Articles No.

The emissions test scandal will cost the German giant untold billions and
could drag the whole industry down
Its not easy being green was Kermit the Frogs lament in the Audi TV ad
broadcast on prime-time US networks at the weekend.
The Volkswagen boss Martin Winterkorn, manufacturer of the Audi and VW models,
now knows only too well exactly how hard it can be.
Only hours earlier Mr Winterkorn had acknowledged that VW, the worlds
current No 1 car maker, had cheated on US car exhaust tests on its diesel
cars to make them appear more environmentally friendly than they were.
His embarrassment was compounded by the prominent slogan used in the
companys advertising Truth in Engineering.
VW engineers had deliberately used a defeat device computer software
that controlled the diesel engines of many of its best-selling models so it would
appear they were spewing out fewer of the noxious gases that contribute to
climate change and are said to be behind spiking levels of respiratory
illnesses such as asthma.
The software, designed to work under US regulatory test conditions, switched
on the vehicles full pollution controls making it appear they were 40 times
cleaner than when the cars were driven normally on the road and the software
switched the controls off.
VWs initial admission had been terse, with the company confining itself to
saying it was co-operating fully with investigators.
A better idea of the scale of the crisis became clearer after the company
issued a profit warning. It said it had set aside 4.7bn to cover the fall-out and
that 11 million cars around the world could be affected.
Read More:Volkswagen emissions scandal spreads to EuropeVolkswagen
ordered to recall 500,000 carsVolkswagen: The six questions we need
answers to
Last year VW had global sales of 146bn and a pre-tax profit of 10.7bn on
the 10 million vehicles it sold.
Many speculated that the figure set aside was too conservative as
investigations were launched in countries from South Korea to Italy. Experts
say that in the US alone the Environmental Protection Agency has the power to fine
VW up to 11.7bn. On top of that, there could be fines from the US Department of

if it brings criminal charges, as well as civil court cases from the millions
of car buyers who thought they were buying environmentally friendly vehicles.
Justice

As the mounting crisis engulfed the German car maker, Mr Winterkorn, a man
famed for his attention to the details of VWs massive industrial operation,
promised a thorough investigation and said he was endlessly sorry.
Other VW officials were more brutal in their assessment. We have totally
screwed up, said Michael Horn, VWs chief executive in the US. We must fix the
cars to prevent this from ever happening again, and we have to make this
right. This kind of behaviour is totally inconsistent with our qualities.
Exactly how sorry the 68-year-old Mr Winterkorn will be may soon become
clearer; VWs supervisory governing committee met on Tuesday night, and
any recommendation made by the committee will be presented to the full 20member VW board.
But the company, based in Wolfsburg, has suffered a 37 per cent plunge in its
share price in two days, wiping 18bn off its value, and regulatory
investigations have fanned out from the US across the world like a virulent
rash. As result, auto analysts were not giving odds on his chances of survival.
We dont see any stop to this bloodbath unless there is a change at the head
of VW and full co-operation with authorities. Some heads need to roll to get
investors buying back VW, Vincenzo Longo, an analyst at IG Group in Milan,
told Bloomberg News.
The wider board will undoubtedly take account of the reputational damage
being sustained by VW, which has long been ranked among the worlds most
responsible companies.
Brands are all about trust and it takes years and years to develop. But in the
space of 24 hours, Volkswagen has gone from one people could trust to one
people dont know what to think of, the brand consultant Nigel Currie said.
Marcel Fratzscher, the president of the German Institute for Economic Research, warned
that the financial cost to VW could represent just a fraction of the wider
problems arising from the scandal. The damage is not only to VWs image in
the US, but globally. This means jobs at VW and many of its suppliers in
Germany will be at risk. VW has been a showcase for Made in Germany, he
said.
More immediately, the threat of contagion is to the rest of the motor industry.
Speculation and politicians pronouncements have already embroiled other car
makers, regardless of truth. Shares in Germanys Daimler, the manufacturer of
Mercedes-Benz cars, dipped 6.5 per cent. BMWs share price fell 5.4 per cent
and Frances Renault was 7 per cent lower.

