Organisational communication management during the Volkswagen diesel emissions scandal: A hermeneutic study in attribution, crisis management, and information orientation
- Information School, University of Sheffield, Sheffield, UK
Jorge Tiago MartinsCorresponding author
- Information School, University of Sheffield, Sheffield, UK
Jorge Tiago Martins, Information School, University of Sheffield, Regent Court, 211 Portobello Street, Sheffield S1 4DP, UK
The discovery in September 2015 of diesel emissions software cheat technology in Volkswagen (VW) cars initiated a process of organisational crisis management and damage limitation by VW, reflected in the contemporaneous intensive production of public information statements, including press releases, statements to shareholders and investors, and transcripts of oral evidence. Through taking stock of a selection of these public information statements, this article examines the organisational communication management strategies employed to respond to the crisis situation, making an integrated use of attribution, crisis management, and information orientation theories as an interpretive lens. An interpretivist, hermeneutic approach was used to carry out qualitative content analysis on selected statements issued by VW. The analysis reveals that there is a connection between statements relating to attribution and statements relating to information orientation, at the time of the crisis and in preparing future action. Priorities for action form part of the overall crisis management and image restoration approach. Proposed changes in information orientation constitute a key dimension of the company's public response to mitigate the offensiveness of the crisis. The analysis performed demonstrates the applicability of the proposed integration of attribution, crisis management, image restoration, and information orientation theories to better understand and explain how large corporations respond publicly to organisational crisis episodes, more specifically the ways in which attributions, crisis management, and image restoration strategies are related to aspects of information orientation as both components and consequences of the crisis.
On September 18, 2015, the German automotive company Volkswagen AG (VW) received a notice of violation of the Clean Air Act from the United States Environmental Protection Agency. It had been found that certain diesel engines in cars manufactured by VW contained a piece of software—a “defeat device”—that meant certain emission controls were only activated during laboratory testing (Volkswagen, 2016a, 2016b, 2016c, 2016e). The result of this is that in real world conditions, some engines were exceeding U.S. emission limits “by a factor of 15 to 35” (Center for Alternative Fuels, Engines and Emissions, 2014). VW admitted that, unbeknown to the general public, about 11 million cars worldwide were fitted with the device (Volkswagen, 2015a, 2015b, 2015c, 2015d, 2015e, 2015f, 2015g, 2015h, 2015i, 2015j, 2015k, 2015l, 2015m, 2015o).
What ensued from this discovery configures a situation of organisational crisis for VW, particularly as the series of events that unfolded was “specific, unexpected, and non-routine” (Seeger, Sellnow, & Ulmer, 2003), created uncertainty and mistrust, and presented a threat to its brand reputation and commercial goals. In an appraisal of the kinds of threats organisational crisis incidents engender, Coombs (2007a) proposes that the greatest damage occurs at the levels of public safety, financial loss, and reputation loss. Both these definitions indicate that VW faced a situation of crisis. Financial loss is shown as the company set aside €16.2 billion to deal with the emissions crisis. This led to VW making an annual loss in 2015 of €4.1 billion—its first annual loss in over 20 years (Volkswagen, 2016d). Reputation loss is shown as, by December 2015, sales of VW branded cars had dropped by 20% (Society of Motor Manufacturers and Traders, 2015). Muller, 2016, CEO of VW, described the situation as “the greatest challenge in the history of [the] Company” (Volkswagen A.G., Volkswagen, 2016d).
Against this backdrop, this study aims to examine the organisational communication management strategies employed to respond to the crisis situation, making an integrated use of attribution, crisis management, and information orientation theories as an interpretive lens. More specifically, this study will (i) explore attributions made by VW using selected attribution frameworks; (ii) examine the key elements of crisis management and damage limitation strategies employed by relating them to relevant theoretical frameworks; (iii) determine the ways in which attributions inform the crisis management process; (iv) identify dimensions of information orientation in the company's statements; and (v) determine how the perceived level of information orientation challenges or enhances corporate responsibility and the company's crisis response.
