The following blog post is a guest article from Thorsten Hofmann, fellow of the Politics and Public affairs mBa at Quadriga University of applied sciences in Berlin. He is also manager of the business consultancy advice Partners and is chairman of both the Crisis Communication Task force, and the communication network eCCo International Public relations. Here he examines how Volkswagen needs to go about building trust again after the emissions scandal.
Repairing broken promises
The Volkswagen emission crisis has shaken confidence in one of the most recognised brands in the world: it also highlights the link between trust and economics.
All was still right with the world nine years ago when VW’s former chief executive officer Martin Winterkorn presented the new slogan of his automobile empire in the glossy context of the Frankfurt Motor Show – bursting with pride and with a broad grin on his face. “VW – das Auto” was a cool, dry and rational statement that under- scored the powerful, dominant status of the Wolfsburg-based corporation. Buying a car from Wolfsburg suggested down-to- earth honesty and the absolute reliability of a product that many had come to believe in and even take for granted since childhood. The company was able to rely on a solid foundation of trust.
After all, business can only work based on trust: if you’re going to engage in business dealings with someone, you have to trust them. Customers have to trust a bank, for example, otherwise they would all rush to withdraw their money and the bank would collapse. In a globalised world with a surplus of products, trust in a brand acts as a guide that reduces complexity. Without this mechanism there would be no so-called “love brands”, no advertising industry and no marketing, either. And yet the trust factor tends to be left out of the economists’ equations. The most severe crisis in VW’s history powerfully illustrates just how closely linked the variables of trust and economics are. Trust is in fact the most relevant factor of all when it comes to business relations.
Back to the roots with a five-point plan?
After the scandal of manipulated exhaust emissions, the question of how to painstakingly rebuild trust is not easy to answer. The company’s management in particular is moving on very thin ice in the way it is dealing with this issue. After all, the worst crisis in the history of VW was by no means the result of an isolated occurrence or the obsession of a single development engineer. The deliberate and unscrupulous deception of customers and systematically planned installation of software to optimise exhaust emissions was a high-risk gamble with the corporation’s most vital attributes: honesty and trust. So the main question now is to what extent will the company put its words into action and successfully embark on the long and difficult path back to establishing trust once again. VW has set itself clear goals: the five-point plan presented by CEO Matthias Müller seeks to clarify thoroughly how the scandal came about. The core of the message behind this is: we have understood. We will change fundamentally. We will solve the problem and repair the damage to our reputation.
“Trust is the most relevant factor of all when it comes to business relations.”
The first recalls are to start in January 2016: The announcement that recalls would start in 2016 was followed by initial action with the Volkswagen Amarok. This laid the basis for demonstrating a consistent and rigorous approach in following up on communicative announcements with operational measures. However, the communicative dilemma in customer contact and over-stretched repair garages are minimising positive resonance. The wave of VW recalls started at the end of January has so far been uneven and imbalanced. Unlike in Europe, customers in the US have not received clear information about how the recalls are to be organised. As a result, customers are beginning to sue local deal- erships and the garages are overwhelmed by the sheer volume of the recalls, having reached their limits in terms of staffing. This makes communication look uncoordinated. VW now has to consistently carry out further trust-building measures and not allow its actions to appear ineffective.
Investigation of the manipulations: Chief executive officer Matthias Müller continuously emphasises that the truth has to be established so as to be able to learn from past mistakes. Open, honest communication is the basic requirement here – after all, trust is always a matter of common sense. Swift acknowledgement of errors and the resignation of VW grandee Winterkorn were the first important steps here. In order to ensure that these measures come across positively and re- store trust in the VW brand, however, it is vital to adhere rigorously to a communication strategy – but Müller made a regrettable, cardinal error here by mud- dying the waters in a single interview at the world’s most important motor show. To give a radio interview when overtired and unfocused stating that “no lies” had been told and describing the systematic manipulation of exhaust emissions as a technical problem comes over as cyni- cal and ethically questionable. It defeats everything that had been said before and makes previous apologetic gestures look misleading. It also destroys the delicate basis of newly established trust: from the customer’s point of view it places a question mark over management competence and even suggests potential complicity.
