Why Volkswagen cannot survive the emissions scandal unscathed

The emissions scandal engulfing Volkswagen is to such a scale that the brand is unlikely to survive, at least in its current form, according to branding experts and consumer perceptions data.

It is now little under a week since the revelation that Volkswagen was fixing its car emissions first surfaced. In the past week we have seen Volkswagen admit the issue could affect up to 11 million cars globally, equating to millions of tonnes of emissions.

Its CEO Martin Winterkorn has already fallen on his sword despite saying he had no knowledge of the elaborate rigging ruse. Others are almost certain to lose their jobs as the full scale of who knew what and how high up the scandal went become clear.

Volkswagen is the world’s biggest car marque having overtaken Toyota earlier this year. It also, prior to the scandal, had one of the strongest brands in the auto industry.

On YouGov’s BrandIndex it sat at the top of a list of 34 car marques for Index – the sum of a range of brand metrics including quality, impression and reputation.

The brand impact

What makes this event so serious is Volkswagen’s deliberate decision to insert so-called “defeat devices” into its engineering system. It bypassed environmental standards, making its engine appear more to pump out less emissions in testing than they would do in reality.

This was no error but a calculated choice to dupe the car industry, the regulators and the public. Volkswagen vehicles were marketed as low emission – people bought them on that premise.

“This is not a typical crisis in the sense of it deriving from error or a systemic flaw. Volkswagen executives set out to deliberately and criminally break the law.”

Mark Ritson, associate professor of marketing, Melbourne Business School

As such there are very few comparisons. YouGov says the closest it can get is the Toyota recall of 2010, from which the brand still has not fully recovered according to its own figures.

The scale of the decline for the Volkswagen brand is even deeper.

Unsurprisingly its Buzz score – a measure of the positive and negative things said about a brand – has plunged by a statistically significant 40 points to -3.7, putting it bottom of the list where it had been top.

Its Index score is down by 11.4 points moving it down the list from first to 11th. Impression, Quality and Reputation also fell by statistically significant figures.

On the plus side for Volkswagen the scandal is yet to hit people’s purchase intent or consideration as hard. However, Neil King, auto analyst at Euromonitor, suggests Volkswagen will “inevitably lose its global sales crown”.

Volkswagen reported global sales of 5.04 million in the first half of 2015, according to Euromonitor International/JATO Dynamics, just ahead of Toyota on 5.02 million. At the time King estimated that the VW Group would end up beating Toyota for the full year by 50,000 deliveries.

However he has has since cut his sales estimates by at least 300,000 while adding that Toyota could easily benefit from consumers’ defection to hybrids due to its dominance in that market.

Can Volkswagen survive?

Volkswagen Polo GTI

Volkswagen has promised to spend at least €6.5bn “restoring consumer trust” in the brand. In a statement the brand said its “top priority” was to avert damage to customers and it will inform the public constantly and transparently on further progress.

Unsurprisingly it has already cut plans for a marketing campaign set to launch in the next few months.

However this may not be enough. Ritson says while the Volkswagen brand is unlikely to die as a result, it’s “not impossible”.

What is more likely is that Volkswagen as a company is broken up. It is facing vast fines from governments, car owners and industry bodies. Ritson estimates that will cost at least €30bn.

“This is not a classic crisis management case anymore. The potential penalties are already too huge to even pretend Volkswagen can survive this unscathed.

“This is no longer about protecting brand equity or defending market share. This is about preventing Volkswagen as a company from going under,” he adds.

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