Dieselgate Delirium

The Forgetful Consumer

Employees look under the hood of a Volkswagen Golf R automobile in the used car sales area of the Volkswagen AG showroom in Berlin, Germany, on Thursday, Aug. 6, 2015. In Europe, the longest stretch of economic growth for the 19 countries using the euro has put auto sales on more solid footing in countries where Volkswagen dominates. Photographer: Krisztian Bocsi/Bloomberg via Getty Images
All good under the hood?
  • Why it matters

    Why it matters

    • The diesel emissions scandal has badly damaged the reputation for quality and integrity Volkswagen labored decades to build.
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  • Facts

    Facts

    • Consumers who decide to boycott a product or service usually return because ease and convenience trump outrage.
    • Business history is filled with stories of companies that emerged stronger from brand-damaging crises, including Deutsche Telekom and Amazon.
    • Volkswagen has weathered serious public relations disasters in the past, including board level controversies and a scandal involving workers’ councils and brothels.
  • Audio

    Audio

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Black Friday fell on September 18, 2015.

The world’s largest automaker and one of Germany’s most powerful companies, Volkswagen was plunged into crisis when the corporate fraud masking its diesel exhaust emissions problem created a turning point for the brand.

Now, the company is on the hook for billions, but perhaps more importantly, it has shattered the reputation for high quality and reliability that Volkswagen spent decades building.

There likely will be months, if not years, of cleaning up the mess, dealing with charges and court proceedings. But Volkswagen’s image will recover.

Does the crisis really have traction? Will “dieselgate” damage the image of the “brand Germany,” which not only is heavily dependent upon the automotive sector but also underpinned by the perceived values of quality and reliability? Will consumers now stay away?

Absolutely not.

Despite all the hysteria created when a company or an executive tumbles into deep trouble, observers should not forget one simple fact: consumers are forgetful. Terribly forgetful. They may work themselves into a frenzy and swear to boycott the offending product, but soon enough, the memory fades.

This isn’t the first time a highly regarded German company has been battered by scandal and controversy. Deutsche Telekom was caught listening in on journalists and managers. Volkswagen bribed workers’ councils with luxury travel and love for sale. Online vendor Amazon doesn’t treat its workers gently. And the list of the large supermarket scandals grows almost yearly.

Yet the feelings of disgust consumers feel in face of animal-testing torture, or corruption and manipulation, subsides surprisingly quickly. Soon enough, their shopping baskets fill up and they go ahead and buy.

There are several reasons why business scandals fade away.

On one hand, consumers love simplicity and convenience, which is why “convenience” is a major factor in the economy. A sociopolitical spirit is praiseworthy from a customer’s perspective, but in the end, they are mostly interested in price. Revolt against a favorite brand stops when the consumer’s well being is diminished. Everyone has heard the nasty tirades against American data companies such as Google, Facebook or Amazon. Yet as passionately as they are uttered, they are just as quickly forgotten when consumers need Google for information or to make a cheap purchase on Amazon. 

What does this mean for Volkswagen? Dieselgate is a crisis and should be viewed as one with a beginning, a middle and, at some point, an end. There likely will be months, if not years, of cleaning up the mess, dealing with charges and court proceedings. Meanwhile, there’s no question Volkswagen will confront the financial consequences for a long time.

But VW’s image will recover, just as it did after the affair involving former board member José Ignacio López and the scandal involving red-light services for the workers’ council. The prerequisite, of course, is for the company to make no major blunders in crisis communication. It will depend on the correct tempo, the right means of achieving transparency and not to further strain credibility among the people. Volkswagen cannot remain speechless and let others interpret the crisis.

Already, the first “it’s not so bad” messages are making the rounds. The new car market continues to boom with no hint of a diesel dent, according to a recent examination by Ernst & Young consulting company. The internet portal Mobile.de [a car market website] also has sounded the all-clear signal: there has been no drop in demand for diesel products from Volkswagen and Audi.

The consumer forgives or forgets quickly. That’s life.

 

To contact the author: bialek@handelsblatt.com

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