On the upside, shares in the South Korean car

makers Kia and Hyundai accelerated as it was anticipated that their sales would
benefit from VWs woes.
The ultimate beneficiary of VWs crisis should be car buyers and the
environment. But that may take time
Car manufacturers have been chasing more efficient and cleaner diesel
engines since the 1990s to the extent that in the UK they now make up more
than half of all cars sold. However, the latest revelations have left the car
industry scrambling to defend its emissions tests.
Business news in pictures
Many emissions experts warn that Europes fragmented testing regime is laxer
than in the US. Last month a study by the environmental group Transport &
Environment reported that, on average, new European diesel cars produce
emissions around five times higher than the EU limit for nitrous oxide in diesel
models 80mg/km. VWs Audi, voted green car of the year in 2010, was the
worst offender, emitting pollutants 22 times greater than the limit, it said.
The consequence, the report warned, was that much urban air in Europe is
not fit to breathe.

Article 2
Volkswagen's

development of software to cheat diesel-emissions tests was an

open secret in its engine development department, Germany's Sueddeutsche
Zeitung newspaper has said, citing results from VW's internal investigation.
Many managers and staff dealing with emissions problems in the department
knew of or were involved in developing the "defeat devices", said the
newspaper, which researched the matter with regional broadcasters NDR and
WDR.
A culture of collective secrecy prevailed within the department, where the
installation of the defeat software that would cause the carmaker's biggest
ever corporate crisis was openly discussed as long ago as 2006,
Sueddeutsche said.
But it said there were exceptions - a whistleblower, who was himself involved
in the deception and has been giving evidence to investigators hired
by Volkswagen, alerted a senior manager outside the department in 2011.
This manager, however, did not react, the newspaper said.

Staff members in engine development felt pressure from the management

board to find a cost-effective solution to develop clean diesel engines for the
US market.
Rather than telling Volkswagen's management board the rules could not be
adhered to, staff members in engine development decided to push ahead with
manipulation, Sueddeutsche reported.
"Within the company there was a culture of 'we can do everything', so to say
something cannot be done was not acceptable," Sueddeutsche Zeitung said,
quoting the VW internal report which included testimony from a staff member
who took part in the fraud.
"Instead of coming clean to the management board that it cannot be done, it
was decided to commit fraud," Sueddeutsche reported in its Saturday edition.
Staff in engine development took comfort from the fact that regulators would
not be able to detect the fraud using conventional examination techniques, the
paper further said.
Engine management software delivered by Bosch was then manipulated in
Wolfsburg, where Volkswagen has its headquarters, Sueddeutsche Zeitung said.
Manipulation started in November 2006, it added.
has said that to the best of its knowledge only a small circle of
people knew about the manipulation, which Europe's biggest car maker
admitted to US environmental authorities in September last year.
Volkswagen

It has said it is not aware of any involvement by top management or

supervisory board members in the affair, which toppled its chief executive last
year and is likely to cost billions of dollars for recalls, technical fixes and
lawsuits.
A Volkswagen spokesman declined to comment on Friday on what he called
"speculation", saying the investigation - for which Volkswagen has hired US law
firm Jones Day - was continuing.
The Sueddeutsche Zeitung said the whistleblower was being investigated by
prosecutors in Braunschweig.
initiated an amnesty programme last year for witnesses who could
shed light on the scandal, promising not to fire employees who came forward
with information by 30 November.
Volkswagen

The car maker plans to give the first public results of its investigation at the
annual shareholders' meeting in April.

Article 3

STEVE INSKEEP: Now let's talk about a company managing bad

news. Volkswagen ends the year struggling to recover after admitting it cheated
on emissions tests. NPR's Sonari Glinton reports.
SONARI GLINTON: The story of the VW diesel emissions scandal began in a
very unexpected place. Arvind Thiruvengadam is a research professor at West
Virginia University.
ARVIND THIRUVENGADAM: Our part in this entire episode is very small
because, you know, when we went into the study, our aim of the study was
never to catch a manufacturer.
GLINTON: They did catch a manufacturer. Thiruvengadam and his colleagues
were doing real-world testing of diesel vehicles. Volkswagen for years had
installed software that allowed its diesel cars to operate as clean when
regulators were testing them for pollutants and then switch to dirty when no
one was looking.
THIRUVENGADAM: I remember asking my colleague, are you sure we're
doing things right? Because you said things were really low on the chassis,
but we don't see the same trend on the road. And that's when we were looking
at each other and like, OK, let's look at, you know, did we make any mistakes.
GLINTON: Turns out, there had been no mistakes. Volkswagen had marketed
and sold vehicles as clean diesels. Not only were they not clean; the vehicles
polluted nearly 40 times more than the company said they did. Instead of
having clean diesels parked in their driveways, hundreds of thousands of VW
owners had cars that were polluting like they were 18-wheel trucks. And the
company admitted as much. Here's VW's U.S. head, Michael Horn, speaking at a
party after the news broke.
(SOUNDBITE OF ARCHIVED RECORDING)
MICHAEL HORN:

