A long and hard road lies ahead for VW

From the Sacramento Business Journal - October 9, 2015 by Doug Elmets

The annals of corporate history are brimming with crises that brought big companies — and top executives — to their knees. BP’s deadly oil rig explosion off Louisiana, Enron’s colossal accounting fraud, and the Lehman Brothers bankruptcy would no doubt make anyone’s top-10 list.

But even with those episodes gleaming in our rearview mirror, it’s hard to fathom a doozy quite like the scandal engulfing Volkswagen. Last month the German carmaker admitted it had installed “defeat devices” in as many as 11 million diesel cars, enabling the vehicles to pass emissions tests while actually spewing far more deadly pollutants than the rules allowed. About 500,000 such cars were sold in the United States.

The stunning revelation sparked a criminal investigation by German authorities and brought the resignation of CEO Martin Winterkorn. Shares of Volkswagen stock have plunged, and penalties totaling as much as $18 billion could be coming from the U.S. Environmental Protection Agency.

Billions more will be owed to cover the recall of cars, legal action from consumers and shareholders, and costs incurred by auto dealers temporarily unable to sell new diesel models on their lots.

All in all, it’s a mess big enough to spoil your Fahrvergnügen.

The question now is how — or even whether — Volkswagen endures the crisis and carries on.

Aside from the financial repercussions, Volkswagen faces the complicated challenge of rebuilding its reputation. Consumers can get over blunders and even a bit of negligence or concealment. But forgiving an automaker that deliberately installed software to skirt the Clean Air Act, endangering public health? That might be too big an ask.

The quick resignation of Winterkorn, who has — surprise — denied wrongdoing, was a good start. Here’s what its leaders should do next:

  • Take charge and be transparent. Appointing Matthias Muller as the new CEO was a smart move because he comes from the Porsche division, and Porsches were not equipped with the rigged diesel engines — thus, he is presumably clean. Muller now must demand a full accounting of how Volkswagen got into the cheating business.
  • Keep the heads rolling. As the chain of deception is revealed, Muller must hold accountable those who played key roles in the scheme. Protecting the guilty will only prolong the damage.
  • Make the recall and other customer dealings as painless as possible. Drivers are already ticked off; don’t give them more reasons to buy a Camry.
  • Start rebuilding — quietly, at first — today. “Dieselgate,” as some have dubbed the scandal, has left VW owners feeling betrayed and will dominate public perceptions of the automaker for years to come. But until this episode, Volkswagen was known for making solid, safe cars — and had a feel-good vibe dating back to Herbie and The Love Bug.

Given such history, it’s possible that, through contrition, transparency and accountability, the company might be able to reboot and rebuild a reputation for integrity.

It won’t be easy, and it won’t be cheap. Indeed, as they navigate their way over the long line of road hazards ahead, Volkswagen executives may find themselves plaintively chanting one of their company’s memorable slogans:

Drivers Wanted.

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