VW Group’s announcement yesterday of its first financial losses in 15 years is not as significant as the loss of brand equity.
The emissions scandal isn’t ultimately about emissions, diesel or money. It’s about brand. The revelations could be a catalyst to redeveloping the VW brand by focusing the business on a new purpose. And a brand is nothing without a purpose.
The management of VW Group has been giving an object lesson in bad brand stewardship for a long time. As I said here last year (http://wp.me/p3xo5H-6d), in assembling a vast passenger car brand portfolio of SEAT, Skoda, VW, Audi, Porsche, Lamborghini, Bentley and Bugatti, it created a self-cannibalising mess. Skoda and SEAT have progressively been entering the VW brand’s space. VW has been intruding on Audi, while Audi’s aggressive entry into every market segment meant that it was stealing sales from the other three. And with the R8 supercar Audi was even competing with Porsche and Lamborghini.
The obsession with volumes meant that each of the brands was being devalued. At one end of the scale, Skoda – which has experienced serious growth as a value brand – recently stated an intention to start selling on quality, while at the other end the Lamborghini supercar and Bentley super-luxury brands were being commoditised with announcements of SUVs. And the flagship Audi premium brand has become utterly ubiquitous.
In the centre of all this there was the core VW brand, squeezed from above and below – just as the likes of Ford, Opel and Renault have been by the premium and value brands – but in VW’s case by its own siblings. It was pushed into the no-man’s land of the car industry, the sub-premium territory which crippled Volvo, SAAB, Lexus and Infiniti for two decades. And at the same time VW was introducing the Phaeton luxury car which offered more quality than the Audi A8, was a credible alternative to a Bentley Mulsanne, and was a car no-one wanted. How on earth did that represent VW brand values?
The reasons for VW doing these things? Greed and arrogance. It was about chasing the global number one status and doing things because it could. It was a case of volumes over values, a perilous trajectory for a brand. And it resulted in the emissions scandal.
Nobody should be surprised that the cheating happened. Car manufacturers are inherently conservative and inward-looking, VW more than any other: these are businesses driven not by customer requirements – and even less by vision and values – but by legislation and sales figures. They routinely cheat the monthly sales figures by self-registering cars, and the EU’s over-ambitious and poorly conceived CO2 emissions reduction targets have inevitably been met with equally expedient and poorly conceived ‘solutions’.
Add to this that VW Group has a toxic cocktail of a structure which lends itself to corruption. Management is too close to the unions, and the company is 20% owned by the state of Lower Saxony, with two of its management board coming from the regional government. It has also been dominated by the Porsche and Piech families, and the comically evil-looking Mr Burns-alike Ferdinand Piech personally sponsored the Phaeton and the 1200bhp, $2.25m Bugatti Veyron vanity product. The latter is only slightly more garish than the vast sums spent by VW managers on their union colleagues on partying with prostitutes like Spring-break teenagers, activities which were revealed in 2005.
But legislation and structure aren’t excuses: they’re reasons for better cultural and strategic governance. Even if VW’s now departed CEO Martin Winterkorn were completely unaware of the cheat devices, he is as culpable as Piech for the corporate hubris. It was he who declared an intention to be the global number one by 2018. It was under him that Audi has been boasting of growing from an already overblown 50-plus model lines to 60. And don’t forget that after his accession in 2007 four further brands were added to the group’s massive portfolio.
The good which can come from this is that it raises the fundamental question of what the carmakers’ purpose is, and may prompt them to redefine their brands through that spectrum. Is that purpose simply to grow, or is to make people’s lives better, even transform them? Think of Ford with the Model T, mobilising the masses.
But think even more of VW with the Beetle: how ironic that the company named after the reason for its very existence, the ‘people’s car’, should lose focus so catastrophically. And even more ironic that it then has to redefine itself and so perhaps become a real brand again, even a potential totem for the automotive industry.
Back in July 2014 when I wrote the piece with the link above, Volkswagen was admitting an urgent need for better profits. ‘That VW’s profits are suffering is not surprising,’ I said.’ That’s what happens when a goal defined by volumes is set. If the goal were instead to define and differentiate the brands more clearly, with each given the objective of becoming the most desired among consumers, then the volumes would follow. They would do so more slowly but they would do it sustainably.’
Fifteen months on, I’m standing by that.