Our company was dishonest with the EPA and the California Air
Resources Board and with all of you. And in my German words, we have totally
screwed up.
GLINTON: That's barely the half of it. Volkswagen's CEO in Germany was
forced to resign. Its stock price took a hit, and regulators and law enforcement
agencies launched investigations on multiple continents.

JAKE FISHER: So it was really a very strong company that looked to be on a on a trend. But no one wants to buy a car from a company that's going to lie to
you.
GLINTON: Jake Fisher of Consumer Reports says it's not just customers who
have doubts.
FISHER: We have doubts on whether or not they're going to continue to get
the good fuel economy that they get. We have doubts whether or not they're
going to drive as nicely. Will they be slower? Will there be other problems?
Obviously, they made the decision for a reason.
GLINTON: Volkswagen has admitted to lying and cheating. And it has apologized.
In a statement for this story, a company spokeswoman writes, quote, "we want
to assure customers and owners of these models that their automobiles are
safe to drive. And we are working to develop a remedy that will meet the
expectations of the government agencies," unquote. Here's a question being
asked both at Volkswagen and about Volkswagen. Is this scandal posing an
existential threat to one of the most important companies in the history of
cars? Akshay Anand with Kelley Blue Book has an answer.
FISHER: Around 80 or 90 percent of consumers say they're willing to
forgive Volkswagen if they take the right steps.
GLINTON: Volkswagen executives haven't exactly said how they'll fix the
polluting cars. But they have offered aggrieved customers discounts, gift cards
and other incentives. Anand says the company needs to do more than repair
its reputation.
AKSHAY ANAND: Any way you look at it, this is going to be billions and
billions and billions of dollars or euros. Consumers are willing to forgive in
time. It's just, how long will the financial impact last?
GLINTON: Anand says while the rest of the industry enjoys record sales and
is innovating and hunkering down for the next recession, Volkswagen is likely to
be trying to fix its self-inflicted wound. Sonari Glinton, NPR News.

My Essay
In my assessment, not only did Volkswagen lose the trust from consumers, the company also lost the
trust of their employees. Warren Buffet said that it takes 20 years to build a reputation and five
minutes to ruin it. In the case of Volkswagen, both the brand and reputation of the company took a
major hit from its emissions scandal. As brand and reputation are positively associated, hence both
respectively dropped dramatically when the scandal was released to the public.

Volkswagen the No.1 car maker in the world was made embarrassed by its slogan, Truth in
Engineering. With a slogan like this that creates high level of trust within consumers; in correlation
with consumers high expectations from the companys recognized reputation, it only hurts the
company far deeper when it turns out to be a lie. Luisot & Girardet (2012), Reputation = Experience
Expectations greatly explains how reputation have been affected in this scenario. Where Expectations
of Volkswagen was always higher than experience to the general public, and therefore caused
negative reputation (Expectations > Experience = Negative Reputation).
In the relevance to article 1 from the Independent about Volkswagen recall of cars, it is also known
that from Rhee & Haunchild (2006) that auto recalls led to more market share decline for firms with
strong reputation for quality, and thus a negative deviation from reputation-based expectations
became more salient and led to more severe punishment. As Volkswagen revels itself as a high
quality German car maker with posh brands under its wings such as Porsche and Audi, it definitely is
renowned it its strong reputation for quality and trust in consumers. Therefore, from this scandal,
Volkswagen suffered a 37% plunge in its share prices within two days resulting of a lost in confidence
from shareholders as mentioned in article 1. In-fact, Volkswagen scandal has not only affected its own
company, it affected the confidence of consumers on a whole (motor industry), affecting other
continental car makers such as Mercedes-Benz, BMW and Renault. Due to a general perception from
consumers that continental cars are of better quality in comparison to Asia brands such as Hyundai or
Kia, therefore causing a bigger uproar for the European car manufacturers as said above.

