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Friday, 11 December 2015

Looking back over this GreeKat shoulder… Part III: The “People’s Car” in the people’s dismay




The VW adventure has, no doubt, been one of the passing year’s major topics of discussion. The core issue, from an IP angle, is the perils to a brand by internal, “self-inflicted” action; how regulatory non-compliance can have spill-over effects on brand value and reputation.


In a nutshell, as readers of this blog will recall, the U.S. Environmental Protection Agency found that VW was “cheating” on US air pollution tests by installing in its vehicles a software that was able to detect and falsify emissions tests, meaning that its vehicles actually spewed more pollutants than allowed (see here). The software is present in more or less 11 million VW diesel cars worldwide. VW had admitted to the problem and is now faced with a mountain of financial implications.  Those range from fines of, theoretically, up to $18bn only in the US, and significant recall costs (which some estimate at around €28bn over time; see here), to lawsuits. Some, mainly, civil lawsuits have already been initiated, criminal investigations are under way, and an internal investigation has been put in place with, as a first step, managers having been suspended. The Guardian has a useful timeline on the matter.



But the blow to the German car maker’s brand value and reputation may well be the hardest one to tackle. Brand Finance estimates that the value of the Volkswagen brand has already dropped by $10bn, to $21bn, and the company risks losing its Brand Finance ranking as the third most valuable automotive nameplate (see here). This is a very unwelcome prospective for a brand owner that has invested, supported and nourished its brand; after all, according to its famous slogan, VW is  “Das Auto” – “The Car”; not just any car, it’s The Car. VW’s seminal Super Bowl commercial “The Force” (see here) is, according to Time Magazine, the most shared Super Bowl commercial of all times (see here) and Volkswagen has no doubt made some of the best selling cars of all times (Golf, Beetle, Passat). So its brand should not be something the company would want to jeopardize. Brand reputation is based on trust, which is very fragile and ephemeral. It takes time, money and resources to build a brand, but only an instant to destroy it and lose consumer trust. After all, VW had an excellent brand reputation to protect and seemed to have a global compliance program and organization in place. As the carmaker says in one of its compliance clips: “the reputation of our brand is our most valuable asset. That’s why it has to be protected, from threats, no matter where they come from; from threats, no matter what for.” (see here). 

Some may argue that this is not the first “scandal” in the automotive industry. However, with the notable exception of the Ford “Pinto” scandal in the 70s, neither the notorious Mercedes Class A model failure of the “elk test” (or moose test, if you will) in the late 90s, nor the Toyota recalls, between 2009 – 2011, could be considered as intentional. But this time, VW’s actions appear to be deliberate and this multiplies the negative impact on its credibility and sits particularly badly with Volkswagen’s brand identity, which is founded on reliability, efficiency and honesty.

Such core values may mark the path back to the restoration of brand repute. This blogger thinks that a transparent self-evaluation process can always be a good first step towards re-connecting the brand and consumers. However, this is going to be a marathon, not a speed race. In a 2 hour press conference yesterday, VW “admitted that a culture that tolerated rule-breaking was a key factor in allowing some workers to install ‘cheat software’ on millions of cars. Flawed process were also to blame”. However, this type of rather ‘grey’ statements may not be enough to address the brand harm.
Hans Dieter Pötsch, chairman of the board of directors of Volkswagen, left, and Matthias Müller, chief executive, right. Photograph: Michael Sohn/AP- Source: The Guardian
 
Additionally, the VW scandal may also impact the German auto industry as a whole by having called into question the emissions readings of other German manufactured diesel cars (see here). Worse yet, some argue that the national brand “Made in Germany” – a brand which stands for quality, reliability, and yes, some might say, honesty – may have taken a hit: Brand Finance estimates that the scandal has lowered the “German brand value” by $191 billion (or -4%) (see here). This is an interesting aspect which serves to show how national economies and their strategies are inter-connected with national champion brands (some Kats will surely recall the Siemens bribery scandal and the impact it had on “Made in Germany” branding).

A brand is much larger than an organization. Building a successful and reputable brand requires much more than just monetary investment. Brands and goodwill are considered the most important and valuable assets of many of the world’s largest and most powerful companies. John Stuart, the ex-Chairman of Quaker famously said "If this company were to split up I would give you the property, plant and equipment and I would take the brands and the trademarks and I would be far better than you." He said that in 1900’s.

If anything, the Volkswagen matter showcases how brand protection requires much more than words and marketing; it calls for real commitment and consistent actions throughout the organization. It ultimately depends on building an effective compliance program embedded within a corporate culture that promotes it. Brands matter, compliance matters. Failure can be very expensive — VW is finding out the hard way.

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