Volkswagens Dieselgate, half a year later.

| Albert Vilario Alonso | LinkedIn

9/4/16 13:52

Albert Vilario Alonso

Specialist in Corporate Social Responsibility (CSR), Reputation and Corporate
Communication, Disabilities

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Volkswagens Dieselgate, half a year later.

Apr 9, 2016

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Note: This article was first published in spanish and can be found here.
It seems like yesterday but it has been more than 6 months since the fraud that
Volkswagen had been carrying through the falsification of the readings of
pollutant emissions from some models of their vehicles was discovered,
and that we discussed at that time in the blog.
Since then, rivers of ink have been written about the case in publications of all
kinds addressing the topic from different angles.
Among the various events to highlight in this period there have been opened
investigations into the case in different countries, made changes in the
hierarchy of the company, changed communication agencies and their
advertising strategies, difficulties for a proposed settlement of the problem in
vehicles have led VW to ask US Administration an extension until April 21 to
meet the standards of state and federal emissions in that country,
complications found by E.U. policing bodies to measure emissions with moving
vehicles, the dizzying figures of the extra pollution that the vehicles have
caused and its associated social costs, or the job cuts rumors regarding the
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caused and its associated social costs, or the job cuts rumors regarding the
corporation.
But the main fact which leads me to revisit the issue of Dieselgate is its effect on
corporate reputation of VW and the sales of their vehicles through
interesting information published recently.

VW's corporate reputation plummets.

From the moment the fraud was uncovered we were aware of the consequences
that would have for the company in various aspects in the medium and long term.
One of the most important areas is undoubtedly reputational, which we have
discussed in the blog before, highlighting the importance of proper
management of reputational risks.
As expected, VW's corporate reputation in the Global RepTrak 100
ranking has been given a good wallop. This ranking is published annually
by the Reputation Institute and measures the reputation of the hundred most
reputable companies in 15 countries. You can download a summary of the study
on its website (via registration).
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Of the full scale of 100 points a company can get in the rankings, VW went from
75 points in 2015 to 61.3 points in 2016, which means a fall from 14th place in the

Volkswagens Dieselgate, half a

year later.
Albert Vilario Alonso

ranking of companies to 123rd, nothing less than 109 positions, leaving VW

outside the Top 100 global companies because of a general decline in its
reputation in 14 of the 15 markets analyzed in the study.

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In the chart above we can see that the score for VW in each of the
dimensions of reputation measured by the ranking decreased from
year to year.

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The dimensions of the model related to Corporate Social

Responsibility of the company are "Citizenship" (measuring things like
whether the company supports social causes, if it has a positive influence on
society or if it is environmentally responsible), "Corporate Governance"
(measuring whether the company is open and transparent, if it behaves ethically,
or if does business fairly) and "Workplace" (measuring whether the company
remunerates employees fairly, if equal opportunities exist, or if the welfare of
employees is taken into account, etc.).
As it could not be otherwise by the nature and consequences of the fraud, these
dimensions related to CSR model were those that had a greater drop
in score from one year to another.

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In the chart above we see the decline in the index of reputation of VW compared
to other companies in the automotive industry, a sector that, even with a drop
of 2 points in reputation regarding the 72.5 that had last year, seems to have

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escaped from being dragged by VW by dropping its reputation in a greater degree.

We must remain vigilant in the future to the evolving reputation in the
automotive industry since VW is apparently not the only company facing

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possible fines for polluting more than allowed. If these fines end up
materializing, the reputation of the sector could be considerably damaged.

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Will we see perhaps soon in the Global RepTrak 100 Tesla Motors fighting in
reputation with the old auto companies or even above them? It should not
surprise us as the electric car company is better known worldwide and more units
of their vehicles and their batteries are sold. To begin with, the day before

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of their vehicles and their batteries are sold. To begin with, the day before
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yesterday Tesla unveiled its "cheap" electric car ($ 35,000) and they had booked
more than 115,000 units just half an hour before being presented to the public.
Certainly a good start for a new product of an innovative company that is
committed to sustainability.

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must wait until the Country RepTrak 2016 is published to try to determine
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the scandal one of the most recognized and important German companies that
also belongs to one of the most important industrial sectors for that country.

VWs sales fall by 2% compared to 2014.

Naturally, the lowering of the reputation of the company has the effect of selling
fewer products.

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But we can not say that the drop in sales has been generalized in different
countries or regions (as it happened with the corporate reputation of VW) or at
least it has not been in the same percentages.
Worldwide, VW sold 9.93 million vehicles in 2015, meaning that figure a drop of
2% of sales compared to 2014. In terms of continents in Europe sold 2.5% more,

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characteristics (general economic situation, market maturity, demand,

company strategy in the region, etc.) that make the percentages and their ups and
downs to be taken of relatively, since we can not attribute changes in car sales

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only to reputational issues.

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year, falls within the logic to think that the drop in sales that may occur in only
three months remaining until the end of the year would not mean a big sales
setback for the company if considered all year.
And it is also logical to think that as the months have passed and the public has
known more things about the fraud, they have been forming their opinion
progressively and have stopped buying the vehicles of the brand accordingly.
In any case, to clarify the real impact that fraud may have had on the brand sales
figures we should wait to have data of longer periods and analyze it carefully
due to the different characteristics of each market as I said before.

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What will the future hold for VW?

At the economic level, two dates will be particularly important for VW this year
2016. The first one will be on April 28th when VW will host the Annual Press
Conference of the company where its financial results are published and the
final amounts provisioned to face the results of trials (that will be held in various
countries) will be known. The second important date will be on June 22nd when
the General Shareholders Meeting of the company will be celebrated. Both
events should have already been held, but the fact that, according to the company,
there were "still open questions and valuations arising in relation to the issue of
diesel emissions" caused the delay.
Regarding the recovery of trust and reputation, we will see how long it takes
for VW to catch up to the companies in its sector. This will depend mainly on how
VW intone the mea culpa, how it provides solutions to the problems caused to its
customers and the environment, the degree of transparency and credibility that
demonstrates during the process and, ultimately, how responsible VW returns
to be seen by society in general.
In the "fun" aspect of the case, to call it in some way and as a curiosity, we will see
in the future a movie based on a book (which has yet to be published) on this
scandal and that will be produced by the production company owned by
Leonardo di Caprio, who is a known advocate of environmental causes.
In sum, the Dieselgate still has a long road ahead in a lot of aspects. It will
be interesting to follow its progress and it will undoubtedly become a case study
in business schools as an example of a business situation to be avoided, but also
of how to recover from a crisis of this scale.

Fraud Investigations, Corporate Social Responsibility,

Sustainability

Written by

Albert Vilario Alonso

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