In this case, rebranding might help to bury its past and raise a new flag. The problem raised from a
Volkswagen product that has been made to lie to consumers on its carbon emissions. Ettenson &
Knowles (2008) explanation on Brand being customer-centric refers to what the company tell others
about the company, reflects my statement above where Volkswagen has made a product to perform
at a certain level been constantly communicated to numerous consumers. Thus, if Volkswagen is
willing to rebrand itself with a new reliable product that exceeds market expectations and
competitions, there is no reason why the company cannot excel again in the future. It will take time
and much effort for Volkswagen to change the image of how consumers perceive the company,
however it can be done. In article 3, Fisher communicated that from research, 80 or 90 percent of
consumers say that theyre willing to forgive Volkswagen if they take the right steps. Volkswagen has
thus forth since the scandal took many steps to correct the situation. With the stepping down and
apologetic nature of their previous CEO who has taken the responsibility of the scandal, to recalling
cars and offering consumers with discounts, gift cards and incentives. These steps helped to mitigate
the immediate emotions of consumers and might nullify slightly the extended process of consumers
forgiveness. With a new branding campaign in the near future, Volkswagen can inform consumers on
the changes made to its brand and its new promises to their consumers to evoke emotions in
consumers that the company has made thorough changes and only works to provide once again the
best to its consumers.

There are a few ways where Volkswagen can restore its reputation. Ever since the scandal,
Volkswagen has been through several phases in reputation crisis and reputation management. Wilcox
& Cameron (2009) time lapse of crisis management has four phases that includes proactive phase,
strategic phase, reactive phase and recover phase. Right now, Volkswagen should be in its recovery
phase where reputation management should occur. Supported by Gaines-Ross (2008) Safeguarding
& Recovering Reputation, with its 4 step of reputation recovery inclusive of rescue, rewind, restore
and recover, the company is right now in its restore and recover phase.
With the above said, Volkswagen should start with re-building reputation from inside-out. Employees
are the key link to corporate reputation management where it is the only stakeholder group that
impacts the corporate reputation directly, and are responsible for the creation of corporate values,

purpose, image and culture of the company as mentioned by Cravens & Oliver (2006). The
management should first change the culture of the company. As mentioned in article 2, German
newspaper Sueddeutsche Zeitung quoted that "Within the company there was a culture of 'we can do
everything', so to say something cannot be done was not acceptable." This culture has probably
caused the stress of employees in the engine department in designing an engine of acceptable quality
to its management board. With employees afraid of getting sacked due to poor performance, they
committed fraud.
The company should start by changing such employee mind-set, righting the culture to improve the
gaps within the company. After so, the company should seize the shift in consumer trends, which is
still for the motor industry to go green. For the company to properly rebrand itself with a new, efficient
and effective product with proper procedures and mechanics introduced to consumers.
With this new initiative, Volkswagen must brave the media and conduct effective marketing campaigns
for the long term to evoke the positive emotions in consumers and at the same time convince them of
the changes made to its brand. There will definitely be situations where the media will associate their
new brand and campaign with past faults, however, the company must face the media directly and
inform them of the changes done within the company. Two-way communication is always better than
one-way communication in communicating changes in the company to external stakeholders. All
these is an attempt to build up and generate positive publicity for the company. To demonstrates to
the public that the company has dug dip in reprimanding their mistakes and it is now confident that
they will be able to wow the public again but in the right way.

In summary, Volkswagen has suffered tremendously in terms of brand and reputation due to the
diesel emission test scandal to the extent where employees, consumers of the brand as well as the
general public has lost its faith and trust in the company. Much have to be done to salvage the
situation. However, Volkswagen has done what deemed acceptable enough in the PR world in terms
of crisis management. Their CEO took the heat and apologized accordingly for the wrongdoings of the
company as well as for the company cooperation with the authorities in investigating the scandal. I
believe that proper rebranding will definitely help Volkswagen to get back on its feet and surprise the
marketplace again with ground-breaking innovations along with effective positive communications
being communicated in the right way to all levels of stakeholders.