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The Volkswagen recovery: leaving scandal in the dust

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The Volkswagen recovery: leaving scandal in the dust

Abstract

Purpose Following the diesel emissions debacle of 2015, Volkswagen Group has rebounded significantly in terms of sales and market value. When examining Volkswagen’s dramatic recovery, it is clear to notice four distinct elements that helped to bring about this rapid turnaround. To push through the public relations nightmare and regain sales traction, Volkswagen embarked on a four-step process that centered on four key words: Replace, Restructure, Redevelop and Rebrand. The purpose of this study is to examine that process. Design/methodology/approach This study is a case study examining the performance of Volkswagen Group and their recovery from the 2015 diesel emissions scandal. To achieve their significant turnaround, the company sought to: replace the leadership, restructure the organization, redevelop the strategy and rebrand the product. This study examines those four steps in the recovery process as a model for other firms. Findings To try and achieve an unprecedented turnaround, the company sought to: replace the leadership, restructure the organization, redevelop the strategy and rebrand the product. These four strategic elements formed the basis of a newly focused company and continue to push the company forward and further away from the scandal. This four-step process of recovery provides an excellent case study for other firms who may find themselves in the midst of turmoil and crisis. Originality/value To push through the public relations nightmare and regain sales traction following their 2015 emissions testing scandal, Volkswagen embarked on a four-step process that centered on four key words: Replace, Restructure, Redevelop and Rebrand. These four strategic elements formed the basis of a newly focused company and continue to push the company forward and further away from the scandal. This four-step process of recovery provides an excellent case study for other firms who may find themselves in the midst of turmoil and crisis.
Journal of Business Strategy
The Volkswagen recovery: leaving scandal in the dust
James Welch,
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James Welch, (2019) "The Volkswagen recovery: leaving scandal in the dust", Journal of Business Strategy, https://
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The Volkswagen recovery: leaving
scandal in the dust
James Welch
1. Introduction
The Volkswagen emissions reporting scandal is proving to be one of the most financially
costly corporate fraud cases in modern automotive history but those who initially began to
write off the company’s future prospects are now changing their tune. While the financial
impact has been quite severe to say the least, the company has solidly bounced back from
the losses and the automobile manufacturer is continuing to see sales and revenue growth
under its revamped strategy. The end of the story has yet to be written, but it is arguably
clear that Volkswagen has emerged from the brink of complete disaster to move forward
into a favorable future.
The dollar amount of the financial carnage from the emissions fraud began to substantially
take shape in January 2017 when Volkswagen agreed to a guilty plea deal in a US federal
district court. The guilty plea resulted in $2.8bn in criminal penalties and $1.5bn in civil
penalties in the USA alone (Ewing, 2017). In addition to court-designated criminal and civil
penalties in the USA, the company also announced that it was going to spend over $18bn in
recalls, retrofits and other efforts to attempt and rectify the damage caused by the
organized corporate fraud (Ewing, 2017). This latter figure represents the company’s
financial set asides, some of which were designated to settle the large number of civil cases
in the USA.
In addition to the criminal and civil penalties in the USA, the company has also faced a
variety of legal and governmental actions from around the globe, from Europe to Asia to
South America (Ewing, 2017). Therefore, the actual global price tag of the corporate fraud
remains to be seen and it may take years before that actual financial toll is known. With such
a significant financial impact to Volkswagen, a number of analysts and auto industry
observers initially surmised that such an event would cause irreversible harm to the
company resulting in steep, permanent declines in auto sales and severe, irreversible
damage to the brand’s reputation. It is easy to imagine that such damage would be
impossible to overcome. As it turns out, however, this could not be further from the truth. In
fact, for auto sales numbers reported for June 2017, a mere six months after the criminal
and civil penalty plea deal, Volkswagen saw brand sales climb 15 per cent as compared to
the same month in the previous year. For the entire year of 2017, Volkswagen saw total
sales up 5 per cent over the previous year, while many other auto manufacturers were flat or
down (Vellequette, 2017).
