Volkswagen and the engineering of truth

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Volkswagen and the engineering of truth

Earlier this month, reports emerged that the German car manufacturer Volkswagen had been accused by the US Environmental Protection Agency of designing software for its diesel cars that understated the cars’ toxic emissions[1]. The firm’s CEO of eight years, Michael Winterkorn, resigned shortly after the story broke, citing a ‘grave crisis.’[2]

Tens of billions of euro have been wiped from the company’s stock market value[3] and the long-term reputational damage will surely be colossal. Yale Professor David Bach even went as far as to write an article titled: “Seven reasons Volkswagen is worse than Enron.”[4] Therein, the professor notes: “Volkswagen could get wiped out even though the company is financially healthy.”

Learning from corporate scandals

Professor Bach’s analysis could turn out to be accurate, but perhaps slightly differently to how he intended. Taking a longer view shows that the whole auto industry is in flux anyway, due to a heady cocktail of a highly-concentrated market, tough new environmental legislation (Daimler and BMW were lobbying Angela Merkel before her 2013 election campaign to “water down” new EU rules on CO2 emissions[5]) and new technology (more of which later).

In the midst of this massive shake-up, car manufacturers have resorted to every measure imaginable to try and keep up; the Volkswagen affair is just the latest in a string of scandals that have shaken the industry: previously, there were faulty  ignition switches at GM, “sudden unintended acceleration” at Toyota and exploding airbags at Takata[6]. An accounting scandal is never far behind.

Corporate scandals are nothing new of course, but the proximity of the scandals in the auto industry suggests all is not well. You don’t have to go back to the Roman Empire to see how quickly governance standards crumble when an organization faces a massive shift. A recent case study is provided by Kodak Eastman, inventor of the hand-held camera[7].

The Eastman Kodak company had a stellar reputation for over 100 years. In the space of five years, one controversy followed another. In 2007, it resigned its place on the Better Business Bureau (where it was one of the founding members) after 36 years after refusing to handle consumer complaints surrounding its cameras[8]; in 2010, it settled $21m for a class action lawsuit for disciminatory practises against its own employees[9]. in 2011, it faced a class action lawsuit where the complaint involved anti-competitive practise with colour inkjet cartridges[10].

In January 2012, Eastman Kodak filed for bankruptcy[11].

The auto industry’s ‘Kodak moment’

Eastman Kodak was founded in 1888[12] just three years after Carl Benz developed the world’s first motorcar[13]. While we may still think of cars as high technology (probably due in no small part because of the huge amounts auto firms spend on advertising), the reality is that this is an old industry that will soon undergo massive change. The ongoing scandals in the auto industry are just a symptom of this.

The arrival of digital camera technology and later, camera phones, effectively spelled the end for Eastman Kodak. The traditional players in the auto industry look to be now facing a ‘Kodak moment;’ ask most people what they think the car of the future will resemble and it’s more likely to be a Tesla or a Google marque than a Skoda Octavion.

Just a week before Volkswagen’s carbon emissions scandal hit, Apple met US regulators to discuss driverless cars and acquired Mapsense, a geospatial data analysis company, whose software could be used to direct them[14]. Less than a week after the incident, Tesla Motors released its Model-X electric SUV[15] and Google introduced the media to its own driverless car[16].

Conclusion

It’s worth noting that of mid-2015, Volkswagen is the world’s largest car marker[17]. In what other industry would you expect the global leader to resort to the type of c measures that Volkswagen took with its faulty carbon emissions metres? While there’s considerable and justifiable finger-pointing going on at the moment with Volkswagen’s leaders, it would be unwise to overlook the bigger narrative.

For far too long, auto makers (mainly those in mainland Europe) clung to the “national champion” tag in a bid to avoid competitive realities. Without the support of governments, many of of these firms are now failing to come to terms with a new reality. In just one example, the inconic FIAT ceased to be an Italian company in 2014, when it left Turin after 114 years.

The world has moved on. Volkswagen may well survive this tumultous period and hopefully for all the innocent stakeholders involved, it indeed manages to do so. But rather than be seen as yet another corporate misdeed, maybe we should be looking at what it did with its toxic emissions meters for what they are: the despairing actions of a proud company which has known for quite some time that its future is numbered.

Comments

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