How Volkswagen is responding to the revelation that it fitted devices to cheat emissions tests in 11 million cars
Maybe it’s the fact that Volkswagen is German that makes the company’s crisis over software installed in its diesel cars to cheat emissions tests such an enthralling story. This admitted failure affects 11 million Volkswagen diesel vehicles worldwide, including Jetta, Beetle, Golf and Passat cars as well as the Audi A3.
Nearly 500,000 vehicles are being recalled in the US, where they have been emitting nitrogen oxide pollutants at up to 40 times maximum US levels. More could follow elsewhere, with France’s finance minister Michel Sapin calling for a ‘Europe-wide’ probe to reassure the public.
The fallout from the allegations and Volkswagen’s admission of wrongdoing has already knocked its share price, wiping billions from the market capitalisation of the group, which was briefly the world’s most valuable company just seven years ago. It could now decimate sales of diesel cars – a category accounting for half the European motor market – and is a serious corporate scandal that may well lead to criminal prosecutions and civil class law suits seeking billions of pounds in compensation.
Yet its nature as an essentially German crisis, a catastrophe in the passionately-precise country known for its engineering heritage and for virtually inventing the European green movement has also contributed to the story carrying such resonance. After all, the inventor who gave his name to the fuel that has got the car-maker into trouble was German too. If only Rudolf Diesel had stuck to running automotive engines on peanut oil.
Xenophobic sniggers aside, however, Volkswagen’s crisis is another classic for the crisis management textbooks, alongside the stories of the corporate undoing of BP and Toyota.
How could the now departed chief executive Martin Winterkorn have let this happen? What controls and checks were in place and how were they thwarted? Why was nothing done when regulators began investigating irregularities? And, above all for communicators, why didn’t the company seem to have a credible crisis communications plan or strategy when one of the most significant instances of corporate wrong-doing since Enron erupted last month?
Donald Steel, the crisis management consultant who runs Donald Steel Public Relations, is particularly struck by a video on social media showing a speech by Michael Horn, president and chief executive of Volkswagen’s US operations. Horn was speaking at a plush launch of the new VW Passat, with the help of a live set from Lenny Kravitz, one working day after the announcement by America’s Environmental Protection Agency that blew the whistle on the company’s emissions test-dodging.
Horn acknowledged the apology that Volkswagen chief executive Martin Winterkorn had given over the weekend, adding: ‘In my German words, we’ve totally screwed up. We must fix those cars, and prevent this from ever happening again, and we have to make things right, with the government, the public, our customers, our employees, and also very importantly our dealers.
‘This kind of behaviour, I can tell you out of my heart, it’s completely inconsistent with our core values. The three core values of our brand are value, innovation, and in this context very importantly, responsibility – for our employees, for our stakeholders, and for the environment.
‘So it goes totally against what we believe is right. Along with our German headquarters, we are committed to do what must be done, and to begin to restore your trust.’
So far so good, but Steel believes Horn’s body language gives away a lack of preparation. ‘Here they are in a global crisis that has knocked billions off their value,’ he says. ‘Criminal charges may follow and countries are banning the sale of the cars. And he comes out on a big stage to a booming Hollywood voice, trumpets, music and showbusiness. He walks on and says ‘Wow’. Then he proceeds to apologise. It’s just so wrongfooted of Volkswagen.
‘When the company is on its knees having deceived the American public and the authorities, it calls for a sober moment. In communications, you do have to look sorry as well as say you are sorry and be sorry.
‘There have also been too many people speaking for Volkswagen and it doesn’t help that the board member who told BBC’s Newsnight that some Volkswagen staff acted criminally is called Olaf Lies. When you are facing such a difficult issue, you want one highly-credible spokesman who takes reporters and the public through the whole saga. They become a trusted voice and Volkswagen has not found that yet.’
Katie Whirledge, managing director of public relations and crisis communications agency Papillon PR, agrees. ‘All companies should have crisis media plans in place. It’s not rocket science, but so many companies get it so wrong,’ she says.
‘The key things when dealing with a major crisis are to act fast and show meaningful action, specific to the crisis, that clearly demonstrates the intention, willingness and urgency to put things right.
'Comprehensive communication is equally essential: deliberate action combined with words of accountability, an apology if owed, and reassurance that a recovery plan of action is underway.
‘It’s also essential that you put those people most directly and adversely affected by the crisis at the heart of your communication. In a crisis, it is always people first.’