The ability of Volkswagen to post these numbers so soon after the very public scandal
certainly bears examination. This case study examines the Volkswagen response to the
legal, financial and public relations nightmare and discusses the surprisingly solid, positive
sales results to this point. While the entire financial recovery process is yet to unfold, it is
clear that the company is making substantial strides towards its future goals.
James Welch is a Instructor
of Management at the
University of Tampa,
Tampa, Florida, USA.
DOI 10.1108/JBS-04-2018-0068 ©Emerald Publishing Limited, ISSN 0275-6668 jJOURNAL OF BUSINESS STRATEGY j
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2. The scandal
The Volkswagen diesel emissions scandal first came to public light in September 2015
when a notice of violation from the US Environmental Protection Agency was delivered to
the company. With that notice of violation, the EPA alleged that Volkswagen sold over
480,000 Volkswagen and Audi diesel vehicles with an emissions compliance defeat device
installed to bypass environmental regulation in the USA. The defeat device, as alleged by
the EPA, allowed up to 40 times more nitrogen oxides than allowed by federal emissions
requirements (Atiyeh, 2017). Essentially, the device allowed for better performance but
higher emissions except when an emissions test was detected by the installed software
program. When an emissions test was detected, the software would direct the engine to
revert instead to a low-emission performance.
Ultimately, this cheat allowed Volkswagen to pass federal emissions requirements, while, in
day-to-day use, the cars were not compliant with federal regulations. The manipulated low
emissions levels during testing enabled Volkswagen to not only sell diesel vehicles in the
USA, but also to receive significant governmental subsidies set aside for low emissions
vehicles. When the affected Volkswagen vehicles were tested, the software kicked in and
the company was able to record lower emission levels and, as a result, receive substantial
green car subsidies and tax exemptions in the USA. Similar tax breaks and subsidies were
also affected in Canada and Europe (Atiyeh, 2017).
While the emissions violations became public in 2015, the process of discovery had been
evolving for two years. It was much earlier, in the spring of 2013, that a group of graduate
students from West Virginia University began testing a Volkswagen Jetta diesel station
wagon to measure the emission of nitrogen oxides in real-world driving conditions
(Thompson et al., 2014). The basis of the study was to examine whether the EPA process
for the testing of automotive emissions was accurate. The study proposed that, as most EPA
testing is done in laboratory conditions, investigating real-world data could either confirm or
deny the results of the EPA tests. As a result of these initial investigations, the recorded data
actually revealed that the Jetta, in real-world driving conditions, emitted 15 to 35 times the
amount of nitrogen oxides than were allowable by EPA standards (Thompson et al.,2014).
The researchers also tested a Volkswagen Passatt diesel in the same manner that tested 8
to 15 times the amount allowed (Thompson et al., 2014). These results were in striking
comparison to Volkswagen Jetta and Passatt results as conducted by the EPA where EPA
standards are measured by running the cars on rollers in the laboratory. This academically
based investigation, funded by a $70,000 grant, began to reveal a long and twisted story of
corporate fraud and deceit. These initial findings were provided to the California Air
Resources Board and to the Environmental Protection Agency in May 2014 and more
intensive scrutiny and testing began both in the USA and in Europe (Thompson et al., 2014).
One year after the initial findings were given to federal and state governmental authorities,
additional and more widespread testing confirmed that the corporate fraud impacted a very
large number of vehicles. As it turns out, the initial 480,000 vehicles were just the tip of the
iceberg as they only reflected sales in the USA. Volkswagen later admitted that over 11
million diesel vehicles worldwide were actually involved in the falsified emissions scandal.
The affected vehicles were manufactured over a six-year period, from 2009 to 2015, and
according to several news reports, Volkswagen executives orchestrated the plan at a
The actual global price tag of the corporate fraud remains to
be seen and it may take years before that actual financial
toll is known.
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management meeting in November 2006 as a way to get around any federal emissions
requirements for diesel vehicles (Ewing, 2017). While we may never know the full details of
the corporate scandal and cover-up, it has been reported that at least 30 people in the
management level at Volkswagen knew about the deceit for years. Notwithstanding these
published accusations, Volkswagen has continually denied the claims that the knowledge
of the emissions cheat was as widespread throughout the company. Therefore, the extent of
executive involvement remains a debated issue that may never be resolved.
