A Bug’s Life

September 23rd, 2015

If you are of a certain age you might remember the films of ‘Herbie the Love Bug’; an anthropomorphic Volkswagen Beetle, with a mind of its own. The film proved extremely popular and went on to spawn numerous sequels over the years, greatly bolstering the reputation of the VW Beetle.

Whilst the Herbie films are fantasy (spoiler alert) it transpires that Volkswagen may have designed a real life car with a mind of its own, or so the company might like you to believe.

On Friday last week, the California and Federal Environmental Protection Agency (EPA) in the United States ordered Volkswagen to recall around half a million cars, when it was discovered that the company had been falsifying emissions tests.


herbie-4The EPA’s investigation revealed that the company had installed a device on certain models of its cars, which reduced the nitrogen oxide emissions when the cars where undergoing tests, but then dramatically increased the emissions when the cars were being driven normally.
It has been estimated that the levels of nitrogen oxide were so high that they were up to 40 times the emissions limit imposed by the federal government. The potential fine associated with breaking this limit is around $37,500 for each car not complying with the rules, which would mean that Volkswagen could potentially face a fine of $18bn, an enormous figure even considering the size of the company involved.

In response to the news the company’s share price suffered its worst ever one-day fall, plunging 20% by the middle of Monday. The company’s global CEO, Martin Winterkorn, responded to the crisis with a genuine apology saying that he was, ‘personally deeply sorry’ for breaching the rules, adding that Volkswagen had ordered an external investigation.

The German Economy Minister also commented that the crisis could have knock on effects for the reputation of the German automotive industry, and said that he expected the company would explain the issue quickly, and remedy the situation.

Whilst the crisis is still at an early stage there have already been questions raised as to whether the sign off for such a device could have been taken at a regional level, with suggestions that the decision may have come from higher up in the company.

The reason this latest crisis may prove particularly damaging for Volkswagen is not just because of the anticipated heavy fine, or the dramatic fall in the share price, but because of the damage this is likely to do to the company’s reputation over the perception that it may have deliberately mislead authorities and broken the rules.

The German automobile industry prides itself on its reputation, and it is likely to put pressure on Volkswagen to name and shame those responsible for taking these decisions, something which the company may or may not be willing to do, but something that will be vital in protecting its own reputation.

In the movies, Herbie returns for a sequel; Volkswagen will be hoping that it can survive this latest crisis, and go on to ‘ride again’.

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