Why the German car manufacturers may still have to clean up
Volkswagen Chief Executive Martin Winterkorn said he was “stunned” to discover the company had cheated emissions tests when exposing the “Dieselgate” scandal to the world.
In September 2015, the German executive resigned after being briefed by the US Environmental Protection Agency on investigations into the “defeat devices” on the company’s cars.
Ultimately, the scandal boiled down to internal culture. As it turned out, Winterkorn’s employees had been too scared to tell him that Volkswagen could not meet public targets for reducing emissions. Instead, the parent company of Audi, Lamborghini and Bentley cheated.
Since then, VW has faced the cost of its failure to maintain a healthy corporate culture: it has paid £30bn in fines and compensation to regulators, buyers and shareholders, and shifted its entire production efforts away from diesel cars.
Meanwhile, Winterkorn and four others have been charged with aggravated fraud for their role in the emissions test scandal, the case is still ongoing.
To emphasize culture reform, the 68-year-old automaker has also appointed a board member responsible for integrity and legal affairs and established a program to ensure any wrongdoing is reported.
But it ended up in hot water once again. Earlier this week, the Financial Times reported that an executive was fired after alerting VW to fraud risks in its payments division.
The warning came just days after the automaker announced that JP Morgan would buy a 75 percent stake in the company, and the subsequent dismissal has raised concerns again over whether VW values employees who point out flaws.
Professor David Bailey, an expert on the automotive industry at Birmingham University, says the latest development suggests the company has yet to reform its internal culture.
“For too long there has been an attempt to cover up Dieselgate and downplay its importance. When it finally broke, it was enormously damaging to the company. They should have been much more open to the problems before,” he says.
Culture problems persist?
Bailey argues that VW has resisted seeking external advice to solve its problems. “What we saw at Dieselgate was that the company has shifted its investments fairly heavily towards electric cars and away from diesel – but VW hasn’t brought in outside experts to help open the culture internally. They should have brought in outside experts to look at what went wrong and learn the right things from it.”
That stance, he says, stands in stark contrast to Toyota’s strategy when it was forced to announce a global recall of all of its 7.5 million third-generation Prius cars manufactured before January 27, 2010. It also continued the sale of eight of its most popular cars.
“Toyota deliberately appointed outside experts to come and see what went wrong and think about how to avoid it. I still think VW has lessons to learn in terms of opening things up and avoiding an inward-looking culture. “
VW’s share price fell almost 30 percent when Dieselgate became known. The stock price has since rallied after changing its strategy to focus on electric vehicles, which Bailey says may have ultimately saved the company. VW stock did not respond to news of the latest fraud alert.