3. The challenge
Initially, the public disclosure of the corporate fraud resulted in severe losses to the stock
market value of the company. On April 5, 2015, Volkswagen AG, as listed on the Frankfurt
Stock Exchange, closed at a high of 253.20 DM. Over the next few months, the stock price
began to decline based on rumors that the company had engaged in the fraudulent
emissions reporting. When the EPA’s Notice of Violation to Volkswagen became public on
September 18, 2015, share prices of Volkswagen AG fell 20 per cent immediately on the
Exchange. By the end of the month, Volkswagen share price had lost another 20 per cent
before regaining only modest ground in the first week of October, 2015. At its low point,
Volkswagen AG reached 92.36 DM on September 27, 2015 representing a decline of over
60 per cent from the high posted earlier that year.
While the stock price decline was quite significant, the share price was not the only factor
affected by the scandal, as the car company’s sales also took a substantial hit. By
November of 2015, the Volkswagen brand had recorded substantial sales declines in the
UK, VW’s fourth largest market. Sales dropped 20 per cent that November, which followed a
nearly 10 per cent drop recorded in October (Kottasova, 2015). The November, 2015, sales
results reported in the USA were even worse as Volkswagen sales declined 25 per cent.
While sales in Germany, Volkswagen’s home market, only declined 2 per cent that
November, it was noteworthy result, as the overall auto market in Germany grew 8.9 per
cent in the same period, indicating that the home grown company lost ground to foreign
competitors (Kottasova, 2015). Sales in China, another one of Volkswagen’s largest
markets, grew 1.8 per cent that October, which, while a positive number, was a significantly
disappointing result compared to the overall Chinese auto market’s 11.8 per cent growth
(Kottasova, 2015).
The sales decline was confined not only to a short period immediately following the public
disclosure of the corporate fraud. In fact, sales numbers continued to decline for 12
consecutive months before beginning their turn around (Vellequette, 2017). The stock price
recovered slightly one year after the Notice of Violation but remained down by 30 per cent
compared to the price before the scandal came to light (Vellequette, 2017). To be clear,
2015 was a very difficult year for Volkswagen and the early part of 2016 continued the
difficulties.
The EPA alleged that Volkswagen sold over 480,000
Volkswagen and Audi diesel vehicles with an emissions
compliance defeat device installed in order to bypass
environmental regulation in the United States.
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Even though the markets were severely punishing Volkswagen, which was bad enough, the
company was also racking up serious financial damage through fines and legal settlements.
The US court negotiated penalties, which were finally settled in January 2017, were on top
of the $14.7bn settlement made six months earlier to settle consumer complaints and civil
cases in the USA (Ewing, 2017) and there may still be further settlements and fines to come.
For customers wronged by Volkswagen’s unethical behavior, the sales losses, share price
declines and financial penalties were the least to be expected following such a revelation of
organized corporate fraud.
In addition to the reputational and financial damage resulting from the scandal, there were
also personnel losses. Six Volkswagen executives were indicted on criminal charges
stemming from the organized fraud and subsequent cover up (Shepardson, 2015).
Concurrent with the financial arrangements in the guilty plea deal, Volkswagen executives
overseeing brand development, engine development and quality management (along with
an executive who served as the liaison between Volkswagen and regulatory agencies) were
charged with conspiracy to defraud the US government, defraud customers and violate the
US Clear Air Act (Shepardson, 2015). While the executives may never be extradited to the
USA to actually face trial, the charges certainly added to the public relations nightmare. To
be sure, the final tally of the personnel and financial cost to Volkswagen remains to be seen
as the ending financial cost of the fraud could likely grow even higher given the number of
criminal and civil cases pending against the company worldwide.
