The stronger they are, the harder they fall. How quickly Volkswagen has gone from being one of the most top rated car manufacturers in the world to the central player in the auto industry’s latest scandal.
So what exactly happened here? One minute the company that sent us the Beetle and the Golf is at the top of the heap and the next minute it’s fighting for its position in major global markets.
In a cleverly devised scheme, Volkswagen figured out a way of installing sophisticated software known as "defeat devices" in the electronic control module of diesel vehicles issued between 2008 and 2015.
Volkswagen has gone from being one of the most top rated car manufacturers in the world to the central player in the auto industry’s latest scandal.
The software was programed to sense exactly when an emission test was taking place by the positioning of the steering wheel as well as the speed of the vehicle and the duration of the engine's operation and barometric pressure. With these conditions in place the software was set to go automatically into “test mode” when being tested, indicating only a fraction of the correct emissions amount normally emitted by the same car on the road. In truth, the so-called emission-reducing car was pumping more nitrogen dioxide (NOx) into the atmosphere than a standard emission vehicle.
After the allegations were made by the U.S. Environmental Protection Agency on Sept. 18, VW admitted the mistake and apologized, with its U.S. boss, Michael Horn, saying the company had "totally screwed up."
Close to 11 million cars may be affected by the scandal and Volkswagen has put aside 6.5 billion euros ($7.3 billion) to cover the cost of recalls and other efforts to limit the damage, totally erasing all profits for the current year.
Volkswagen shares hit $113.15 on the news of the CEO’s resignation. Shares of Mazda Motor Corp. were down 6.8% and Mitsubishi Motors Corp. lost 2.8%.
1987 Chrysler Accused
This is not the first time a major car manufacturer has been accused of wrongdoing. In fact, car companies have been bending laws and regulations since the industry began with the biggest scandals dealing with driver safety.
Here are some of the most recent ones:
In 1987, a federal grand jury indicted the Chrysler Corporation for odometer fraud. The company allegedly disconnected odometer cables on more than 60,000 executive cars and drove them up to 400 miles before reconnecting the cords. Any car that happened to be involved in an accident was repaired and sold as new.
Chrysler denied any illegality, but two Chrysler executives were named in the indictment and the company was forced to send out $500 checks to 32,000 affected customers.
Toyota Recall
In 2012, after years of denying unintended acceleration in several Toyota and Lexus models despite mounting evidence, Toyota agreed to pay the U.S. Government $1.2 billion to avoid prosecution, the largest criminal penalty ever imposed on a car company.
Despite hiding documents that showed a flaw in the gas pedal assembly, Toyota’s initial response to the 2009 allegations was to blame driver error. When that didn’t work, it suggested that floor mats were somehow impeding the return of the gas pedal. But after hearing a recorded 911 call left on the radio of California Highway Patrol Officer Mark Saylor’s Lexus as it began to accelerate on its own, reaching speeds of 125 miles per hour before Saylor crashed, killing all four occupants, Toyota had no recourse but to plead guilty.
Takata and Honda
And during the past year, Japanese automotive supplier Takata and the Honda Corporation were found guilty of installing defective air bags in an estimated 30 million cars around the world sold by 10 of the world’s biggest automakers.
Scandals vary greatly by the damage they cause both emotionally and financially and often become a public relations problem that leads to the actual demise of the company or payouts of enormous compensations to the victims of the misconduct.
And in fact, the current VW crisis comes at the heels of another of the company’s embarrassing situations. Two years ago, complaints from Australia were lodged against the company for faulty gearboxes. At the time, VW originally denied the problem, then admitted the liability and recalled 34,000 cars at a cost estimated to be in excess of $150 million. The admission was slow in coming and marketing experts criticized VW for the damage that had been done to its brand, because of both the quality issue and also the way the crisis had been handled.
VW Admits Actions
Volkswagen seems to have learned from the Australian situation and is now handling its PR differently. Severe crisis management is needed to get one of the auto industry’s strongest companies back in the public’s favor. And this has already begun.
It took only 48 hours after the media picked up on the accusations VW of cheating on its emissions data the company for CEO Martin Winterkorn to issue a statement wherein he took full responsibility for the problem and promised action. "I personally am deeply sorry that we have broken the trust of our customers and the public," he explained in a statement on Sunday. "We will do everything necessary in order to reverse the damage this has caused."
Winterkorn went even further when he admitted that the number of cars fitted with "defeat devices" was not half a million, but closer to 11 million and the lies were not limited to the USA but had been a worldwide issue for several years.
Finally, on Wednesday night Winterkorn announced his resignation.
Good marketing moves. Hopefully it will save the company and people’s lives too.