Das Sham - what next for Volkswagen?

Just because Sebastian Vettel does a very good Kimi impression doesn’t mean that every German has a natural talent for humour.

Enter Michael Horn, CEO of VW Group North America.

Striding nervously onto the Brooklyn Navy Yard stage at the launch of the US version of the new Volkswagen Passat, there was just a small other business matter to attend to first.

“So let’s be clear about this” he said to the crab-cake fuelled crowd, “our company was dishonest.”

The most explicit of all affirmations that VW had deceived regulatory bodies, customers and the wider American public over the emissions compliance and values of some of its TDI (Turbo Diesel Injection) engine vehicles.

Moments like this are rare indeed. A candid statement that not only led straight to the can of worms but provided the means to open it too.

And there was more yet to come. To be fair, I’m not sure if Herr Horn truly understood that his words were soon to echo across news desks around the world but for some unfathomable reason, he then chose to try and lighten the mood, delivering the deadpan one-liner that needed no further translation.. “…and in my German words, we have totally screwed-up.”

A handful of people whooped; a single person clapped.

I don’t doubt the attempted sincerity. Horn thought he was speaking to a friendly audience of dealers, media, employees and customers, most of whom had come to see Lenny Kravitz and drink free beer. But his words carried far beyond the corrugated hall walls. By the early morning, he was speaking to a nation that VW has so evidently betrayed; and to countless others across land and oceans, north, south, east and west of here. And what is so obviously clear is not that VW are sorry that they did what they did; but that they’re sorry they were caught.

In the spirit of Horn’s honesty, I’m going to be equally frank. In my opinion, there’s no return for VW after this.

For all the tens of millions of dollars it has already committed to spending on attorneys and PR teams, it cannot escape the fact that it appears that it deliberately set-out to deceive regulators, lie to the public and misinform the media.

The cost will be enormous. Forget about the £4.7bn that is reported to have been set aside to cover law suits and remedial engineering. Executives are going to go to jail; many, many more billions are going to be needed simply to satisfy the courts and even after all of this has been settled, the lingering bad taste amongst a discerning public will require margins to be slashed and rewards compounded.

No matter how hard VW and its legal team try to contain the damage, the effects of its actions will be global and long-lasting. It’s not just the fines that are going to hurt, and the recalls, and the lost business..

• How will current owners be compensated for falling residual values? Especially when they say that they only purchased the vehicle because of its ‘green’ credentials?
• How will governments be compensated for lost vehicle taxes where stated emissions determine the level of tax to be paid?
• How will dealers be compensated for lost sales?
• How will other manufacturers be compensated for lost revenues because VW deliberately mis-stated its ‘green’ credentials?
• How will communities be compensated for having to suffer increased pollution levels because of VW’s fraud?

If you think back to 2011 and the start of the fury over the PPI scandal, Lloyds TSB (as it was) declared that it would need to put aside just over £3bn to potentially settle claims. By June of this year, this figure had risen to just over £12bn: It’s still rising.

Bye-bye diesel

The other critical factor that has to be considered is the mounting pressure facing nations, regions and cities to stem growing traffic pollution, particularly in developing economies where rapid growth in personal wealth has seen an equally rapid rise in vehicle ownership.

In areas where status counts, this tends to mean a huge increase in the number of diesel-engined SUVs taking to the roads. The level of pollution currently being experienced in some expanding cities is already critical, and swift action is being sought by local governments to curb the use of vehicles already on the road and to prevent future sales of similar types.

Non-diesel hybrids and EVs are now very much the future and with all the issues that have to be faced, delivering a competent re-engineering programme across an expansive model range is a huge challenge for car makers.

Dis-Intergration

With other iconic global brands sitting nervously within VW Group’s portfolio (Audi, Bentley, Bugatti, Lamborghini, Porsche, SEAT, Skoda), unless some swift and determined action is taken, the prospect of these also being dragged-down into the same bottomless pit that their parent is facing is only too real.

My first thoughts were to lament this. Some incredible work has been done in Germany and in each of the home territories to revive fortunes and vastly widen appeal. But then I started to think about the funding of specific development programmes and I’m already starting to ask inwardly awkward questions: Such as, if VW Group has profited from corporate fraud, then how will the individual components of the group be held accountable? Put another way, if a gang steals $1m, then gives away $250,000 to good causes, are they philanthropists or thieves?

There is only one way forward that I can see. VW has to protect what isn’t already tainted and look for ways to set the others free. Those that remain will be required to shoulder all the responsibility and all of the consequences.