As insurmountable a challenge as this seemed at the time, Volkswagen wasted little time
pushing toward recovery. Considering the tremendously negative publicity around the
case, together with the costly financial impact and sales decline, it would be easy to
imagine that the road to recovery would demand significant strategic changes and require
a very long-term journey to turn the company around. Therefore, the prospect that, less than
six months after the multi-billion dollar judgment was entered, Volkswagen would record
positive sales numbers would have proven quite difficult, if not impossible, to predict.
Nonetheless, by the middle of 2017, the company had moved on from its previous 12-month
decline and instead posted its eight consecutive month-over-month sales increase
(Vellequette, 2017). Examining the recovery process could prove enlightening for other
leaders who may find their own firms dealing with the consequences of self-inflicted harm.
4. The recovery process
It is quite remarkable that less than one year after the scandal was made public,
Volkswagen again emerged as the world’s number one automotive company, beating out
Toyota and General Motors to retake the crown. Despite a rocky 2015 and a difficult
beginning in 2016, sales throughout Volkswagen group began to rebound in the latter half
of 2016. For the full year 2016, Volkswagen Group had sold a total 10,312,400 cars and
trucks, a 3.8 per cent increase from 2015’s figure of 9,930,500. In fact, each one of the
company’s brands (with the exception of their MAN Trucks line) posted year-over-year sales
increases with the core, Volkswagen, car brand being up 2.8 per cent year-over-year and
the group’s mainstream luxury brand, Audi, increasing its sales 3.8 per year-over-year. In
June of 2015, when the Notice of Violation was filed with the US Environmental Protection
Agency, few could foresee that such significant rebound would be coming in the first full
year following the scandal.
As insurmountable a challenge as this seemed at the time,
Volkswagen wasted little time pushing toward recovery.
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When examining Volkswagen’s dramatic recovery, it is clear to notice four distinct elements
that helped to bring about this rapid turnaround. To push through the public relations
nightmare and regain sales traction, Volkswagen embarked on a four-step process:
Replace, Restructure, Redevelop and Rebrand. To try and achieve an unprecedented
turnaround, the company sought to replace the leadership, restructure the organization,
redevelop the strategy and rebrand the product. These four strategic elements formed the
basis of a newly focused company and continue to push the company forward and further
away from the scandal. This four-step process of recovery provides an excellent case study
for other firms who may find themselves in the midst of turmoil and crisis.
4.1 Replace (the leadership)
One of the first steps toward recovery was a change in leadership. CEO Martin Winterkorn
resigned under pressure within weeks of the Notice of Violation and was replaced by
Matthias Mu
¨ller, previously the head of Porsche. The move to replace a scandal-plagued
CEO with an in-house candidate was a risky one, but the choice of Mu
¨ller provided both
continuity and a successful track record. The first step in responding to a corporate crisis
can most often involve a change in leadership at the top, but this can be a very difficult and
risky proposition. Even though Mu
¨ller was an internal candidate, he seemed to have the
sufficient distance from the scandal itself and a proven track record in implementing
successful turnaround strategies.
Matthias Mu
¨ller first came to work with the company as an apprentice toolmaker at Audi in
1977 and, following studies in Computer Science at Munich University of Applied Sciences,
he returned to Audi in a junior managerial position in the IT department seven years later.
Over the next 18 years, Mu
¨ller moved to various management positions at Audi finally being
appointed coordinator of the Audi and Lamborghini model lines in 2002. After a three-year
tour as head of Volkswagen’s product strategy, Mu
¨ller was appointed as chief executive of
Porsche in 2010 (Telegraph Staff, 2015).
During his time at Porsche, Mu
¨ller was given great credit for leading the brand successfully
through the turmoil of the recession. The Porsche brand sold 97,273 cars in Mu
¨ller’s first
year, 2010, but in 2014, Porsche sold 187,208 cars, almost doubling sales over that four-
year period. These increased sales led to over 17bn Euros in revenue and over 3bn Euros in
profit for the brand. In 2015, Porsche revenue was on track to exceed those numbers yet
again (ultimately surpassing 21bn Euros for the full 2015 results) and on September 25,
2015, just two days following Winterkorn’s resignation, Mu
¨ller was named CEO of
Volkswagen Group (AFP, 2015). Mu
¨llers proven track record at Porsche provided some
good evidence supporting this choice and allowed for some measure of continuity with an
inside candidate albeit a candidate that was also pretty far removed from the scandals of
the diesel-gate controversy.
