The End for VW?

Oh dear, oh dear, Volkswagen Audi Group (VAG) have made a mess of it, haven’t they? By now, you will have heard about the fact that they have been accused of, and have admitted to, falsifying emissions test data for their diesel cars, meaning that they do not emit emissions to the legally permitted level or indeed the figures the car maker themselves have claimed.

As a result of this, three fairly significant problems have arisen for the erstwhile respected car giant;

The Money Pit
First off, they are likely to face a fine of up to $18 billion (BILLION!) from the American EPA for not conforming to the required standards. As if that wasn’t enough, since admitting that 11 million vehicles (spread across the VW, Audi, Skoda and Seat brands) world-wide are affected, it is quite foreseeable that other countries will follow suit with their own fines.

The Client
Secondly, there is a lot of talk swirling about lawsuits against the car maker from the various aggrieved parties, who feel they have been duped into buying a car that does not deliver what it promised. Particularly in the US, where VW have been pushing diesel sales with a low-emission driven and highly intense marketing campaign, many of their customers will feel they have been cheated. The amount of compensation the lawyers will be after could be eye-watering and again, this is just the US. Undoubtedly law firms in other countries (1.2 million car owners in the UK alone!) will be eyeing this up.

Total Recall
Thirdly, there is the re-call. With 11 million cars affected, the recall isn’t a small one. VAG have allegedly put aside £4.8 Billion to pay for the costs of the crisis. It may well be possible to adjust the ECU in a car for less than £500 each as they are suggesting with this, but this fix will mean increased fuel consumption costs (up to as much as £100 per year) for the user, as well as potentially having to pay higher taxes due to the increased carbon dioxide rating. So is this really the best solution to offer?

But let’s pretend for a moment that they will be able to do a deal with the governments and dodge the bulk of the fines. Let’s also assume they manage to settle the lawsuits cheaply, and let’s also forget the costs of the recall (and I am well aware that pigs will be flying past the windows at this point), but as if these three problems weren’t enough the immortal Yoda would say: “There is another.”

Branded
The above three issues are all under debate in the media at the moment, but potentially the biggest problem is not, although the Swiss government’s decision to ban the sales of certain cars is a pretty good indicator. What is most interesting about this, is that the focus is on Volkswagen diesel cars sales being banned, even though the Swiss government have also banned certain Audi, Seat and Skoda car sales. These brands get only a secondary mention however, as the main focus in all of this is on the Volkswagen brand and the damage this does to its brand could be catastrophic.

As it is, VW is the name that gets dragged through the mud the most, its brand values of sound engineering, reliability and quality have all been wiped out in an instant. VW was always the car that wouldn’t let you down. Except now it has. And not because of some force majeure issue (which could be seen as being out of their control), or a mistake (which could be forgiven), but because they deliberately and willingly set out to deceive both the legislators as well as their own customers by lying to them about their cars’ capabilities.

VW’s car sales are set to plummet further and deeper as this crisis rumbles on, and their PR and marketing teams will have a proper job on to turn this around. Next month we will look at what their options are and what we feel their next moves should be to steer themselves through the oncoming storm…