Volkswagen reportedly manipulated emissions tests, an unethical action that is going to cost the company $7.3 billion to cover the cost of recalling 11 million vehicles worldwide. In addition, the stock price went on downward spiral, losing 23% of its value. This may not be the end of bad news for Volkswagen.
The deliberate attempt to mislead officials and consumers is shocking. We haven’t seen dishonesty of this scale from a major global brand in recent years. From Yahoo News:
The company told U.S. regulators that it intentionally installed software programmed to switch engines to a cleaner mode during official emissions testing. The software then switches off again, enabling cars to drive more powerfully on the road while emitting as much as 40 times the legal pollution limit.
Interbrand, which ranks world’s top 100 brands by brand value each year, had Volkwagen at #31, with a brand value of over $13,716 million. The brand saw a 23% jump in value from 2013 to 2014. Volkswagen has a great portfolio of brands including Audi, Porsche and Bentley. It’s global ranking and brand value are sure to decline as a result of this scandal.
Toyota lost a lot of brand value when they recalled over 5 million vehicles due to the “unintended acceleration” problem. In that case, an extensive investigation revealed that there was no “electronic defect in Toyota vehicles”. There was no accusation that Toyota deliberately did something wrong.
In Volkswagen case, any savings from the fudged emissions tests would have been insignificant compared to the penalty, damage to brand equity and future effort needed to win back customer trust. Doing it right the first time would have been far less expensive.
It will be interesting to watch if and how they win back consumer trust.