Which Will Cost VW more: Government-Mandated Repairs or Damage to Customer Trust & Loyalty?

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We now know the emissions problem affects not only VWs, but Porsches and Audis with 4-cylinder diesels as well. And we just learned the air pollution issues affect 6-cylinder diesels as well as 4s.

Will VW suffer more from direct costs of repairing some 11 million cars world-wide (not counting the newly discovered “dirty” cars) ─ or from we consumers refusing to buy VWs?

I asked my much more even-tempered than me wife, who was getting close to replacing her gas powered 2006 Passat with another one, whether or not, knowing what we already know, she’ll buy her third straight VW. Her answer? “ABSOLUTLY NOT!”! And she means it. Not now and not ever.

13 COMMENTS

  1. Dick, you manage to say it all with brevity.
    You remember Audi had a complaint around 1985 that it went into reverse automatically. Sales and prices fell, even though Audi tried to brave it out by saying the problem was not real

  2. While it is difficult for an outsider to calculate the long-term value of business lost due to lack of trust, I believe the lost sales will end up being the most costly of the two alternatives. I think this memory will last many years and, meanwhile, VW is investing in new vehicle development and manufacturing start-up and those costs will not be recovered as quickly as planned. Then, if a sharp accountant has any say, development and model change-over will be delayed and sales will again decline.

    I wonderful example of what happens when a business loses its way and does not do the right thing.

  3. Dick…I would say your wife reflects history on how customers treat organizations that deliberately deceive. We can forgive negligence (think Exxon Valdese), carelessness (think BP), but not deception. VW may not go the way of WorldCom or Enron, but public trust will cut a much deeper dent in their bottom line than the fines or government-mandated changes.

  4. Dick – interesting question, which is top of mind, since VW was among the winners of the 2015 Sales Ethics Hall of Shame, which I just published.

    I haven’t yet searched for any academic studies around your question, but I think the short answer to the question is no. I believe consumers will return to the VW brand. It may take a few years, but each year there is a new group of potential car buyers. Six years from now, will a twenty-one year old care about VW’s brand reputation? That group is just now getting learner’s permits, and this story will have long faded from the rear-view mirror.

    A search of some other trust debacles yields a list of survivors among well-known brands: Lance Armstrong’s LiveStrong Foundation (interestingly, entering his name into the website’s search window yields no results), Taco Bell, Hyundai, Kellogg’s Rice Krispies, Splenda, Pennzoil, New Balance, and Kashi.

    Most of these companies paid fines for their dishonesty. No doubt they lost customers – some permanently. I, too, plan to never buy a Volkswagen (note the hedge – plan. Never is a long time.)

    GM scared away customers with the Corvair, and I’m sure at the time, there were people who vowed that they would never purchase a GM car. I’d wager that most people today under the age of 40 don’t know what a Corvair was. And today, GM’s liability in desiging the fatal Cobalt hasn’t stopped people from purchasing other GM products. GM’s 2015 production volume is 10.77 million units, versus 10.22 for 2014.

    VW’s deceit is big, and it’s ugly. But it won’t be fatal – at least for VW.

  5. Andy – wonderful last line. Those of us old enough old enough to remember the Corvair, Pinto, and Ford Explorer scandals saw how we consumers lost lives while the companies skipped merrily along. I asked the question because I don’t have an instinctive answer. What I do know is today’s customers won’t cut sellers as much slack as in 2000, when the Explorer tragedy hit.

    Hope you’re well.

  6. Dick, the cost for both (repairs and loyalty/sales impact) is bound to be huge. But VW is strong enough to survive and consumers have a remarkable short memory.

    My first car was a ’66 VW bug. I loved that car, because it was my first one.

    But I’ve not bought a VW since, and with this current fiasco I feel quite certain I never will. If a company can lie/cheat so blatantly about one thing, how can they be trusted on anything else?

    And indeed that may the real risk… that there are more lies to be exposed now that regulators know to look.

  7. I think this is a very valid question that many people are asking right now. As many have stated already, whilst the effect of this catastrophic mis-action will undisputedly damage a brands with a very strong reputation, the sheer size and scale of VW will almost certainly see them ride the storm.

    Sadly, VW are guilty of falling into the trap that many large corporations are stumbling into – the complete loss of their real sense of purpose. To a degree, the root cause of the problem is the unrelenting demand of shareholders and investors for ever greater returns. The constant pressure for infinitely better ‘numbers’ is leading to mismanagement and ‘toxic’ decision making – all of which is made with very little consideration for customers or employees.

    I actually hope that VW and Tesco before them are ‘wake up calls’ to other businesses – refocus on your real sense of purpose – the better able a business is to fulfil it, the more money it will make!

  8. Ian – thanks for an excellent comment. While there was no prospect of getting an “answer,” I wanted to ask the question to get below the surface and see the layers beneath. You shed lots of light.

  9. Dick – while I’m the first one to admit that some government regulations are onerous and stifle economic growth, I think VW’s story and the ones I described in my 2015 Sales Ethics Hall of Shame article should give any “small government” proponent reason to pause.

    The absence of ethics in business represents a huge societal and economic hazard. From reviewing ethical cases almost daily, I do not take a laissez-faire view that executives can be inherently trusted to make the “right” decisions, or that “business can always take care of things better than government can.” I believe in markets, but thinking that markets function best when they are completely free invites abuse and fraud.

    Ethical lapses often lead to criminal violations. But not always. No matter: in the name of greed, innocent people are harmed, even killed. This is the reason we have a Consumer Product Safety Commission, or a FINRA. Whenever I read about a company getting caught committing an ethical violation and being assessed with a fine, I don’t construe it as “big government getting in the way,” I see it as a victory, and that our government is performing its most fundamental function: to protect its citizens.

  10. Hi Dick

    Paradoxically this is a great time to buy a VW, Audi or Porsche. VAG does make really good cars. There are some deeply discounted bargains to be had and VW will pay any additional charges, fees or taxes that customers are hit with as a result of their cheating on somewhat arbitrary emissions tests (that have little relevance to real driving conditions anyway).

    It is not as though they cheated YOU personally, is it?

    Graham Hill
    @grahamhill

  11. Graham – no one cheated ME through racial discrimination, but like many others I fully support efforts to end such discrimination. For example, I won’t go into a Pandera Bread store because of their long time policy of not letting black employees to work the front of the house. Same principal applies to VW.

    And BTW, VW’s cheating affects all Americans because we have to breathe the polluted air. Experts have predicted 60 people will die from the pollution, and millions more with breathing issues will suffer.

    I realize air pollution doesn’t seem a big deal to someone sitting over in Germany, but the majority of us here in the U.S. do care, and as a country we’re doing something about it..

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