28th September 2015

Up in smoke - the Volkswagen saga

Recalls, fines, maybe even prison sentences: heads will roll, sales will fall and share prices will tumble. All very serious, but even more insidious and longlasting is the damage to VW’s brand. People can be replaced, market share can be regained, share prices can recover. But can consumer trust be so easily rebuilt? Has the VW brand been tarnished beyond redemption?

Recalls, fines, maybe even prison sentences: heads will roll, sales will fall and share prices will tumble. All very serious, but even more insidious and longlasting is the damage to VW’s brand. People can be replaced, market share can be regained, share prices can recover. But can consumer trust be so easily rebuilt? Has the VW brand been tarnished beyond redemption?

Volkswagen emerged in its modern form from the ashes of WW2 and soon came to dominate the twentieth century automotive market. On its way from post-war regeneration under the British Army to its position as the world’s second largest car manufacturer, VW has historically prided itself on its reliability, quality and honesty (with some humour and personality thrown in). Until recently, these were the defining features of its brand, but all that hard work is now coming undone.

Modern economic history is littered with cautionary tales for brandowners: don’t admit your apparently valuable products are cheap and low quality (Ratners), don’t destroy evidence when your business is based on trust and integrity (Arthur Andersen); don’t delete murder victim’s voicemails (News of the World). But some businesses have pulled through even the worst of disasters: Barclays has survived the LIBOR-rigging scandal; BP managed to dust itself down after its debacle in the Gulf of Mexico.

Its too soon to say how hard VW will be hit by all this, but it’s not looking good. It’s easy to focus on the staggering figures being reported - 500,000 vehicles affected in the US, estimates of 11 million worldwide, €15bn (some 20%) knocked-off share prices in next-day trading. But these aren‘t really the point – in this kind of scenario, details matter less than public perception. After all, who remembers that Arthur Andersen was eventually acquitted of obstructing justice? Or that Leveson found no evidence that NoW had ever deleted Milly Dowler’s voicemails? The damage suffered by those brands was too serious for any amount of explanation or correction, or indeed truth, to cure.

VW has long been an iconic brand. Brandsoup thinks it would be a shame to see it go under; but a greater shame to think it might deserve to.


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