The numbers don’t look good. This is a global crisis but especially pertinent to Europe, due to the popularity of diesel on the continent. In the UK alone, one million cars are affected. Despite this, there has still been a focus on whether the crisis will actually affect sales of VW diesel cars at dealers.
Content analysis group Alva even went to the trouble of compiling a report on the subject. Its study, entitled VW’s Emissions Admission, claims that on each day following the revelations there were on average 1,100 more detractors than advocates for Volkswagen on social media.
‘That’s 1,100 people every day attempting to dissuade other people from buying VW’s products,’ the report states, before concluding that so far Volkswagen’s reputation for high quality has not suffered as much as might be expected. It suggests that a focus on quality, perhaps linked to a price cut, once the fallout from the emissions issue has passed, may even entice ‘many new customers’ to VW’s products. That seems to miss the point, however.
Whatever happens to VW’s sales, the company will be tightly associated with cheating authorities and deceiving the public for the foreseeable future, creating a significant reputation management issue.
‘All forms of crises put trust and reputation on the line, but the ‘corporate scandal’ crisis is especially difficult to manage,’ says Andrew Griffin, chief executive of reputation management agency Regester Larkin.
‘The admission of deliberate wrongdoing breaks a bond between an organisation and its stakeholders that is not easy to fix. ‘In this case, the actions to which VW have admitted seem especially at odds with the reputation of the company for solid, reliable, no-nonsense performance.’
Before resigning, Winterkorn apologised for Volkswagen having installed software in its diesel cars to allow the vehicles to pass emissions tests. The software decreased emissions when it detected that a diesel car was undergoing testing, allowing the vehicle to continue to pollute at amounts well beyond legally allowed limits when it was outside a test environment.
Winterkorn confirmed that Volkswagen could face fines of up to $18 billion and blamed the ‘terrible mistakes of a few people’ for the scandal, saying that, while he accepted responsibility, he was ‘not aware of any wrongdoing’ on his own part.
However, allegations are still emerging about the way that the company dodged regulatory authorities over the scandal and the scale of its eventual repercussions is far from clear. With trust in major corporations still not having recovered from the 2008 financial crisis, this is going to be a tough period that will likely be resolved by the courts and regulatory authorities.
‘So far, the company has followed many of the crisis management golden rules,’ adds Griffin. ‘Admit what has happened, say sorry and demonstrate change. The first gesture of change has come quickly and in the form of a resignation. So quickly, in fact, that the new chief executive is engulfed in a crisis that has yet to be contained.
‘This is a performance crisis, not a PR crisis: much more real change is to come before shareholders and stakeholders are satisfied that the company is back on track.’
James Henderson, chief executive of PR agency Bell Pottinger, believes that the regulatory process will now set the pace of the scandal.
‘The key question for Volkswagen going forward is how proactive they will be in working with the relevant authorities to give them the right information to lead to criminal prosecution of the individuals involved in this corruption,’ he says. ‘There seems to be a groundswell of opinion that large fines alone are not enough to tackle the increasing incidence of fraudulent corporate behaviour.’
The crisis also has another edge to it, given Volkswagen’s previous publicity for its environmental compliance.
‘The worst crises are those that go to the heart of your brand and corporate story and in this case it’s about Volkswagen’s trumpeting of its green credentials,’ says Andrew Caesar-Gordon, managing director of media training and crisis planning agency Electric Airwaves. ‘Volkswagen’s tactical PR has been good – a candid apology, a new leader and a commitment to a transparent investigation.
‘But it is struggling to offer any perspective on the crisis and thus defend reputation. This is because it cannot yet answer the core question of how its internal culture either encouraged cheating or failed to find it. Only when that is known and changed can it begin to seek our trust again.’
Steel, meanwhile, cannot see that happening again for many years. ‘Volkswagen is in this for the long-term now,’ he says. ‘This is not going to be finished this year.
‘One of the big enemies for companies that face this sort of thing is exhaustion because you’re getting slapped in the face, minute by minute. They’re going to need to have a plan to keep the leaders strategic and not tied up with small tactical matters. The senior communications people must not be blown around by the day’s stories.
‘They need to keep everyone strategically explaining the company’s actions, knowing that this is going to be the situation for a number of years and there may be further changes of personnel in that period. It’s a really difficult thing for companies to deal with. For communications professionals, these big scandals define your career. Everything is either before or after the big event. Your outlook completely changes.’
Volkswagen must hope that sticking to the crisis communications handbook from now on can help rebuild the reputation of the company and its home nation. Then, perhaps, all those jokes about Germans and emissions might finally subside.