Analysts estimate the Volkswagen brand has been devalued by US$10 billion in the wake of the emissions scandal that also cost the chief executive his job – and some see a trickle-down effect on the German car maker’s marques in the Arabian Gulf.
But can Germany’s largest corporation follow other catastrophe-hit companies and get back on track after what amounts to a car crash in the branding stakes?
The new chief executive Matthias Mueller, who replaced Martin Winterkorn following the September 18 revelations, vowed on Tuesday that “we will overcome this crisis” but admitted it “would not happen without pain”.
Volkswagen, which was ranked by the UK researcher Brand Finance as the world’s third-most valuable automobile brand earlier this year, has admitted that as many as 11 million diesel vehicles globally are fitted with deceitful software that allows emissions tests to be rigged.
The explosive revelations last month saw its brand valuation fall from $31bn to about $21bn in just a matter of weeks, according to Brand Finance.
“This could easily be the biggest annual brand-value loss that we’ve ever recorded,” says Robert Haigh, the marketing and communications director at the London consultancy.
The shock waves from the VW scandal keep on coming. There are claims that the rigging of emissions, aside from being fraudulent, could have caused between five and 20 deaths per year in the United States alone over recent years, according to an Associated Press statistical analysis.
In the worst-case scenario, the scandal could cost VW up to $87bn – about 60 per cent more than the Deepwater Horizon spill cost BP – according to Credit Suisse. A VW spokesman reportedly called such calculations “nonsense”.
But what is not nonsense is the immediate effect on VW’s brand – as well as the possible effect on the group’s other marques, which include Audi, Porsche and Skoda. With the Volkswagen group’s total brand portfolio valued at $54.89bn by Brand Finance (before the emissions revelation), there is a lot to lose.
The scandal marks “a hammer blow not just to Volkswagen’s reputation but potentially to the entire German national brand”, Brand Finance says. The effect is all the stronger on a brand “founded on reliability, honesty, efficiency”, it adds.
The emissions outrage is doubtless having an effect in the Gulf region, says Andrew Campbell, the managing director of Brand Finance Middle East in Abu Dhabi.
Mr Campbell points out that, while the VW marque is not as popular in the region as some other makes, the company’s admission is likely to “dent trust” in the Volkswagen-owned brands that are common here.
“The question is probably how much this spills over into the Audi and the Porsche brand in the UAE and GCC region,” he says.
“People have to make the connection … And I’m sure there is some damage there. It’s not going to be a 100 per cent of the Volkswagen damage. But there is going to be some fall out.”
The distributor for Volkswagen in Dubai and the Northern Emirates, Al Nabooda Automobiles, referred The National to VW, which declined to comment. Its distributor for Abu Dhabi and Al Ain, Ali & Sons Motors, did not immediately respond to requests for comment.
The branding expert John Brash, the founder and chief executive of Brash Brands, which has an office in Dubai, says the German firm’s wrongdoing is likely to have an effect in the Gulf – despite the fact that Volkswagen does not offer diesel cars in the Middle East.
“The scandal is unlikely to result in any recalls here. However, current and prospective customers across the region will quite rightly be concerned about the integrity of the brand.
“The company will have to work hard to restore its reputation worldwide,” says Mr Brash.
Still, other brands have managed come back from the brink.
There are few examples of corporate brands in this country being hit on the scale of VW. The difference is that here, most were not inured by their own hand. Some property brands, for instance, that were badly affected during the financial crisis were more “victims of external circumstances”, says Mr Campbell.
Globally, however, there are numerous examples of heavy brand losses, including Toyota, which was forced to recall millions of vehicles due to potentially deadly air bags made by Japan’s Takata, which came following a previous recall due to a problem with unintended acceleration.
The Japanese car maker’s brand valuation fell from $27.3bn in 2010 to $24.5bn in 2012 – and then recovered to be worth $35bn as of early 2015.
So is it possible for the VW brand to recover in a similar way?
“Everything is redeemable. But it’s going to take a long time, a lot of money, and a lot of effort,” says Mr Campbell.
Mr Brash says of Volkswagen that the “scale of deliberate deception and subsequent loss of credibility in this case does appear to be unprecedented”.
But he adds that it is possible for the brand to recover in time, pointing to Toyota as an example.
“Toyota’s strategy focused heavily on using social media to address criticism, plus a new slogan, ‘Moving Forward’,” says Mr Brash. “Result: Toyota topped the list for most valuable auto brand in 2015.”
For Volkswagen to do the same, it must be honest, call to account those responsible for the cheating and open dialogue with its consumers, Mr Brash adds.
Charles Wright, a principle at the global branding agency Wolff Olins, who previously ran the company’s office in Dubai, agrees that it is possible for VW to come back from the brink.
“Remember all the drama about investment bankers back in 2008 and 2009?,” he says.
“Now, Wall Street is having one of its best years ever. And the big names are big again.
“We have short memories. VW’s plans to grow diesel may well backfire.
“But I drive a VW and will replace it with another VW when it falls apart – which could be some time off given the build quality,” Mr Wright says.
“Firing the CEO was a good start. Some contrition, big fines and so forth will be the next obvious step.”
Mr Haigh says VW may have to change its entire business model as it looks to rebuild its brand following the crisis.
“They might need to consider moving away from diesel … In some ways [diesel] might be tarnished for longer than the VW brand, because of the revelations about quite how polluting it is,” he says.
“So they may need to consider investing more in electric vehicles or reverting to petrol vehicles.”
If VW is able to recover, it will take a minimum of five years to restore its tarnished reputation, Mr Haigh adds. But whether it can do that remains to be seen.
“If the revelations really do mount up, if the financial penalties are severe, if there are endless corporate lawsuits, it’s highly possible that VW could be rebranded – or even collapse and sold on,” he says.
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