The absolutely massive challenge ahead for Volkswagen’s next CEO

24 Sep 2015 | Author: | No comments yet »

The Latest: German vice chancellor urges fast VW probe.

The chief executive of crisis-hit Volkswagen has quit, after clinging on to power for five days as the scandal over the auto giant’s rigging of pollution control tests engulfed the company The revelation is particularly damaging since Volkswagen has long pinned its reputation on its technological prowess, with the tagline, “Isn’t it time for German engineering?,” along with its focus on environmental sustainability. “Brands are all about trust and it takes years and years to develop,” says Nigel Currie, an independent U.K.-based branding consultant. “But in the space of 24 hours, Volkswagen has gone from one people could trust to one people don’t know what to think of.” The company apologized and the CEO stepped down, but Volkswagen has yet to explain how the cheating was allowed to occur.

Volkswagen (VOWG_p.DE) Chief Executive Martin Winterkorn resigned on Wednesday, succumbing to pressure for change at the German carmaker, which is reeling from the admission that it deceived U.S. regulators about how much its diesel cars pollute. “Volkswagen needs a fresh start – also in terms of personnel. The company risks alienating not only fans of the “People’s Car,” but dealers, the local face of the brand, who feel blindsided by the scandal. “The most important thing is that VW comes out and tells the public what happened, who was involved and make sure that it doesn’t happen again” said Jeremy Robinson-Leon, principal and chief operating officer at New York-based corporate and crisis PR firm Group Gordon.

I am clearing the way for this fresh start with my resignation,” Winterkorn said, following a marathon meeting with the executive committee of the VW board. He says Winterkorn’s resignation “was inevitable, given the dimension of the manipulation scandal and the still unexplained consequences.” Lower Saxony has a 20 percent stake in Volkswagen, and Thuemler says many questions must be answered. The world’s biggest carmaker by sales has admitted to U.S. regulators that it programmed its cars to detect when they were being tested and alter the running of their diesel engines to conceal their true emissions. He says “a full explanation of the affair is still only at the beginning.” His statement Wednesday says that “for the Volkswagen Group, for the citizens’ sense of justice, and also in Mr. Winterkorn’s own interests there was no alternative to his resignation.” German Vice Chancellor Sigmar Gabriel said after the resignation of Volkswagen’s CEO that it’s important now for the scandal to be cleared up completely — “by the company itself, as well as through cooperation by Germany and the company with American prosecutors and the American authorities.

Mueller, a former head product strategist, is also a management board member of Porsche SE (PSHG_p.DE), and so close to the Piech-Porsche family that controls Volkswagen. We must not allow the impression to arise that this is a problem for the whole auto industry or that it raises questions over the integrity of Volkswagen overall. Winterkorn, who during his eight years in charge oversaw a doubling in Volkswagen’s sales and an almost tripling in profit, said he was shocked that misconduct on such a massive scale had been possible at the company. German Chancellor Angela Merkel had urged Volkswagen to move “as quickly as possible” to restore confidence in a company held up for generations as a paragon of German engineering prowess.

Sigmar Gabriel, who is also Germany’s economy minister, said Wednesday it is clear that it’s “absolutely unacceptable” to try to manipulate engines using software during tests. He added: “The damage that some people have unleashed for the company and its employees is huge — but I think we should take care not to make a general debate about the quality of Volkswagen or the whole German auto industry out of this.” Gabriel welcomed Volkswagen’s pledges to investigate the scandal fully. He said it’s important that it is cleared up quickly and “the consequences are drawn.” The prosecutors’ office in Braunschweig, near VW’s Wolfsburg headquarters, says Wednesday that it is considering opening an investigation against employees of VW who might be responsible. Senior members of Volkswagen’s board said in a statement they expected more heads to roll as an internal investigation seeks to identify who was responsible for the wrongdoing.

More recently, Volkswagen launched a global “Think Blue” campaign in 2010 with the aim to “become the world’s most ecologically sustainable car manufacturer” by 2018. “They had a brand image that is very straightforward, honest and in recent years dependent on being a leader on environmental standards and pushing those,” said Kelly O’Keefe, professor of brand management at the VCU Brandcenter. “Now it appears they’ve been cheating to get there, which is a devastating revelation.” Recent ads have promoted its “clean diesel” technology, which provides high fuel economy, in its Passat, Jetta, and other cars. Volkswagen said on Tuesday about 11 million of its cars were fitted with Type EA 189 engines that had shown a “noticeable deviation” in emission levels between testing and road use. One campaign shows older ladies in a Passat bickering about whether diesel fuel is “sluggish” or “stinky.” A Jetta ad says the car’s engine is “painstakingly engineered without compromise.” The scandal broke Friday in the U.S., and the last “Clean Diesel” ad ran Monday, according to, which tracks TV ads in real time. The story has shocked the car market, with dealers in the United States reporting people holding back from buying diesel cars and “#dieselgate” trending on Twitter. “Winterkorn did a good job and does not deserve to be sacrificed. Carsten Brzeski, chief economist at ING Germany, said the ongoing refugee crisis and now the “Volkswagen shocker” pose new risks to the German economy.

Volkswagen should now focus on its cars with gasoline engines and be very aggressive with pricing promotions, said David Kiley, author of “Getting the Bugs Out, the Rise, Fall and Comeback of Volkswagen in America.” Volkswagen did not respond to a query about future advertising plans. In fact, YouGov BrandIndex, which tracks a brand’s perception, said news of the scandal has brought the carmaker to its lowest U.S. consumer perception levels in more than six and a half years. VW may also need to pull back on the whimsical side it cultivated with Super Bowl ads like “The Force,” in 2012 showing a young boy dressed like Darth Vader using his pseudo-powers on a Passat; and a 2013 ad depicting a man so happy driving a Volkswagen he started speaking in a Jamaican accent.

He said his job is to examine how consumers might have been affected and “it is not for us to decide on other questions.” In early afternoon trading in Frankfurt, the company’s share price was up 3.1 percent at 114.60 euros. That’s a marked turnaround from the start of the session when it slid a further 7 percent to trade below 100 euros for the first time in nearly four years.

Wednesday’s rise follows declines of 17 percent and 20 percent in the first two days of the week that saw nearly 25 billion euros (around $28 billion) wiped off the company’s market value. The head of Germany’s main industry lobby organization is calling for “transparency, openness and speed” in getting to the bottom of the Volkswagen emissions scandal.

Toyota recovered from millions of recalls between 2009 and 2011, and BP endured the Deepwater Horizon explosion and oil spill that killed 11 and led to an environmental disaster five years ago. Clifford Law Offices, based in Chicago, says it is filing a complaint to the Northern District of Illinois alleging that VW engaged in deceptive and fraudulent business practices. Meanwhile, law firm Sutts, Strosberg LLP, based in Windsor, Canada, was reported in local media to have filed a class action lawsuit seeking $1 billion in damages and $100 million in punitive damages.

The European Automobile Manufacturers Association, which represents major European automakers including Volkswagen, says it “recognizes the gravity of the situation and is taking this very seriously.” Environmentalists have long complained that carmakers game the testing regime to exaggerate the fuel-efficiency and emissions readings of their vehicles. But Deutsche Bank called the scandal an “investor’s nightmare” and cut its recommendation on Volkswagen shares to “hold” from “buy”, predicting rising costs for making diesel cars would wipe out its cost-cutting programme. Traders said the plunge in Volkswagen shares had prompted some talk it could become a takeover target, with Fiat Chrysler openly looking for a partner, though there is no sign that VW’s controlling Piech-Porsche clan is looking to sell.

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