Volkswagen

When Volkswagen made the decision to deliberately deceive millions of customers across the world, it took a huge risk with its reputation.  Clearly, the risk didn’t pay off and Volkswagen will have to work incredibly hard to win back the majority of its loyal customers.

Volkswagen scandal

Over the past few weeks, Volkswagen has been hit with an $18 billion fine, a 20% drop in share value and pending potential criminal charges. But the most serious problem of all is their tarnished reputation following the scandal, which has left millions of people feeling deceived and wanting answers – not least those who own one of the 11 million cars which were found to have cheated emission tests.

What was known as the ‘people’s car’ manufacturer seemed to have it all in terms of image, brand and reputation. People had made memories with the famous Beetle, as well as investing their time, money and loyalty into the German automaker. But all those years of hard work has been undone by an ill-judged gamble.

Crisis management

At board level, at some point, a decision was made for Volkswagen to cheat their emission tests. This was destined to be found out from a simple routine check at some point, so why did they do it? The answer is simple. They didn’t think it through and manage the risk; there was no crisis management strategy in place.

Crisis management is by no means a get-out-of-jail-free card, but it’s a way of limiting the damage to your brand when something goes wrong. It’s one of the most important ways of safeguarding a company in times of crisis.

Questions are now being asked about the morality of the company and its directors – and rightly so. This is by no means a minor hiccup for the German manufacturer, and it’s looking like the start, rather than the end, of the decline of their reputation.

What next?

This scandal exemplifies the importance of crisis strategies and risk management. No company should ever risk their reputation in the way which Volkswagen has done. Any company must manage their risk and make key business decisions by bearing in mind the risk against the reward.

Transparency is key to consumer trust for a brand, so any ambiguity from Volkswagen from now on could be critical. To avoid this, the company will need representatives around the world, all sending out the same message. Key spokespeople will be needed to apologise, explain and begin to restore customer trust with continuity. Any further mistakes may make the situation impossible to recover.

Customers and investors alike will expect to see cultural changes being made, with failings being admitted and key people being made accountable.

Recovery

Volkswagen recently announced their intention to recall cars from January, which is a start to recovering the relationship with customers. However, many loyal customers may never return following the scandal and it remains to be seen how long it will continue to affect Volkswagen’s image, profitability and future success. The time comes when if you cannot win, you must look to cut your losses; it seems that Volkswagen are on damage limitation and their reputation will never be the same.

Companies can use this as an example of the pitfalls which can come from making ill-advised, rash and undoubtedly risky decisions. To ensure your company never ends up in such a perilous situation, you must make sure you manage risk effectively and have a successful crisis communication strategy.