What VW is getting right in the emissions-cheating scandal

Volkswagen has been completelynailed.

In just a few days, US accusations that the company was using software to cheat emissions tests have grown to be a global problem.

The diesel engines involved in the scandal are in 11 million cars and trucks, the German company said Tuesday.
But here’s one piece of good news — Volkswagen is managing the crisis in the best possible way, and that could mean it comes out of it faster than other automakers have when they have run into trouble.

No denials

At this point, VW is denying nothing, and admitting everything in a furious hurry. Nor is there any finessing of the bad news.

“Let’s be clear about this, our company was dishonest with government regulators and with all of you,” said Michael Horn, who runs VW Group in the US, at an event in New York City on Tuesday night. “We have totally screwed up.”

That’s the right thing for the company to do.

“This is a huge trust issue, and trust issues are the hardest to overcome,” said Daniel G. Hill, president of Ervin-Hill Strategy, a crisis-management firm in Washington, D.C.

A crisis like this will create serious doubts in its customers’ minds about the company’s integrity, Hill explained.

“This tends to lead to the question of, ‘If you were dishonest here, how else are you being dishonest?'” he said.

So ultimately it makes no sense for VW to dodge the truth. The company can only compound its problems at this point by trying to share blame or avoid compete transparency.

Volkswagen Beetle TDI
A TDI Volkswagen Beetle, on sale in the US. Volkswagen

In the US in particular, where VW has struggled for years to establish itself at the top of the market (it currently holds a meager 2% market share), brand equity is clearly more valuable than vehicle sales.

The few customers that VW has here are loyal, but their understandable impression now is that they were sold a pack of lies by the German car maker.

“That’s the first audience they have to deal with,” Hill said. “Those people are stakeholders — they’re already a part of the family.”

Falling on swords

With VW stock getting destroyed on the German exchange and the company facing a massive recall in Europe, there isn’t much to be gained from stalling on the crisis. Toyota was slow to grapple with its unintended-acceleration recalls in the 2010 period, which culminated in the automaker’s president, Akio Toyoda, being hauled in front of Congress to testify.

Earlier this year, Honda CEO Takanobu Ito stepped down, amid speculation that the move was related to the massive recall of exploding airbags manufactured by Takata and installed in many Honda vehicles, and in some cases linked to fatalities. But Ito resigned after the Takata recalls had been going on since 2013.

VW Volkswagen factory
VWs being assembled. ChinaFotoPress/Getty

Erroneous reports in the German media circulated on Tuesday that VW’s CEO, Martin Winterkorn, was out. He later contradicted those reports and said that he’s still at the helm — and that he’ll work to resolve the issues related to the emissions scandal.

Winterkorn recently survived an executive-suite shakeup at VW and he faces another evaluation by the company’s board at a pro forma meeting this week.

Winterkorn’s resignation from VW at this juncture wouldn’t be a surprise, but it would be difficult to execute. VW is controlled by several different entities: members of the Porsche family (Ferdinand Porsche designed the original VW Beetle, “People’s Car”); the government of Lower Saxony, the German state where Volkswagen is headquartered; and the union representing the workers that build VW’s cars; along with numerous other people who serve on the VW Group’s Supervisory Board.

Over the next few weeks, we’ll find out if VW is going to clean house. But for the time being, as this emissions-cheating debacle gets worse, VW looks like it’s finished hiding from the truth.

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