Of course, a change in CEO leadership was not the only leadership change for Volkswagen
Group as other positions of leadership along with many direct reporting relationships were
Less than one year after the scandal was made public,
Volkswagen again emerged as the worlds number one
automotive company, beating out Toyota and General
Motors to retake the crown.
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also adjusted. Mu
¨ller wasted little time in moving forward to stabilize and restructure
Volkswagen, and methodically replaced seven out of the ten top Volkswagen executives
while also eliminating thousands of additional positions to slash company costs. While these
initial job cuts meant the loss of over 30,000 jobs (through attrition and phased retirements),
the cost reductions did save $4bn (Winton, 2016). Certainly the company wasted little time
in moving forward with the first step of the process in replacing some key leadership
positions. This is a major first step in the recovery process and provides the foundation for
moving on into the second step of the process and the restructuring of the organization.
4.2 Restructure (the organization)
As part of the restructuring, the responsibilities handled by the CEO were redesigned to
increase efficiency with the number of top managers who directly report to the CEO
reduced by 50 percent. According to Mu
¨ller, the primary goal of the restructuring was to
enable the company to redefine its focus and simplify the leadership organization so that
the company could make more efficient, timely and smarter decisions. The newly
restructured leadership roles included areas such as design, production, sales and
strategy which now report directly to the CEO. As Mu
¨ller explained at the time of the
restructuring, “Our new lean structure will enable us to develop the considerable potential of
our Company, its brands and employees to great effect. We will see faster decision-making
and more efficient action” (AFP, 2015).
In addition to changing Volkswagen’s rigid decision-making structure, Mu
¨ller also sought to
save money by cutting the compensation of the remaining senior executives by 37 percent
in his first year as CEO. While certainly this move resulted in corporate savings, it was also a
largely symbolic move as well to try and change public perception. In a related change, the
company also revised its much maligned compensation system so that it would be more
reflective of overall performance and be more fully based on the company’s financial results
(Rauwald, 2017). This compensation realignment was also an important symbolic move as
Volkswagen has long been criticized for overpaying executives and making decisions that
would protect employment and executive compensation over and above decisions that
would benefit shareholders.
Initially, the restructuring plan did not impress analysts and investors as most early
reactions supported a view that these cost reduction and streamlining moves were too little
and too late. For most of its recent history, the company decision-making process had been
strongly influenced by unions and German politicians. In pushing for the new restructuring
plan, Mu
¨ller had to deal with tight constraints with regard to labor with 50 per cent of the
company’s board seats being represented by labor groups. As a result, the cut of 30,000
job cuts were somewhat mitigated by the creation of new positions. Of those 30,000 job
cuts, approximately 23,000 came out of Germany (Winton, 2016). However, the
restructuring plan also involved the creation 9,000 new jobs, with the majority of those new
positions located in Germany. The net loss of 21,000 domestic jobs represents only 3 per
cent of the company’s total workforce and those who survive the jobs cuts are given a job
guarantee until 2025 (Winton, 2016). While many analysts felt that the restructuring and job
cuts should have been more drastic, CEO Mu
¨ller had to balance the political influences with
decisions that were actually feasible. The restructuring of the corporate organization
continued through the redevelopment and implementation of the company’s strategy.
CEO Müller had to balance the political influences with
decisions that were actually feasible.
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4.3 Redevelop (the strategy)
Following a replacement of leadership and concurrent with the restructuring of the
company, the company also embarked on the development of a new and comprehensive
strategic plan. Developing a new strategy across each one of the company’s brands, which
include Audi, Bentley, Bugatti, Lamborghini, Porsche, SEAT, S
ˇkoda and Volkswagen, along
with motorcycles (Ducati) and commercial vehicles (MAN, Scania and Volkswagen), is
certainly no small endeavor. Each brand, therefore, pushed forward with designated
strategies for specific markets.