Several frameworks have been proposed for helping organisations deal with situations of crisis. Process-oriented approaches such as the one proposed by Mitroff (1988, 1994) are particularly helpful in organisations' attempt to mitigate vulnerabilities encountered at the different stages of the crisis life cycle: detection of early signs, prevention and preparation, containment and damage limitation, recovery, and identification of lessons to be learned. Wang and Belardo (2009) combine Mitroff's process-oriented framework with elements of knowledge management strategy, to explore the extent to which knowledge management positively impacts crisis management. Concerning the use of knowledge management at the containment/damage limitation stage—the one that most accurately corresponds to VW's crisis containment efforts and hence to the focus of this paper—a relationship is established between an integrated use of knowledge from internal and external sources and the organisation's ability to control the crisis. More recently, Ponis and Koronis (2012) propose an integration of organisational crisis phases with primary knowledge management activities: knowledge acquisition, selection, generation, assimilation, and emission. Their analysis reveals pathologies that offer pointers for the analysis of VW's own knowledge activities, such as the speed, timeliness, and effectiveness of information dissemination during the crisis or the organisation's ability to communicate a “fast and reliable resolution of the ‘what did go wrong’ question” (Ponis & Koronis, 2012).
Previous studies have evaluated multinational corporations' and high reliability organisations' response during and after large-scale crises. De Wolf and Mejri (2013) investigated the 2010 BP Deepwater Horizon oil spill making use of content analysis to examine secondary data from external sources other than BP. Thatcher, Vasconcelos, and Ellis (2015) performed a content analysis of four official reports on the 2011 Fukushima nuclear disaster, looking at the impact of information behaviour on information failure, but not examining the organisation's crisis management strategy.
Through taking stock of a selection of public information statements, this article examines the organisational communication management strategies employed by VW to respond to the situation of crisis resulting from the emissions scandal. This is particularly relevant when recent industry reports identify that 29% of organisations wait to experience a situation of crisis before constructing a response strategy (Steelhenge, 2014). Research into organisations' responses to situations of crisis such as the one presented in this article can examine the role played by public information efforts and inform the design of successful organisational communication strategies.
In terms of structure, the following section of the article provides a discussion of the attribution, crisis management, and information orientation theories that will be used as interpretive lens to examine the organisational communication management strategies employed by VW. Section 3 introduces and describes the interpretivist, hermeneutic approach used to carry out a qualitative content analysis of selected public information statements released by VW. Subsequently, Section 4 presents a detailed content analysis that establishes the links between attribution, crisis management, and information orientation. This is followed by a discussion that relates the findings generated back to the frameworks of attribution and crisis management, image restoration, and information orientation. A final concluding section revisits the strategies employed by the company, the priorities arising from those strategies, and how both are linked to information orientation.
2 THEORETICAL FOUNDATION
This section of the article reviews the frameworks and theories that will be used as lenses to analyse the VW case. The first of these is a group of attribution theories, which are concerned with identifying the cause of events and deriving responsibility. Attribution research is important for the study because it shows how an individual (or in this case, a company) arrives at a causal inference and what the consequences of such an inference may be.
Second, crisis management theories will be employed as a lens to examine how VW conducted itself in the wake of the crisis in order to deal with the three effects of a crisis: public safety, financial loss, and reputation loss (Coombs, 2007a,b), as well as legal concerns. These two groups are highly complementary. This is because “people interpret behaviour in terms of its causes and these interpretations play an important role in determining reactions to the behaviour” (Kelley & Michela, 1980, p. 458). As crisis management strategies are a type of reaction (although some might be pre-emptive), it follows that one should first form attributions in order to implement appropriate crisis management strategies. Coombs and Holladay (1996) followed this line of reasoning in developing their situational crisis communication theory (SCCT), by explaining the relationship between a situation and communication strategies.
