Scandal Threatens Entire German Auto Industry

07/24/2017 09:25 pm ET

The emissions scandal that rocked Volkswagen seems to have spread to the entire German auto industry. An article in Der Spiegel claims that German automakers – Audi, BMW, Daimler, Porsche, and Volkswagen – may have colluded for years on prices, emission controls, and other serious matters.

Trying to get ahead of the story

In response to demands from the German Transport Ministry to attend a special hearing, Daimler decided to recall 3 million diesel vehicles across Europe. Two years ago, Volkswagen executives took the first step of proper crisis management protocols by admitting fault and apologizing. Because 11 million vehicles were involved, they were unable to take the second step of limiting the scope. Now that this scandal seems to have spread to the entire German auto industry, executing the additional crisis management steps will be so much more difficult – especially in the short run.

The high cost of deception

Because German auto manufacturers liberally use the "German engineering" moniker in their marketing, the latest scandal can have a profound effect on their image. According to reports, they met in secret committees for years to collude on prices, emissions control, and other important issues. Wouldn't it have been a better strategy to invest that money in engineering rather than collusion? They continue to pay a heavy price for this deception, which can only be categorized as a lose-lose strategy. In addition to costly recalls and repairs, shares of Germany’s big 3 automakers have plummeted since Der Spiegel broke the story.

The lesson for businesses

The takeaway for all businesses is to implement product fixes as soon as problems are discovered and to avoid engaging in deceptive activities. Experienced business executives know that the longer you wait to fix problems, the more expensive they will be. The most expensive problems are those that customers, government agencies, and others outside your company discover.

If companies invest resources to deliberately deceive the public, there is likely to be a big explosion when the public learns of the deception. This is what has happened to VW, and it is spreading to the other German automakers. The blow-up is causing costs to multiply, sales to fall, and reputations to be damaged in the eyes of the public. Since the scandal has spread beyond Volkswagen, it may affect the Made in Germany brand, which has built its reputation on quality engineering.

The solution

In the short run, the emissions problems in offending vehicles need to be fixed, and the collusion has to stop. In the longer run, German auto manufacturers have to do the following:

  • Engineer fixes to emissions problems;
  • Make it convenient for customers to receive the upgrades;
  • Implement new policies and procedures to insure the problems will not reoccur;
  • Agree to oversight from a credible independent third party;
  • Create communications that convince the public that these problems will not happen again.

The Der Spiegel article makes it clear that the emissions scandal that has plagued Volkswagen extends to other German automakers. Even worse, there is evidence of collusion between the automakers that goes beyond emissions control. To limit the brand damage, automakers need to find and implement a fix as soon as possible. To regain the public trust, this fix should include the following 3 steps of the Fact Procedure:

  1. Admit the problem and apologize;
  2. Limit the scope;
  3. Propose a solution so this is unlikely to happen again. Part of the solution should include oversight from an independent, credible third Party such as the German Transport Ministry.

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