Wooooosshhhh. That crescendo you’ve been hearing is the air deflating from Volkswagen’s formerly bouncy and beloved little tires, or brand if you will. Like Lindsay Lohan’s performance in a bad Herbie the Love Bug remake, the iconic brand – not to mention it’s stock value – has tanked virtually overnight, leaving more than 75 years of brand equity in the wreckage. The damage to the brand’s value as a corporate asset? Virtually incalculable.
“Das Auto” und Das Scandal
As you may have heard, the German manufacturer has admitted (after a year of denying such claims) to using so-called defeat devices in its diesel models to hoodwink regulators, consumers, investors and, if you consider the “green” subsidies it pocketed, the U.S. taxpayers to the tune of about $51 million. In essence, the people making what translates to “the people’s car” pulled a fast one on – you guessed it – the people.
Domestically, fines totaling up to $18 billion could be assessed on the nearly half million vehicles sold here since 2008. Extrapolated, that number could grow to $400 billion internationally based upon the distribution of 11 million such vehicles – potentially exceeding the company’s market cap (although that’s unlikely to happen). Already, more than a third of its market value has evaporated in a matter of days and that doesn’t even consider class action lawsuits, further criminal probes, recall repairs and lost equity in the vehicles or the brand’s value itself.
Beyond the financial impact, hardly anyone has yet to focus upon the environmental impact of all those cars pumping out up to 40 times the legal limit of poisonous nitrous oxide. Let’s think about the cumulative effect of that for just a moment: up to 11 million “clean diesel” vehicles around the world, spewing up to 40 times the legal limit of a toxic compound for seven years.
Some industry experts say it may trigger the end of diesel as a fuel alternative altogether and there are now broader concerns about Germany’s economy whose stability has largely been responsible for helping guide the E.U. through the recent economic crisis. Get ready – from the environment to related brands like Audi, Porsche and potentially extended to others, this tale will have more twists and turns than the Autobahn on a snowy day.
What’s German for Buh-Bye Brand Equity?
Sure, there are obvious and enormous financial repercussions. But what about the damage done to the value of the brand itself? Well, mistakes are one thing and consumers may be forgiving of a minor part defect requiring the inconvenience of a recall. But in this case, trust was undermined and that’s a whole different shade of Beetle. This was systematic fraud based upon calculated deception at multiple levels across a conglomerate.
Volkswagen was an emotional brand firmly positioned in an enviable and idealized position. At times (more so in the past than in the present) the vehicles they manufactured felt as though they had personalities and reflected those of their owners. People would use words like “love” to describe their relationship with these products and I, for one, have forever resented my older sister for rolling around town in the 1963 maroon VW Bus my parents cruelly traded in before my birth. Over time, these vehicles – as well as the campaigns to market them – became iconic symbols to generations.
Generating that level of brand demand doesn’t happen overnight; it takes time and an awful lot of investment, most of which has now been erased. Consumers feel personally affronted; ashamed and betrayed. A small and random sampling of VW owners and potential buyers I spoke with has knocked the brand off the consideration list with a solid thud. Those kinds of visceral reactions take years – and perhaps decades some industry experts say – to overcome.
Where do they go from here?
So how do they begin to recover some of that tarnished brand equity, or at least attempt to? Here are some quick tips VW might consider in hopes of re-establishing it’s brand value:
Tip 1: Take responsibility
While it’s unclear whether the company has actually admitted guilt, the swift resignation of the CEO, Martin Winterkorn, is a good first step. Full and unequivocal acceptance of responsibility is required, however. This is the hardest part of the process and is like ripping off the proverbial Band-aid, but no progress will occur until this critical step takes place.
Tip 2: Beg forgiveness
They should also say they’re sorry. A lot. Not just to their customers and shareholders, but to the regulators and taxpayers they bilked in countries around the world. For their corporate culture to swallow its pride may be difficult, but they no longer have any; the principle of “social responsibility” they cite as part of their corporate culture has been broken.
Tip 3: Be transparent
The only way to begin to re-establish trust is through complete transparency. We’re talking xenon headlights here, not interior mood lighting. It’s imperative that, in addition to full cooperation with investigative bodies around the world, the company’s own internal investigation is swift, actionable, complete in its reach, and open for all to see. They must put forth a clear course of action that demonstrates exactly what they plan on doing about it and when.
Tip 4: Make good
How they’ll do this and what’s considered “enough” is the big question. There will be fines to pay, class action suits to settle, rebates to be returned and the cost to recall and repair all those vehicles. Assuming they remain financially viable, a substantial amount further will be required to rebuild the brand over the long-term. How they’ll assuage current owners whose car values have plummeted and ever win them back to buy again remains in question, as does satisfying disgruntled investors.
Tip 5: Wait
Buckle up and be patient. This won’t be easy and results won’t happen overnight. In VW’s case, even if they manage to do everything right it may take decades for them to regain the brand equity they once possessed. The word Volkswagen is sullied at the moment and it may actually benefit the brand to disappear for a while. That means hitting the brakes on product branding or promotion, and not just of diesel models. Any media commitments should be repurposed to demonstrate exactly what they’re doing to remedy the situation and how they intend to earn back trust.
We all know the moral of the story – that corporate greed puts your brand in peril; short term gains can prove a brand’s downfall, blah, blah, blah – but for some reason (human nature perhaps?) the lessons are forgotten and will likely be repeated. Sure, you might not get caught selling out your customers and investors, deceiving government regulators, and defrauding taxpayers in the name of profit. But for now, let VW remind us what might happen if you do.