One of the priorities for CEO Mu
¨ller was to raise the profitability of the namesake
Volkswagen brand and cost reduction moves were a big step in making this a reality. Along
with the cost reduction strategy, Mu
¨ller, through the Chairman of the Volkswagen brand
Board of Management, Dr Herbert Diess, launched a new strategy for the namesake brand
entitled “Transform 2025,” which was designed as a brand reorientation set up in three
phases. The first phase, dealing with brand strategy from 2016 to 2020, is centered on the
restructuring of the overall business and pushing a complete overhaul of the current value
chain (Volkswagen Press Release, 2016). Also during this first phase, the company has
embarked on developing new competencies in electric vehicles, e-mobility and connectivity
which will be discussed later. The second phase, dealing with 2020 through 2025, will see
the company push forward with new competencies pursuing a goal to become one of the
world’s leading, profitable volume manufacturers: “The strategy in this phase aims to create
a broader earnings base for example through new mobility services” (Volkswagen Press
Release, 2016). With the third phase, beginning in 2025, Volkswagen hopes to leverage
these new competencies into a major global role in the rapidly expanding world of electric
vehicles and e-mobility (Volkswagen Press Release, 2016).
The Volkswagen brand’s “Transform 2025” was part of Volkswagen group’s overarching
“Together Strategy 2025” plan which encompasses all of the Volkswagen group brands
and included a significant move more toward electric vehicles and the addition of 9,000
jobs to become the world leader in electric vehicles. A major part of the strategy is the plan
to launch 30 different electric vehicles across its different platforms, from Volkswagen, Audi
and Porsche and to build its own battery facility. Audi moved forward with plans to bring an
electric SUV to market in 2018, while also planning to begin work on another electric model
following the 2018 SUV launch. Volkswagen is going all in on electric vehicles as Mu
¨ller fully
expects electric cars, vans and SUVs to form one-third the company’s US sales by 2030
(Smith, 2016). While this investment may well run into a significant double digit billion dollar
figure, Mu
¨ller and the Board of Directors believe that these costly initiatives are the best way
to help the large auto manufacturer move forward and further away from the emissions
debacle. The plans for 16 new electric vehicle plants (9 by the year 2020) is a solid
representation of the significant investment the company is putting into their new strategy.
The moves to push forward cost-cutting at the namesake passenger car brand, bundling
together the company’s fragmented parts operations and re-alignment of its massive 12-
brand business could help Volkswagen finance its long-term goals. As an additional part of
the strategic plan, Mu
¨ller is opening up the possibilities of new relationships with the
The plans for 16 new electric vehicle plants (9 by the year
2020), is a solid representation of the significant invest-
ment the company is putting into their new strategy.
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company, including deals with Tata Motors Ltd. in India and Anhui Jianghuai Automobile
Co. in China with relationships being established to develop budget cars (Rauwald, 2017).
Industry rumors also suggest that there could eventually be a Volkswagen deal for Fiat
Chrysler. Fiat Chrysler, owner of the very profitable Jeep brand, would offer an immediate
sizable presence in the US market, where Volkswagen has been struggling since long
before the emissions scandal.
The 2025 strategy not only centered upon the significant move into electric vehicles, the
plan also included expanding on mobility solutions and pushing research into autonomous
driving. Each of these initiatives is designed to help the company move beyond the
negative impact of the emissions scandal and help rebuild the brand’s credibility.
Volkswagen recently invested $300mn Euros in Gett, a ride-hailing application similar to Lyft
and Uber, and is continuing to look into other investments or acquisitions in car-sharing,
ride-hailing or autonomous driving taxi services (Trefis Team, 2016).
4.4 Rebrand (the product)
With new leadership, corporate restructuring and the evolution of the company strategy,
Volkswagen is attempting to move quickly away from the “diesel-gate” scandal and
redefine the company in drastically different terms. This redefinition seems to be a major
priority of Mu
¨ller since he took the helm of the company. The sooner the company can settle
financial and legal liabilities stemming from the fraud and create a new image built on
electric vehicles, connectivity and mobility, the quicker the company will be able to distance
itself from the whole affair. This approach is apparently working as many customers have
returned to the fold and sales numbers are continuing to rise.