Finally, it will be explored whether these crisis management strategies give any indication as to what aspects (if any) of information orientation theory have been prioritised. Information orientation theory was devised by Marchand, Kettinger, and Rollins (2002) as a metric of how effectively companies use and manage information. It is not within the remit of the research to discover whether VW had a quantified high level of information orientation before, during, or after the crisis. Rather, it will examine whether VW sought to change any of the aspects of information orientation as a result of the crisis.
2.1 Attribution theories
Attribution theories stem from the social psychological concept of attribution, which is the process by which individuals explain the cause of behaviour. This has since been applied to the study of an organisation's behaviour or event (Gailey, 2013; Gailey & Lee, 2005), as opposed to merely that of an individual (Jones & Davis, 1965; Jones, 1979). Attribution theories can help explain why something has happened in a company or organisation. In the context of the study reported in this article, they will inform understanding of the crisis management strategies used by VW to mitigate the effects of the emissions scandal in terms of customer response and legal liability. Kelley and Michela (1980, p. 458) define the term “attribution” as meaning “inference of cause.” Attribution theories describe the process of attribution to make sense of events. For instance, if somebody who is a nervous driver has a crash, it is more likely to reach out for the explanation that it was their own driving conduct that caused the collision, rather than considering the possibility that they were the innocent victim of a dangerous driver, or simply bad luck.
2.1.1 Internal and external attribution
It has been established that there are two main types of attribution (Heider, 1958). The first is external attribution, where behaviour is interpreted as having been caused by situational factors. Internal attribution, on the other hand, is where a behaviour is said to be caused by internal characteristics or disposition. In either case, Heider (1958, p. 152) developed the notion that the “condition will be held responsible for an effect which is present when the effect is present and absent when the effect is absent.”
Taking forward the concept of attribution, Jones and Nisbett (1972) developed the notion of actor–observer asymmetry, stating that when seeking explanations for the actions of others, individuals are more likely to attribute cause to the disposition of the actor than to situational factors. A number of frameworks have been devised, which focus on the attribution of disposition as a causal factor for events, including Kelley's covariation theory (vide Section 2.1.2). In this context, disposition relates to factors that relate to the actor, such as characteristics or inclination.
Jones and Nisbett (1972) noticed that people tend to pay more attention to intentional behaviour. They identified that “strong and confident dispositional inferences are drawn about a person when we see him or her act under conditions of high choice.” Attribution theories can easily be applied to the field of information management to help understand the way organisations operate. If managers are able to understand the causes of their employees' behaviour, they will have a greater understanding of how their business works and can employ future decisions accordingly. For instance, they would gain the capacity to intervene in working conditions in such a way that employee motivation is increased, leading to a happier workforce and an increase in performance. If an organisation understands its internal and external environments, it is more inclined to act purposefully (Gronhaug & Falkenberg, 1994). It is easy to see how this fits the context of a crisis. If organisational insiders have a perception of cause of a crisis, they can make more accurate judgments of suitable crisis management actions.
2.1.2 Kelley's covariation model
Kelley (1967) developed the covariation model of attribution, identifying three distinct variables that have an effect on attribution. These are as follows: distinctiveness, meaning the uniqueness of an event as distinct from the actor's track record; consistency, meaning the degree to which the event demonstrated the actor running true to type; and consensus, meaning the degree to which the actor behaved as others would have or have already done in similar circumstances.
Kelley (1967) found that when distinctiveness is low and consistency is high, an event is more likely to be attributed to the actor's internal disposition. Hewstone and Jaspars (1988) added the idea of consensus as a determinant of causal attribution, noting that when consensus is low, an act is more likely to be attributed to the actor's disposition. It is noteworthy that Kelley's (1967) covariation theory relates to attribution, but does not explore the connection between attribution and responsibility. It is useful therefore only in so far as it illustrates how people look for causes of events by attributing them to the actor's disposition and to what degree that disposition accords with the actor's history. Kelley's (1967) theory does not discuss any implications of causal attribution.
