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September23

VW: a long climb back to brand stardom

THE timing of Volkswagen’s establishment in 1937, during Adolf Hitler’s reign in Nazi Germany, came to be used by many around the world as a rallying point for boycotting VW cars in the years that followed World War II.

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Its penetration of the US market was also initially slowed down by the carmaker’s alleged Nazi links and, for many, the small size and unusual rounded shape of what came to be known as “the beetle” in a car market that had always valued big cars.

But Ferdinand Porsche, the Bohemian-born (1875) Austrian automobile engineer called by Hitler to develop a design for his pet project of a “people’s car”, would probably have laughed off all criticism.

Porsche is also behind the eponymous luxury automotive brand of all time, Porsche. He would probably have described himself as an opportunistic designer who was at the right place at the right time, commercially speaking.

 

Up through creativity, down through carelessness and greed

It took the Allies’ desire to use Volkswagen as a symbol of West Germany’s post-war economic miracle – to boost confidence – and the creativity of Doyle Dane Bernbach, VW’s advertising agency in the late 1950s, to come up with a landmark campaign that would grow the carmaker’s share of the US market.

Cleverly, the agency dubbed the small car the Beetle and presented its diminutive size as a distinct advantage to American consumers looking for something different. Needless to say, the rest is history.

Over the next several years, VW became the top-selling auto importer in the USA, surpassing the longstanding worldwide production record of 15 million vehicles that had been set by Ford Motor Company’s Model T.

From then on, the sky was the limit for the VW brand around the world. With this phenomenal growth, its share price also soared to amazing heights; well, until Monday when it shed 23% of its value, wiping out about €15.6bn – about a quarter of its market value – and, possibly, much more in brand reputation.

This came after VW admitted to having rigged diesel emission tests in the USA following exposure by the California Air Resources Board, whose 2014 testing of VW vehicles showed excessive nitrogen oxide emissions.

Before all of this, VW boasted three sub-brands in the top list of best-selling cars of all time – the Volkswagen Golf, the Volkswagen Beetle, and the Volkswagen Passat – making it the largest automaker in the world after Toyota.

Now, with potential penalties of up to $18bn in the US alone, possible lawsuits from shareholders and environmental groups, US authorities breathing over its neck and the US Environmental Protection Agency knocking at its doors, Volkswagen has a lot to worry about.

Soon, authorities in Europe and elsewhere in the world will also be sniffing around VW factories and records for possible broader wrong-doing. Behind the scenes, other car manufacturers should also be getting their houses in order.

 

Repercussions for the brand

Understandably, processes followed by other carmakers when testing their new cars for emissions will come under renewed spotlight. VW-manufactured diesel cars in other parts of the world will also have to be declared safe in this regard.

German authorities are also worried: “You will understand that we are worried that the justifiably excellent reputation of the German car industry and, in particular, that of Volkswagen suffers,” said Germany’s Economic Minister Sigmar Gabriel.

The head of the Centre of Automotive Research at the University of Duisburg, Ferdinand Dudenhoeffer, also shared his concerns, considering the disaster as being “beyond all expectations”.

Analysts, fund managers, rating agencies and other observers have all chimed into the discussion, with one fund manager, Union Investment’s Ingo Speich, blaming it on bad management and indicating that he wouldn’t be surprised if the cancer were to be found to be deeper in the VW system than it currently appears.

All of this seems to be pushing other issues out of the shadows and will end with Volkswagen on the proverbial back foot, trying to rescue a global brand that has taken many decades of careful nurturing to build.

 

Volkswagen’s brilliant response

VW’s initial response to this latest scandal has been brilliant. Instead of going into hiding or issuing statements denying guilt or feigning ignorance, its CEO, Martin Winterkorn, said in his first public declaration that “I [note use of the first-person pronoun] am deeply sorry for the breach of US rules and (have) ordered an external investigation.”

Some observers could say that Winterkorn had no choice in this case, and they would probably be right. But we know that this personal assumption of responsibility is very rare in South Africa where, whenever things go wrong, the first declaration of people in positions of responsibility is to kick the can to someone else’s door and tell us that they would not resign.

In fact, in South Africa, resigning often gets taken as an acceptance of guilt, as opposed to acceptance of responsibility.

Depending on what else gets uncovered through additional tests and how Volkswagen management responds to the broader issues, the climb back to brand stardom might be a hard one for this long-trusted carmaker.

  • Posted by donvalley
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