By Dr. Ken Broda-Bahm:
I've had a fond and favorable impression of Volkswagen. Partly that's due to my childhood memories from the 70's of driving around with my large family in an old VW bus, and partly that is the result of the company's conscious marketing as a slightly off-beat, countercultural, and environmentally aware company. When the company reintroduced the bug in the late 90's, they did so with the promise, "If you sold your soul in the 80's, here's your chance to buy it back." Over the years, the larger Volkswagen group's reputation for reliability, performance, and economy has led to it passing Toyota to become the world's largest automaker. But what a difference a week can make. Volkswagen is currently embroiled in what is likely to be one of the biggest frauds in automotive or, for that matter, corporate history. The company has admitted to having employed a kind of defeat software in its "clean diesel" engines that switches on emissions control technology in response to patterns indicating that an emissions test is in progress, and then switching off that technology once the test is over. In other words, the cars are programmed to cheat the test.
Affecting 11 million vehicles worldwide, including half a million in the U.S., the scandal is certain to carry some big ripples: potentially billions in fines, criminal sanctions, and civil suits. Already, there is notice of 30 class action lawsuits representing all 50 states plus Canada. It is a tremendous blow, some say potentially fatal blow, to the company's place in the market because it strikes at the heart of Volkswagen's image. The Washington Post, for example, quotes Christa Morgan, a customer from Portland, Oregon who bought a 2011 Jetta SportWagen, based in part on its low emissions. “I don’t want this car,” she said. “It makes me feel sick that I’ve been driving this car for about four-and-a-half years and belching all these toxic fumes into the atmosphere.” Volkswagen has a public relations crisis on its hands, and that will soon be joined by a litigation crisis. A recovery might be hard to imagine at this point, but other companies have bounced back from dramatic losses of face and credibility. If that image recovery does happen, it will happen because Volkswagen is able to develop an effective PR message that is in sync with its litigation message. That is where the debacle carries a lesson for all corporate defendants: There is a pattern to how they, and other similarly situated companies, should respond.