends social norms. Many have faulted Volkswagen’s culture for its management of the crisis. The culture is influenced by the company’s unique ownership and management structure, which includes a German state government, labor unions and the descendants of Ferdinand Porsche.
Whatever the causes of the decision making, the contrast in reputation management could not be starker between GM and its European counterpart. Executives in every industry should take note of the difference an aggressive crisis management strategy has on business results.
Volkswagen spent decades vying to become the world’s largest automobile company. Today their reputation is in tatters, shareholders continue to pay the price, and other car companies are aggressively stealing market share.