2.1.3 Weiner's attribution theory and attribution–responsibility–action model
Weiner's attribution theory (Weiner, 1995) is used as an additional framework because, as Yum and Jeong (2014) found, it is useful in examining why a crisis has happened after it has happened. It is also useful in deciding whether it is a crisis that is likely to happen again. Weiner's (1995) attribution theory assumes that individuals try and determine the causes of other people's behaviours. A person might attribute a number of causes to another one's action. Weiner (1995) considered that the process of attribution could be broken down into three stages. First, a behaviour must be observed by a person. Second, the person must believe that that the behaviour was performed intentionally. Last, the person must decide whether the behaviour was a result of coercion, in which case one would assume an external cause, or free will, in which case one would assume an internal cause in the individual.
In the “attribution–responsibility–action” model, Weiner (1995) suggested that people's attributions of cause guide their future actions such as punishment or preventative measures. Weiner (1995) identified the two motivations for punishment as utility and retribution. Retribution is the balancing out of the wrong or injustice, and utility relates to the prevention of the event's recurrence. It is thought that retribution is increased where causes of the failure are perceived to be controllable. In corporate cases, punitive options may be carried out by individuals and have a behavioural nature, such as boycotting of consumer products; punitive options may also be legal in nature, such as prosecution by the state or regulatory authority. Weiner (1995) does not explore restorative justice: this is where the punishment serves to restore the debt caused by the wrongdoing.
One of the crucial differences between the concept of Weiner's original attribution theory and its application here is the fact that organisations consist of individuals, all operating with their own attribution models, and as a sum of their parts, operating as one.
2.2 Crisis management
Attribution theories can inform crisis management theory, because response strategies tend to be based on the nature of the cause of the crisis. Different attribution theories look at particular dimensions of the response, such as Coombs' (2006, 2007a, b) covariation attribution model with its emphasis on consistency and distinctiveness as dimensions of attribution, and Benoit's (1997) focus on damage minimisation and confidence restoration.
2.2.1 Coombes' situational crisis communication theory (SCCT)
SCCT was developed by Coombs (2006) as an application of Kelley's (1967) covariation attribution model to corporate crisis communication. It focuses on consistency and distinctiveness as dimensions of attribution and looks at these in terms of crisis history and relationship history. Crisis history refers to whether the actor has any history of similar instances in the past; relationship history refers to how the actor has performed with respect to other stakeholders in other contexts. Both factors are significant in influencing public opinion after a corporate crisis. SCCT does not, however, examine the consensus dimension of attribution.
Coombs and Holladay (2002) explain that different crises would necessitate different communication strategies in order to manage them effectively. They discussed three significant types of crisis. In “human breakdown product recall,” a product is recalled because of human error. The example is used of a hamburger recall by Hudson Foods after the beef was contaminated with Escherichia coli as a result of plant employees mistakenly putting contaminated beef back into the processing machinery. The second type of crisis identified is “organisational misdeeds with no injuries.” In this case, stakeholders are knowingly deceived by management, without causing actual harm. The example is used where Chrysler knowingly manipulated mileage clocks on new cars to obscure the fact that they had been driven for miles during tests. The third type of crisis is “organisational misdeed management misconduct,” where infringements of laws or regulations are knowingly made by management. An example of this would be failing to adhere to equal opportunities statutory requirements.
2.2.2 Benoit image restoration discourse theory
In order to evaluate a corporation's course of action to manage a crisis, it is necessary to pay attention to the way it manages risk as it pertains to its corporate image. The preservation of corporate image, or restoration of a damaged image, is central to an organisation's response to threat.
Benoit (1997) developed a theory of image restoration discourse, looking at ways in which corporate bodies use communication strategies to minimise damage and restore confidence in the corporate image. It is assumed that the actor (corporation) is held responsible for an action and that the action is considered offensive. The responsibility or fault may be real or only perceived, but where it exists, the company's image is at risk. It is essential for companies to identify the relevant audience (audiences) when using communication strategies to restore their image.
