Volkswagen Story

How one global company destroyed itself…

When Volkswagen CEO resigned and admitted that they had long manipulated emission norms in the US, it came as little surprise. For years the US authorities were investigating why Volkswagen’s emission tests on road were far worse than those done in the lab. It now transpires that VW had actually fudged its software to lie about actual emissions of its diesel cars..

The race against Toyota…

For years, Toyota’s Japanese hybrids had dominated the US auto market. VW had always been way behind Toyota and Nissan in the US car market. VW found a very simple, albeit unethical way of getting around this problem. It promised a diesel engine that gave more power at less cost. The only catch was that they manipulated the software which showed lower emissions under laboratory test conditions. VW had soon started picking up on US sales and had overtaken Toyota as the largest car manufacturer in the world.

We lied on emissions…

It now emerges that VW lied on its emissions. The diesel cars were not so eco-friendly after all. The costs for VW could be huge. According to preliminary estimates, VW will end up paying fines in the US to the tune of $18 billion and the eventual loss could be a lot more. Then there is the loss of reputation and the marquee reputation that VW enjoys across the world. Not surprisingly, the biggest punishment was meted out by the stock markets. VW lost $24 billion out of its $72 billion market; that is roughly a third of value wiped out in just a few days.

Aggression, but at what price!

When the dust settles, the VW fiasco would be blamed on the aggression and enthusiasm that VW showed in dominating the lucrative American market. Firstly, it was the failure of that extremely myopic approach to business growth that has come apart. Trying to buy growth in the demanding US market by cutting corners was a bad idea to begin with. Secondly, there was an abject failure of internal controls at Volkswagen. An emission test is a complex process and involves too many inter-disciplinary groups. It would not have been possible with the connivance at the highest level.

The sad part is that Volkswagen is not just any other car maker. It is a car with a rich history and an irrefutable pedigree. It was the iconic VW Beetle that was the firepower behind the Second World War. VW has for years captured the imagination of Germans as the common man’s car. As the largest carmaker in the world, its reputation for safety and value had made it a preferred car across the world. Now market share will be lost. The reputation lost may never be regained! ©

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