By Michelle Wang and James Fitzpatrick
In 2015, the world became aware that Volkswagen had installed “defeat devices” in 500,000 of its American diesel cars, enabling them to pass America’s strict emission standards and then return to non-compliant emissions during normal driving. It’s been several years since the initial news broke, but the repercussions from this scandal are ever-evolving, from the many fines and lawsuits that Volkswagen will have to contend with, to the arresting of Volkswagen Group executives over their involvement.
The scandal
On 18 September 2015, the US Environmental Protection Agency (EPA) informed the public about Volkswagen’s and Audi’s violation of the Clean Air Act by installing “defeat devices” that allow their cars to pass all tests but then emit nitrogen dioxide at up to 40 times the permitted level.
The Volkswagen engineers had initially admitted to the EPA on September 3 that defeat devices had been fitted to 480,000 diesel cars in the US – but the news only reached the wider world on 18 September when the regulator, not Volkswagen, disclosed the issue.
In response to the scandal, Volkswagen published a video statement from then-CEO Martin Winterkorn on 22 September. Winterkorn iterated Volkswagen’s dedication to cooperating with the relevant organisations and authorities for any investigations undertaken, outlined the company’s willingness to “do everything necessary in order to reverse the damage this has caused”, and provided an apology. The statement ended with the promise to “do all this with the greatest openness and transparency.”
Former CEO Martin Winterkorn fronts the media
Winterkorn then resigned on 23 September, stating that Volkswagen “needs a fresh start – also in terms of personnel” and reiterating that the “process of clarification and transparency must continue.” At the end of the statement, it was also mentioned that he was “not aware of any wrong doing on (his) part.”
Volkswagen admitted on the same day that the number of cars fitted with defeat devices were not the previously-announced 500,000 cars – but rather an astonishing 11 million (all around the world), and it had been a global practice for several years.
Volkswagen’s woes were just beginning.
On 2 November, the EPA said it had uncovered another defeat device in the VW Group’s other cars, namely in Audi, Porsche and VW 3-litre diesel cars, which affects a further 85,000 vehicles. VW’s response to this was short and quick, denying that they had installed any software that would alter emissions characteristics.
On 4 November, Volkswagen made a U-turn and admitted to a third emissions problem: 800,000 cars had understated their carbon dioxide levels, and that the company was setting aside €2 billion to deal with the problem. Despite their commitment to solving the problem, critical information was only revealed after probing questions to VW officials.
Max Warburton, an analyst at Bernstein Research, is quoted by Financial Times to have said, “the press releases from VW seem almost purposefully designed to infuriate further investors — and probably regulators — with their obscure language.”
The issue was further compounded by Audi’s own about-face, admitting on 23 November about the existence of an illegal defeat device in their 3-litre cars.
In January 2016, Volkswagen’s new CEO Matthias Müller visited the United States and told NPR, “We didn’t lie,” when VW clearly did. The outcry forced Müller to call NPR back and revise his statement.
The analysis
Initially, it looked like Volkswagen were going to nail their crisis communication response.
They responded quickly, with then-CEO Winterkorn immediately committing to resolving this issue and being transparent (in the future).
As we teach in the Honest Words and Crisis Apology module of our media training workshop, it’s all well and good to make public commitments; provided you can deliver them. Research from leading sociologists (List and Ho 2017) shows that if you fail to come good on your promises, this will damage your reputation more than if you make no apology and no commitment in the first place.
Unfortunately for the sake of Volkswagen’s reputation, they were unable to keep their promises of transparency and honesty, with the EPA later revealing the installation of more defeat devices.
If this wasn’t damaging enough, company executives weren’t willing to truly accept responsibility with Winterkon denying any wrongdoing in his resignation statement and new CEO Matthias Müller (who has also since been replaced) claiming on live radio that they didn’t lie – only to later retract his comments after public outcry.
Former CEO Matthias Müller fronts the media
While the promise of a fresh start was welcoming to stakeholders (albeit frivolous in hindsight), their leadership’s denial of any direct wrongdoing angered everyone – causing additional unnecessary attention and damage.
In our opinion, Volkswagen made this crisis much worse than it needed to be by not coming clean from the start (pardon the pun) – and the consequences show.
The consequences
Several executives of Volkswagen and its subsidiaries have been charged or arrested for their involvement. The most recent is former Volkswagen CEO Martin Winterkorn, who had aggravated fraud charges filed against him by German prosecutors.
The scandal has forced Volkswagen Group to pay around USD 30 billion to settle the case, with the sum likely to rise by several billion dollars. Volkswagen’s share prices plummeted after the EAP informed the public about the company’s defeat devices and investors have filed a USD 10 billion lawsuit in Germany against the company to seek compensation.
VW's share price crashes with EPA's first announcement. Source: Google 2019
The company has since responded by bringing on Herbet Diess as the newest CEO, promising deep reforms and a focus on developing electric cars. Hopefully those new cars are powerful enough to drive them over the mountain of pain they’ve built for themselves.