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Can Volkswagen Survive Its Defeat Device Crisis?
The signs are not good for Volkswagen (VW). The world's largest automaker is at the centre of one of the biggest crises in the history of the automotive industry. Some 11 million vehicles are implicated in the defeat device scandal, whereby VW cheated energy testers with a clever piece of kit engineered to provide cleaner emissions during testing.
The VW group's CEO, massive question mark over whether the company has the firepower to withstand the financial and legal challenges coming its way.
The U.S. Environmental Protection Agency (EPA) has already said that VW could face penalties of net profit of 10.85 billion euros ($12.3 billion) in 2014, has set aside 6.5 billion euros ($7.3 billion) to deal with the scandal's fallout.
However, EPA fines are likely to just be the beginning of the company's financial challenges. U.K. lawyers are being inundated with calls from concerned drivers, The Guardian reported. Jacqueline Young, the head of group litigation at multinational law firm Slater and Gordon, said though the scale of the scandal's impact on U.K. cars is not yet clear, a class-action lawsuit against VW "has the potential to be one of the largest group action lawsuits this country has seen."
The noxious fumes of the scandal are gradually spreading across the globe. Germany's transport minister Alexander Dobrindt South Korea has also said it will test up to 5,000 VW diesel cars.
Baback Yazdani, a former executive at Jaguar Land Rover and dean of Nottingham Business School, believes that the costs for VW will add up to "tens of billions, if not twenties." He compares the financial implications of the scandal for VW to BP's troubles following the Gulf of Mexico oil spill. In July, $54 billion.
He adds that the reputational damage to VW is difficult to calculate, but the scandal could end up losing them customers to competitors. "I don't have a calculator to add it all up but quite a bit of this is actually unknown and it will only be known after it happens," says Yazdani. "If you're ready to buy a car and you hesitate for one brand, there's another 10 waiting to sell their product to you."
Besides all this, there is also the cost of rebuilding trust. VW delivered more than YouGov poll, VW is now the lowest-ranked car brand in the U.K. in terms of Buzz scores (whether people have heard anything positive or negative about the brand). The German automaker fell 31 places in a week, while also losing 10 points among U.S. customers.
The history of one of VW's main competitors may provide some succor. In March 2014, Japanese automakers Toyota Bloomberg.
For Yazdani, who says he is sure the company will survive the crisis, the key for VW is to come clean and address the problem immediately. "In the short term it will have an impact—people will hesitate to buy, the secondhand value will be impacted...It's impossible for there not to be an impact," he says. "BP saw theirs out, there was a big case in Toyota a few years back and they saw it out...They have the means to see it out and obviously it depends on how fast they act."
A statement from VW's headquarters in Wolfsburg said the company is "working at full speed to clarify irregularities" on the issue of defeat devices, but assured customers that new VW vehicles available in the European Union "comply with legal requirements and environmental standards."
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