In 2015, Volkswagen a popular German engineering and auto company found themselves in hot water. The Enviornmental Protection Agency (EPA) came out with a report that certain Volkswagen cars that were being sold in the U.S. had a software that would “defeat” the emission tests. In diesel engines the software was able to detect when the tests were occurring to change how the car performed so the results were better. They have admitted to the cheating in the U.S. that affected 482,000 cars, and the pollution levels caused were over forty percent more than is allowed in the U.S. (Hotten, 2015).
This scandal caused economic and image damage to Volkswagen. Personally affected was Martin Winterkorn, he resigned from his position of chief executive as a result he believed that they “had broken the trust of our customers and the public.” The company has admitted to the wrong doing and cheating, and customers have received goodwill payments as a result. This does exclude Europe however, their cars there also faced recalls but the pollution levels were not illegal in the EU. No European customer had been compensated for the recall.
During this time Jung, Chilton, and Valero conducted research to find the effects that the stakeholders faced. They looked at the impact the stakeholders had on the public perception. They ultimately found that the stakeholders have a direct impact on the views, they found that contact with customer and clients in person and social media aided Volkswagen’s recovery (Jung et. al 2017, p. 1). During this time anything that Volkswagen could do to improve their image they did. Regardless of what they tried they still faced a lot of damage from this scandal in the U.S. and abroad. To look into the affects and step their company took to manage the crisis, we can look at the the phases in this crisis management cycle consisting of the following: the proactive phase, the strategic phase, the reactive phase, and the recovery phase from the textbook THINK Public Relations (Wilcox 2013).
The proactive phase is the first phase, the phase that can prevent the conflict from occurring in the first place. We can see that potential for a problem in 2014, but VW continued with the software. In 2014, US regulators had questions about VW emissions levels, but these were dismissed by the company as “technical issues” and “unexpected” real-world conditions (Hotten 2015).” VW knew there were going to be concerns in the future based off this problem. This is the time when they could have prevented the problem or began to question their actions. The issue management should have begun here; VW could have been making behavioral changes or a plan to deal with the issue they will be facing in the future. VW decided instead of planning ahead or changing what they already did, they went forward with the emission rigging.
The next phase is the strategic phase. This includes risk communication, conflict positioning, and crisis management. VW seemed to skip this step in the life cycle. The knew that the EPA knew something they just choose to deny it and continue on. They didn’t warn anyone about the possible environmental damage caused by the lack of honest emission tests avoiding risk communication. They didn’t announce they may have a conflict so they took no position and they purposely avoided conflict (Hakim 2016).
VW jumped right into the reactive phase. Once the EPA knew that the emission tests were rigged and VW had to respond. The litigation and financial resolution was still in the cards. With VW recalling millions of cars worldwide from early next year, it has set aside €6.7bn (£4.8bn) to cover costs. Additionally, the EPA has the power to fine a company up to $37,500 for each vehicle that breaches standards – a maximum fine of about $18bn (Hotten 2015). Facing this financial blow and the blow to their company image they had to go into recovery.
This is the phase where image restoration begins and they mending of their reputation. This included the compensation to their customers and the recovery to their image. They obviously had a character flaw because when a company or at least those at the top decide to cheat that means there are deep rooted issues. To recover they need to outperform the competition and continue to prove themselves as a top ranking auto company again. Meaning they have to have new innovation and a new image so they recover from the scandal.
Overall, the problem can’t just be fixed with a press release and an apology. This scandal was damaging to their reputation when this occurred and in the future as well. They had the potential to follow the conflict management life cycle, but they choose not to and hope they wouldn’t get caught. This still affects Volkswagen financially and socially. This is a crisis that will take a long time to recover from, and PR professionals working with them should know this and take the necessary actions. This is a long ROAD to recovery.
Jung, K., Chilton, K. & Valero, J.N. Qual Quant (2017). doi:10.1007/s11135-016-0462-7
Wilcox, D. L., Cameron, G. T., Reber, B. H., & Shin, J. (2013). Think public relations. Boston: Pearson.
Hakim, D. (2016, February 26). VW’s Crisis Strategy: Forward, Reverse, U-Turn. Retrieved February 12, 2017, from https://www.nytimes.com/2016/02/28/business/international/vws-crisis-strategy-forward-reverse-u-turn.html?_r=0
McGee, P. (2016, June 12). VW set to unveil new strategy following diesel emissions scandal., https://www.ft.com/content/fa44e6c2-2ef1-11e6-a18d-a96ab29e3c95