Benoit (1997) identifies five image restoration techniques, which are denial or shifting of blame; evasion of responsibility (due to provocation, lack of information, accident, or misplaced good intentions); reduction of offensiveness (by bolstering a positive image; downplaying the nature of the damage, differentiation from worse instances; undermining the accusers; offering compensation; or transcendence of motive); corrective action to restore original condition and prevent recurrence; and mortification, offering apologies, and remorse. These techniques have been applied to case studies of crises before. Benoit and Czerwinski (1997) applied the theory to USAir's response to media coverage after its aircraft crashed in 1994. It has also been used to show that Exxon have heavily downplayed damage after the 1989 oil spill (Benoit and Czerwinski, 1997) and that both corrective action and mortification were heavily used by AT&T after one of their major telephone lines failed in 1973 (Benoit and Czerwinski, 1997).
It should be noted that there could be a conflict of interests between image restoration strategies and the need to avoid future lawsuits. Benoit (1997) also observes that making assertions that are later found out to be false would be counterproductive in any image repair strategy.
2.2.3 Crisis management and litigation
In the frameworks described in the previous sections, there is a link between attribution models and crisis management strategy, which is in turn linked to image restoration strategy. It can also be observed that some crisis management strategies, particularly image restoration strategies, may conflict with the need to avoid or minimise legal consequences, whether these be civil lawsuits or prosecutions brought in respect of offences against the state or other regulatory bodies. Unlike civil suits, corporate failures or violations that attract prosecution by the state cannot be written off by compensatory action, although compensatory action and contrition could be held as mitigating factors.
There is limited literature on the relationship between crisis management and litigation and the ways in which corporations address these potentially conflicting areas, but warnings about the impact of releasing statements into the public domain offer useful insight into the complexity of this matter. Barton (1990) and Jacques (2007) discuss the need for careful public information communication strategies when organisations are faced with the risk of litigation. They also discuss the implications of legal privilege as it relates to different categories of information and communications. It is noted that all communications—even those beyond the exchanges between the corporation and counsel—may be taken into consideration in court and this may impact on what statements the corporation chooses to issue and to whom. In a similar vein, Tyler (1997) clarifies the wide scope of liability claiming that it prevents corporate executives from stating they are sorry about a particular incident, because apologizing effectively means acknowledgement of some kind of responsibility.
2.3 Information orientation
The concept of information orientation was proposed by Marchand, Kettinger, and Rollins (2000) to determine how the interaction of people and information, through the use of technology, can affect business performance. Developed in the context of a survey study involving 1,009 senior managers from 169 business teams and originating from different companies, nations, and industries, the concept is operationalised through an optimum “metric of information use” (Kettinger, Zhang, & Marchand, 2011). The metric consists of three different information capabilities: information technology practices (ITP), information management practices (IMP), and information behaviours and values (IBV). These three capabilities contain 15 different competencies.
2.3.1 Information technology practices
ITP refers to the manner in which a company manages their IT applications and infrastructure in support of their business decisions. For example, a company may decide to upgrade their client database system to something more complex. If the company grows fast, this could be a good decision because it could adequately suit a growing client list and an increase in operations for years to come. If the company does not expand, it may prove to be unnecessary, expensive, and difficult for staff to train for and use. A company can improve their information orientation by using a technology infrastructure that suits their current and future needs.
2.3.2 Information management practices
IMP refers to the capabilities that manage information successfully in terms of information collection, processing, and organisation. For example, if the information a company collects is of poor quality, duplicated, or out of date, errors are likely to be made. Repairing such errors is a costly and inefficient process. A company can increase their information orientation by improving their management of information.
2.3.3 Information behaviours and values
IBV describes capabilities that encourage behaviours and promote values in staff for successful information use. For example, staff can be trained to understand the benefits that effective information management has on their company (efficiency and therefore faster growth) and their own work-lives (making their job easier). Complementarily, a workforce that understands issues surrounding privacy and confidentiality is less likely to make errors that could incur costly legal consequences.