Corporate restructuring and programme of cost cuts: The programme of cost cuts and the complete restructuring of the company and its brands are measures resulting directly from the crisis. However, VW still needs to show clearly how it intends to prevent manipulation in the future. Comprehensive clarification is therefore required, along with continuous communication. Nonetheless, restructuring measures will only be comprehensible to the public at large if they establish transparency as to how manipulation is to be prevented in the future. The new management must take care to ensure that a programme of cost cuts is not seen as a way of penalising the “innocent” workforce. The latter should not be made to look like the victims of a disastrous failure on the part of management.
The company’s working culture and management philosophy: Müller stated clearly: “We need a culture of openness and cooperation.” He also called for more courage, creativity and enterprise among staff. A change in culture is easy to de- scribe, but implementing it takes time and a lot of work. Here we are talking about malpractice that came about in the company over a period of many years and was covered up by a large number of individuals. In other words, the entire organisation failed. It is already reflected in the damage caused to the company’s operations and reputation, and this impact will intensify. If VW wishes to restore the credibility it has lost, it has to start by bringing about a verifiable change of culture within the company. This means that in addition to crisis management, the corporate culture that allowed such things to take place over a period of years has to change. VW has to ask itself the following questions: “How do we want to be seen in the future? What changes do we have to make? What are the steps we need to take to get there?” The latter will certainly include changes in personnel, rigorous and if possible independent safeguard and control mechanisms and also the relevant changes in the culture cultivated by the company in terms of management, error handling, consistency and communication. So it will be a long and difficult task to restore the VW brand to its former glory.
Extension of the existing goals for 2018: VW untiringly claims that customer relations are at the heart of the company. It would do well to regard its Strategy 2025 not just as being about qualitative growth: the strategy should be integrated as a trust-building element. This will not be a matter of mere marketing clichés but of taking clear action. When American customers are promised compensation payments but customers in the European core market are left out in the cold, the company is seen to be practising unequal treatment, discriminating between first- class and second-class customers. The only possible answer here is clear consistency and equal treatment of customers in all affected markets. This also includes responding to society’s questions with a clear schedule for eradicating the causes of the scandal. The elimination of un- certainty is crucial to establishing trust, and VW would do well not to allow this uncertainty to grow again.
Action is the key to restoring normality
The five-point plan put forward is a first step in the right direction, but it is still not enough. A consistent strategy is still lacking, and the planned core message – we have understood, we will change fundamentally, we will solve the problem – is watered down. A degree of confusion still prevails: European customers in particular are confronted with the issue of compensation, and in the US the overriding question of how VW intends to solve the nitric oxide problem remains. It is now up to the company as a whole to tackle these problems consistently and turn the situation around in its favour. The company can only restore the trust of customers and consumers by ensuring ongoing monitoring of its internal processes – and this has to be communicated.
THE GREAT DIESEl DUPE
On 18 september 2015, a notice of violation of the Clean air act was issued by the Us environmental Protection agency to Volkswagen Group, after it was found that VW had intentionally programmed software in many cars that could detect when the car was being tested and change its performance accordingly to improve results. The programming caused the vehicles’ output of nitrogen oxide to meet Us standards during testing,
But emit up to 40 times more in real-world driving. Volkswagen put this programming in about 11 million cars worldwide between 2009 and 2015. VW became subject to regulatory investiga- tions in multiple countries and its stock price fell by a third in the days immediately after the news. Ceo Martin Winterkorn resigned, and key figures were suspended. Volkswagen announced plans to spend 6.7 billion euros to cover costs, leading it to post its first quarterly loss for 15 years of 2.5bn euros in October 2015.
Professor Dr Thorsten Hofmann is a fellow of the Politics and Public affairs mBa at Quadriga University of applied sciences in Berlin, Germany. He is also manager of the business consultancy advice Partners and is chairman of both the Crisis Communication Task force and of the communication network eCCo International Public relations.