Why Volkswagen cannot survive the emissions scandal unscathed
The emissions scandal engulfing Volkswagen is to such a scale that the brand is unlikely to survive, at least in its current form, according to branding experts and consumer perceptions data.
By Sarah Vizard
It is now little under a week since the revelation that Volkswagen was fixing its car emissions first surfaced. In the past week we have seen Volkswagen admit the issue could affect up to 11 million cars globally, equating to millions of tonnes of emissions.
Its CEO Martin Winterkorn has already fallen on his sword despite saying he had no knowledge of the elaborate rigging ruse. Others are almost certain to lose their jobs as the full scale of who knew what and how high up the scandal went become clear.
Volkswagen is the world’s biggest car marque having overtaken Toyota earlier this year. It also, prior to the scandal, had one of the strongest brands in the auto industry.
On YouGov’s BrandIndex it sat at the top of a list of 34 car marques for Index – the sum of a range of brand metrics including quality, impression and reputation.
The brand impact
What makes this event so serious is Volkswagen’s deliberate decision to insert so-called “defeat devices” into its engineering system. It bypassed environmental standards, making its engine appear more to pump out less emissions in testing than they would do in reality.
This was no error but a calculated choice to dupe the car industry, the regulators and the public. Volkswagen vehicles were marketed as low emission – people bought them on that premise.
“This is not a typical crisis in the sense of it deriving from error or a systemic flaw. Volkswagen executives set out to deliberately and criminally break the law.”
Mark Ritson, associate professor of marketing, Melbourne Business School
As such there are very few comparisons. YouGov says the closest it can get is the Toyota recall of 2010, from which the brand still has not fully recovered according to its own figures.
The scale of the decline for the Volkswagen brand is even deeper.
Unsurprisingly its Buzz score – a measure of the positive and negative things said about a brand – has plunged by a statistically significant 40 points to -3.7, putting it bottom of the list where it had been top.
Its Index score is down by 11.4 points moving it down the list from first to 11th. Impression, Quality and Reputation also fell by statistically significant figures.
On the plus side for Volkswagen the scandal is yet to hit people’s purchase intent or consideration as hard. However, Neil King, auto analyst at Euromonitor, suggests Volkswagen will “inevitably lose its global sales crown”.
Volkswagen reported global sales of 5.04 million in the first half of 2015, according to Euromonitor International/JATO Dynamics, just ahead of Toyota on 5.02 million. At the time King estimated that the VW Group would end up beating Toyota for the full year by 50,000 deliveries.
However he has has since cut his sales estimates by at least 300,000 while adding that Toyota could easily benefit from consumers’ defection to hybrids due to its dominance in that market.
Can Volkswagen survive?
Volkswagen has promised to spend at least €6.5bn “restoring consumer trust” in the brand. In a statement the brand said its “top priority” was to avert damage to customers and it will inform the public constantly and transparently on further progress.
Unsurprisingly it has already cut plans for a marketing campaign set to launch in the next few months.
However this may not be enough. Ritson says while the Volkswagen brand is unlikely to die as a result, it’s “not impossible”.
What is more likely is that Volkswagen as a company is broken up. It is facing vast fines from governments, car owners and industry bodies. Ritson estimates that will cost at least €30bn.
“This is not a classic crisis management case anymore. The potential penalties are already too huge to even pretend Volkswagen can survive this unscathed.
“This is no longer about protecting brand equity or defending market share. This is about preventing Volkswagen as a company from going under,” he adds.
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It’s worth adding that, should other (non-VAG) brands become embroiled in the scandal, damage to VAG’s brands may be mitigated. Not a rosy short to medium term outlook for VAG but they can recover some lost ground if this episode is managed well.
All the car brands are fiddling the numbers…..
It’s not a surprise that Volkswagen cannot survive the emission scandal unscathed, the CEO and all the executive can say that they didn’t have any idea, but it is difficult to believe in them. This is not any kind of mistake that the company can make, this is a premeditated decision in order to cheat the emissions detector. It is not an omission, it’s not like they forgot to do something, they specifically changed the engine in order to fool the system that was supposed to detect the excess of emissions. Someone made the decision, and millions of people got tricked, but now not only the responsibles are going to pay, but all the company itself. It will be really difficult for Volkswagen recovering the good image that they had before all this had happened.
I find this article very interesting, as this subject was
talked about in my Marketing 302 class last Thursday. It is crazy that the emissions could affect eleven
million cars globally. This is a serious scandal, and I agree with this article
that jobs should definitely be lost to the people who knew of this happening.
This can truly ruin Volkswagen’s reputation in the auto industry. The emissions
test out to be less than actually present due to the defeat devices that were
installed in the cars. This is horrible
for the environmentalist standpoint for the car’s reputation. What is much worse is the lie that was
marketed for the brand that their car has “low emission” and people actually
buy cars because of that key factor.
Volkswagen deliberately broke the law. This situation is projected to
set back Volkswagen’s sales tremendously. They industry may be holding on to a thread to
survive in the auto industry because of their actions.