Information orientation therefore reflects a “people-centric view of information use” (Marchand et al., 2002). It is concerned with how organisational actors can adapt their technology practices, management practices, and values to increase performance. Its focus on people, rather than solely on technology, means it can be applied to any organisation, not just IT-based organisations. However, a review of the current literature suggests it has not been used in the field of crisis management before.
It is beyond the scope of this article to determine a quantitative measure of information use for VW, as this would not be possible without access to verifiable data about the information orientation of the business before, during, and after the crisis. This is not in the public domain. However, as information orientation helps a company to improve business performance by examining how the organisation processes information across the three competencies, it will be useful to look for evidence about certain dimensions of information orientation as part of the analysis of the emissions crisis. In examining the public information statements released by VW, it will be possible to determine whether or not the company displayed characteristics of information orientation and how these are prioritised in its strategic response to the crisis.
An integrated use of the theories presented above will inform the analysis of public information statements released by VW regarding the emissions crisis. First, they will be examined for evidence of Heider's (1958) internal and external attribution. The dimensions of distinctiveness, consensus, and consistency, extracted from Kelley's covariation model (1967), will then be used to explore the company's responses in terms of attribution. In complement to this, Weiner's (1995) “attribution–responsibility–action model” will be mobilised to frame analysis as it provides a bridge between statements about attribution and the outcomes from it. Although some of the outcomes are imposed as the result of legal or regulatory proceedings, the company subsumes all outcomes into its crisis management and image restoration strategies. Subsequently, Coombs' (2006) SCCT, focusing on consistency and distinctiveness as dimensions of attribution, will be used to analyse the public information statements in terms of crisis history and relationship history.
Finally, the application of Marchand et al.'s (2001) information orientation framework will reveal by abductive reasoning the company's self-evaluation of the way it uses information and the priorities it identifies for the future. Given that the amount of technical information available from the documents in the data set is small, the focus will be on two of the competencies identified by Marchand et al. (2001), namely, the aspects of IMP and IBV. References to both IMP and IBV will provide a link to both statements of attribution and statements regarding crisis management and image restoration.
3 MATERIAL AND METHOD
This article is concerned with VW's organisational communication in the wake of the emissions crisis. More specifically, it analyses the strategic use of public information statements: how attribution manifests itself, how information is handled to suit VW's corporate interests and public duties in the wake of the crisis, how the outflow of information is controlled to restore the company's image, and the extent to which the intersection of these perspectives is a reflection of information orientation.
The corpus of public information statements released by VW that will be analysed includes a comprehensive range of sources that highlight different perspectives of the distribution of information regarding the discovery and investigation of defeat devices in VW cars. The items have been chosen from voluminous amounts of written documents generated by the company since the onset of the emission's crisis in September 2015. The use of historical documents, rather than generating data specifically for this research, offered access to a much wider data set but required the research team to be selective (Silvester, 2016). The data originate from three main types of sources:
- press releases, issued by VW and designed for consumption by the general public;
- statements to shareholders and investors; and
- transcripts of evidence presented to the UK Parliament Transport Select Committee.
Appendix A provides a detailed overview of the data used for analysis and its provenance. Obtaining a comprehensive range of sources is crucial in order to gain an accurate understanding of how organisational communication developed in wake of the crisis, particularly how information regarding the defeat device was presented to various audiences. To complement this information, Appendix B offers a timeline of significant events. At the time of writing, the VW case is ongoing, with new information being released into the public sphere every day. It was therefore necessary to establish a start and end point for the data set. It begins on September 2015, with a press release admitting that the Environmental Protection Agency had found evidence of emission manipulations. The original intention was to end with the public release of the Jones Day expert and independent investigation report, originally scheduled for April 2016. However, VW admitted that releasing it “would present unacceptable risks” (Volkswagen, 2016b), and this informed the decision to extend the boundaries of the data set to VW's acceptance in June 2016 of a consent decree in which it agrees to buy back vehicles from consumers in the United States and to fund manufacturers of clean car technologies.
