Volkswagen’s long road to reputational repair 23 Sep 15
When CEOs emphasising the importance of their company’s brand are quoted in the mainstream media, it is usually because something has gone horribly wrong. This week, Volkswagen’s Martin Winterkorn has been the public face of the company as it reacts to the unfolding emissions scandal. The struggle to repair the company’s reputation will be a long one.
It’s been a disastrous week for the German automobile company. On Friday the US Environmental Protection Agency (EPA) issued a notice of violation of the Clean Air Act to Volkswagen AG, Audi AG, and Volkswagen Group of America, alleging that four-cylinder Volkswagen and Audi diesel cars from model years 2009-2015 include software that circumvents EPA emissions standards for certain air pollutants. By making and selling vehicles which defeat devices that allowed for higher levels of air emissions than were certified to EPA, it stated that Volkswagen had violated two provisions of the Clean Air Act. On Friday the EPA stated that its allegations cover roughly 482,000 diesel passenger cars sold in the United States since 2008. The company has subsequently revealed that 11 million vehicles worldwide are involved in the scandal, and has set aside €6.5bn to cover the related costs. On Monday, shares in Volkswagen plummeted 20%, wiping $18 billion off the company’s value. Since the announcement on Friday, damage control has been the order of the day.
The potential threat to the company goes far beyond the immediate financial cost, and with the scandal unfolding, Winterkorn has taken centre stage. His key messages? That the company is “deeply sorry that we have broken the trust of our customers and the public”, that it will cooperate fully with authorities, that it would be wrong for people to cast suspicion on the work of the majority of its workers “because of the terrible mistakes of a few” and that it needs to do better to regain trust in the brand. In a video statement he noted that the “irregularities in our group’s diesel engines go against everything VW stands for”, stating that millions of people across the world trust our brands, our cars and our technologies” and pledging “we will do everything necessary to reverse the damage and win back your trust, step by step”.
In terms of crisis management, these seem to be the right immediate messages to send. ‘Admit the mistake, emphasise transparency and co-operation with authorities, and work to ensure that the company’s staff are onside’ is the right approach to take, both internally and externally. One of the longer-term challenges, however, will be to rebuild wider brand trust.
In this year’s Brand Finance Global 500 report, Volkswagen was ranked as the world’s 17th most valuable brand (at $31 billion) – the only automotive brands deemed more valuable were Toyota and BMW. It was also in the top 20 in terms of the brands which had experienced the largest year-on-year rise in value, having seen a steady rise in value over the past five years.
Asked how impactful this week’s events will be in terms of brand value, Robert Haigh, marketing and communications director of Brand Finance, draws a parallel with Toyota, the most valuable auto brand on the list, which “suffered significant reputational and brand damage following a series of recalls over mechanical issues from 2009-2011”. After reaching a peak of US$27.3 billion in 2010, Toyota’s brand value fell in subsequent years and did not recover to exceed its previous peak until 2014. This year it was valued at $35 billion. Haigh notes: “We can expect a similar trend for Volkswagen.”
What complicates the Volkswagen situation is the apparently deliberate nature of the company’s actions. Haigh notes: “It sits particularly badly with Volkswagen’s brand identity, which is founded on reliability, an assumption of honesty, efficiency and, more recently, for environmental friendliness. These are all very sensible traits to exploit and communicate but this scandal threatens to totally undermine VW’s marketing and communications strategy.”
An additional quirk of this particular scandal is the potential knock-on for other German companies, and the ‘Made In Germany’ brand itself. In Brand Finance’s most recent ‘Nation Brands’ report, Germany trailed just the US and China in terms of brand value, and led the way with respect brand strength. Could the fallout from this scandal tarnish the perception of German brands more generally?
Haigh answers in the affirmative: “German industry is lauded for its efficiency and reliability while Germans as a whole are seen as hard-working, honest and law abiding, a perception that the Merkel government’s approach to the Greek debt crisis has only intensified. This scandal threatens to undo decades of accumulated goodwill and cast aspersions over the practices of German industry. However, despite the vast scale of the deception, other firms will need to be implicated before the damage to Germany’s nation brand become critical. Nevertheless, Germany’s status as the world’s most powerful nation brand is under threat, and nation brand value could be set to fall.”
The stakes, then, are high for both Volkswagen itself and for other brands. So what of the future? The next few weeks will be critical in terms of action and messaging. Longer term, the worst case is that the brand struggles to recover and Haigh suggests: “If the scandal does continue to expand and toxify it may be necessary to rebrand entirely.”
The good news is that strong brands are resilient enough to fight back after a disaster. As well as the aforementioned Toyota example, take, for instance, the example of BP, which five years ago had to contend with the fallout from a disastrous oil spill (triggered by an explosion on one of its oil platforms) in the Gulf of Mexico. At that time, the question being asked was whether the company would ever be able to rebuild its reputation. The reality is that, in the time since, the company has worked to repair the damage (both environmentally and in terms of its reputation) and is making progress. In this year’s Brand Finance Global 500 it is ranked as the 18th most valuable brand (ironically right behind Volkswagen).
However, what is clear is that the damage can take many years to repair.
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