What’s your company’s biggest asset? Your first instinct might be to think it’s your product or your innovative team.
If you’re Volkswagen, you’ve just learned the hard way that the most important part of your company is brand integrity and the trust of your consumers.
CEO of VW Martin Winterkorn resigned this week as news became public that the company had been using software to cheat American emssions tests for their diesel vehicles. America’s standards for nitrogen oxides (NOx) emissions are higher than in Europe. Rather than dedicate some of its nearly $14.6 billion in R&D (the highest in the world) to engineering a way to meet these standards, VW decided to cheat instead.
The car manufacturing giant admitted to installing software that allowed it to falsely pass these standards tests on 11 million of its diesel vehicles. EPA testing showed the actual emissions were more than 40 times the standard.
The damage this shortcut will produce is severe, to say the least. According to The Economist, in the first four days after the news broke, VW’s shares fell by one-third, depreciating its value by almost $29 billion. The company has set aside $7.3 billion to cover the financial hit the cheating scandal has caused, but it may not be enough. The company faces billions in fines and potential lawsuits, not to mention the damage done to its attempts to gain footing in the important American market.
Why take such an enormous risk in the first place? Since managing to get around emissions testing rules seems to be an open secret in the carmaking industry, particularly in Europe, VW may have had reasonable expectations that their secret would be safe.
Plus, the financial benefit of gaining market share in America may have been too tempting. Rather than spending money to develop cars that pass the tests (which would have come at a higher cost to consumers), VW chose to circumvent the rules for what they likely hoped would be quicker gains.
Instead, this apparent lapse in integrity has cost VW billions in market share, tarnished their reputation, and hurt their brand across the globe. This mistake has affected the company at every level and, most importantly, given customers a reason to consider other brands. In such a highly competitive market, the costs of VW’s actions may prove to be catastrophic.
To avoid similar backlash themselves, other organizations would be wise to view VW as a lesson in what integrity really means for a brand.