As Volkswagen is moving quickly to put its diesel past behind, it is interesting to note that
Volkswagen is now calling for the end to governmental subsidies for diesel vehicles. Mu
¨ller,
in a recent interview with German newspaper, Handelsblatt, said, “We should question the
logic and purpose of diesel subsidies. The money can be invested more sensibly to
promote more environmentally friendly technologies” (Posky, 2017). An end to diesel
subsidies and tax breaks would greatly help Volkswagen’s new strategy, which is geared
more toward electrification. It is an extremely interesting proposition since the company had
been one of the largest players in the diesel passenger vehicle market for many years.
With the new rebranding as an electric vehicle manufacturer, Volkswagen certainly has the
size and scope to take on industry leader Tesla. Some analysts have called Volkswagen the
potential “Tesla killer” (Mourdoukoutas, 2018). Perhaps there is no better way to move
beyond the entire diesel scandal than to build a new reputation as the leader in electric
vehicle manufacturing. By putting their new strategic emphasis on the three prongs of
electrification, connectivity and mobility, the company is grasping on to the hottest trends in
the industry and creating a new brand in the process. It is a safe bet to assume that in less
than ten years, Volkswagen group will be known as the leader in electric, connected
mobility and the whole idea of diesel-gate will become just a blip in the company’s
corporate history.
By putting their new strategic emphasis on the three prongs
of electrification, connectivity and mobility, the company is
grasping on to the hottest trends in the industry and
creating a new brand in the process.
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5. Conclusion
This case study explores crisis management and revitalization strategy by examining a
major multi-national company’s response and recovery from a self-caused financial and
public relations nightmare. The idea that a company could survive such a large-scale
corporate fraud and rebound so quickly is worthy of study. The primary reason for the
recovery stems from the very proactive approach to settling the legal issues and rapid
revamping of the company strategy. This is not always the case with corporations caught in
similar situations. In contrast to the Volkswagen case, other companies, facing self-imposed
crises, have fought such accusations, delayed legal and financial settlements and/or
attempted to hide from the media firestorm. The Volkswagen case study can provide some
interesting visibility into the best approaches following corporate crisis. To be certain, the
uncertainty about financial penalties and litigation will hang over the company for
some time, but the company has obviously made tremendous strides in recovering a
positive reputation.
For one of the largest companies in the world, this four pronged approach of replace,
restructure, redevelop and rebrand has proven to be a successful strategy. While the
changes are positively reflected in sales growth and financial performance, the even bigger
intrinsic rewards of company reputation will most likely continue to lead toward greater
growth and financial success. Certainly those investors who took a chance in September
2015 are now very handsomely rewarded for their gamble. Given the tremendous scale and
scope of the company, along with the new aggressive move into electric, the idea that
Volkswagen will become the primary auto manufacturer for electric vehicles might actually
be a feasible, foreseeable future.
To be clear, Volkswagen is not the only company to achieve such positive results from the
four-pronged approach. Carnival is another Fortune 500 company that used these same
four steps to turnaround their company prospects following a disastrous 2013. In February
2013, Carnival Cruise line gained international notoriety over the “poop-cruise” incident
when the Carnival ship, Triumph, lost power in the Gulf of Mexico and floated around for
nearly a week without any electricity until tow boats finally reached the vessel to bring it
back to port. Following significantly bad press over this 2013 incident which resulted in
substantial stock losses, the company brought in a new CEO, restructured the company
organization, redeveloped a strategy based on customer experiences and rebranded the
company for a new millennial marketplace.
In July 2013, Carnival brought in Donald Arnold, formerly of Monsanto and Merisant, as
CEO. Mr Arnold wasted no time in transforming Carnival Cruise Line through a major
diversification of the company’s leadership, a restructuring of the company’s nine separate
brands and a redevelopment of company strategy that would focus more on internal brand
collaboration over competition and embarked on an aggressive advertising campaign to
attract a new breed of customers from the millennial generation. Within just a few years,
passenger numbers and stock price soared and many analysts called the change at
Carnival a true “cultural transformation” (Jones, 2015).