In order to identify the source of quotations taken from the source documents, each document in the data set was assigned a number in chronological order, from 1 to 26 (see Appendix A). Within each document, each of the selected statements was numbered in the order in of appearance within the text. Hence, the reference [1:1] refers to the first quoted statement from the first document in the list.
The data were analysed following the hermeneutic methodology (Karppinen, Lehto, Oinas-Kukkonen, Pätiälä, & Saarelma, 2014). The data set lends itself to hermeneutic interpretation as a method of analysis, because of the richness of the material: it consists of long, qualitative accounts of both fact and opinion. In order to find meaning within them, a detailed and thorough interpretation of the text is necessary, “alternating between part and whole” of the text, and bringing about a “progressively deeper understanding of both” (Alvesson & Sköldberg, 2000, p.53). The analysis will therefore reflect “the dialectic between the understanding of the text as a whole and the interpretation of its parts” (Mingers & Willcocks, 2004).
All sources in the data set are documents where the author(s) are aware, at the time of creation, that the materials would be released into the public domain. In the case of press releases, text has been generated with the explicit intention of wide public diffusion. This distanciation, evidenced by all the sources in the data set, means that the sequential and interpreter-driven method of hermeneutic analysis is particularly appropriate in helping to get behind the public face of the text to discover meaning and purpose.
Hermeneutics permits a wide range of strategies for conducting actual textual analysis, which can include discourse analysis, taxonomies, or open coding using grounded theory. A content analysis coding method has been adopted based on criteria from the frameworks of attribution (Kelley, 1967; Jones & Nisbett, 1972; Heider, 1958; Kelley and Michela, 1980; Weiner, 1995), crisis management (Benoit, 1997; Benoit and Czerwiski, 1997; Coombs and Holladay, 2002; Coombs, 2006), and Marchand et al.'s 2000 information orientation (Kettinger and Marchand, 2011; Marchand et al., 2002; Marchand and Kettinger, 2011) in order to investigate the organisational communication management strategies employed by the company in response to the emissions violations crisis. This approach is abductive, which suits the hermeneutical approach in that it involves the researcher as a component of understanding.
An initial reading of all the data corpus revealed to aspects of each of the frameworks and, from this, an understanding of the data sources was developed through re-reading and identifying key passages to evidence the frameworks. In this way, a hermeneutic cycle of sequential readings was being followed, with analysis being content-led and interpreted by the authors.
In order to attain meaningful analysis out of the data corpus, the contents were coded. Codes were used “as a heuristic” (Saltana, 2009): they were used as an “initial step” (Saltana, 2009) that act as the foundation for further analysis. Crucially, coding allows to link between ideas that are prevalent throughout the data set. It is important that patterns were identified so that hermeneutic analysis could be used to extract meaning from the patterns.
Techniques from attributional coding (Silvester, 2016) were used to analyse and record attributions in the documents during the hermeneutic cycle. A simple system was developed so that, on further reading, references in the texts could be linked directly to specific frameworks and elements within the frameworks. Each framework was assigned a letter, and parts of each framework further broken down into numbers. Instances of certain attributive processes, crisis management strategies, or information orientation competencies were then labelled with the corresponding code. The coding system employed during the analysis is shown in Appendix C.
4 A HERMENEUTIC STUDY IN ATTRIBUTION, CRISIS MANAGEMENT, AND INFORMATION ORIENTATION
The previous section offered an explanation of how the hermeneutic method was used to extract meaning from the data set. The heuristic coding mechanism (see Appendix C) enabled the systematic labelling of parts of data showing instances of high or low levels of attribution, crisis management, image restoration, and information orientation. These coded instances were then aggregated into three tables corresponding to each framework. The tables in Appendices D, E, and F show distributions of these instances. This section of the article presents the findings discovered upon examination of the tables.