Therefore, the four pronged approach of replace, restructure, redevelop and rebrand
appears to be a model that can work across industries. Continuing research should look at
the crisis responses and corporate renewal from different case study examples in a variety
of businesses to provide further support for the concept. Reemerging as a formidable
competitor following self-inflicted harm is certainly not an easy task in the world of global
business, but there may be a formula for doing so. A proactive response of taking control
back from the negative situation and getting on with business for the future may involve
some significant sacrifices, but a rapid market turnaround has obviously been done before
and most likely this type of turnaround could be repeated.
Keywords:
Strategy,
Recovery
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Corresponding author
James Welch can be contacted at: jwelch@ut.edu
For instructions on how to order reprints of this article, please visit our website:
www.emeraldgrouppublishing.com/licensing/reprints.htm
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... In other cases, rebranding may have negative consequences. In one extreme example, white supremacists have sought to soften racist rhetoric by referring to 'white civil rights ' (Castle et al. 2020), while in another case rebranding is a significant part of the Volkswagen company's response to the diesel emissions scandal of 2015 (Welch 2019). Like money laundering, whereby criminal money is washed and becomes clean, we can launder a word to sound nice, safe, and cute. ...
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This study conducts a corpus-based linguistic analysis of the crisis communication strategies adopted by the Volkswagen Group in its main channels of stakeholder communication following the 2015 diesel emissions scandal. The theoretical foundation for this analysis lies in two major branches of crisis communication research corresponding to the two crisis outcomes, which tend to be pursued most vigorously in the context of corporate crises: image repair theory and trust repair theory. Drawing on and integrating elements of Benoit’s Theory of Image Repair Discourse, Coombs’ Situational Crisis Communication Theory (SCCT) and Fuoli and Paradis’ Model of Trust Repair Discourse, this study formulates a series of research hypotheses about the image and trust repair strategies deployed by Volkswagen in its press releases, its CSR reports, its sustainability magazine Shift and its official webpage contents published between 2015 and 2020. Given that Volkswagen’s emissions test manipulations fall into the organisational misdeed crisis type characterised by elevated external attributions of crisis responsibility, a predominance of accommodative crisis communication strategies able to offset negative public sentiment against the company was predicted. The mixed quantitative and qualitative research approach adopted in the linguistic analysis allowed for a diachronic and cross-textual study of lexical frequencies based on numerical data on one hand and a content-oriented investigation of salient lexical clusters and environments (collocations and concordances) on the other hand. The findings largely confirm the research hypotheses formulated on the basis of scholarly recommendations for the effective use of crisis communication strategies. In the early stages of the crisis, Volkswagen prioritises its ethical responsibility of informing the public about the details of the crisis and takes on a rather defensive stance in its image and trust repair efforts, which manifests itself in the use of an attenuated form of the mortification / apology image repair strategy, enabling the company to appease stakeholders by expressing regret without incriminating itself through an admission of guilt. Linguistic devices of dialogic engagement functional to the lexical realisation of the trust repair strategy of neutralising the negative reinforce this communicative stance. In the more advanced stages of the crisis, however, the accommodative image repair strategy of corrective action, which attempts to repair the damage caused by the crisis and prevent its reoccurrence, becomes most dominant. Moreover, trust is re-established during this phase primarily with the help of linguistic devices of attitude serving the trust repair strategy of emphasising the positive. Although Volkswagen’s crisis communication can generally be considered successful, stakeholder evaluations in the form of short interviews and contributions in Shift Magazine reveal a series of weaknesses in its crisis response, for instance its failure to openly accept crisis responsibility and establish a transparent dialogue with its stakeholders, discrepancies between communicated and implemented corrective action and excessive self-praise. These findings can provide valuable guidance to crisis managers dealing with similar corporate crises in the future.
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