The material analysed consists of public information statements produced by the company for release to the media, or statements from company representatives in response to questions from regulators or their representatives. A common feature of voluntary statements is that they are not triangulated by external investigation. This makes them the most useful in showing what they reveal about that the company's priorities, and how it wishes to be seen, rather than the facts of the case. However, it is important to recognise the potential to be misled by such information. Volkswagen's public information statements intended for an audience will have been crafted accordingly; the priorities that Volkswagen is shown to have (implicitly or explicitly) in their statements may not necessarily be their true priorities. The data set allows only access to VW's perspective.
Most of the content of the data corpus concentrates on crisis management and image restoration strategies. This is particularly the focus of all statements volunteered for public information, such as press releases. It is important at this point to establish that the facts of how and why the software deceit was allowed are not part of this debate. They were either not known at the point the statements were issued or deliberately withheld because of the ongoing investigation.
For the greater part, the documents seem to avoid making attributions. The reasons for this are likely to be twofold: first, VW was seeking to avoid admissions of liability. Second, they needed to be careful not to prejudge the results of the investigation by Jones Day. Nevertheless, there are some attributions made or implied in the VW material that provide an insightful perspective on their approach to the crisis.
The interim results of the Group Audit investigation (Volkswagen, 2015n) together with evidence given to the UK Transport Select Committee provide a more direct access to the information orientation and management practices that contributed to the crisis and ways in which they could be improved. The linking factor is the way the company seeks to preserve its “reputational assets” (Coombs, 2006) throughout.
The company's first public response was to issue statements relating to crisis management and damage limitation. Nevertheless, the attributions made or implied in the material analysed clearly underlie their crisis response strategy, and this is why attribution is examined first. The documents give some insight into the attributions made by the company. In addition to this, some of the texts indicate attributions that the company would like to be made. These two options are not necessarily the same thing and reflect VW's determination to control the external attributions of disposition that are or will be made about the scandal and the company's responsibility for it.
In the dialogue with the Transport Committee, some of the attributions are suggested by the committee members and then evaluated by the company representatives. Thus, the Managing Director at VW Group United Kingdom replies “Yes” to the question “Do you think that Volkswagen is an ethical company?” [20:48] and again, when asked “Do you think it knows the difference between right and wrong?”
From some of the earliest statements, it is suggested that the development and implementation of defeat software is attributed to a small number of individuals or a group rather than the company as a corporate entity. It is asserted that “responsible parties will be identified and held accountable” [7:15] and there is reference to the “misconducts and shortcomings of individuals” [18:10]. This is a consistent theme either explicitly or implicitly throughout the material and appears to constitute part of VWs corporate defence.
4.1.1 Internal and external attributions
The repeated phrase “two rogue engineers” [8:23] becomes shorthand for attribution to a limited number of individuals and is borne out as nine employees are suspended. Elements of Heider's theory (1958) pertaining to identifying external and internal attributions can be clearly related to these attribution statements. The attributions are internal when considered from the perspective of the company as a whole. For instance, the attribution is made to “a group of engineers” [8:28]. However, for the individuals concerned (whomever they are), the company culture itself becomes a form of external attribution. It is speculated that the motivation would be to “keep costs down” [20:40] or find a way of meeting the more challenging U.S. emissions regulations within the time and budget constrains placed on them, rather than an internal disposition of the persons involved.
The emphasis that it is the same group of engineers who worked on solutions for EU and the United States and also on software updates [20:37, 20:38] seems to present a further example of the company attempting to tether responsibility to individuals rather than the organisation. The former CEO of VW, Martin Winterkorn, who resigned at the end of September 2015, is the only individual named in the data set. The juxtaposition of the statement that he was informed about the emissions crisis and then resigned suggests that some responsibility is attributed to him [21:15].
Some internal attributions do not relate to individuals but are corporate. There is still an internal attribution of disposition, rather than external situational factors that caused the crisis. The lack of quality assurance for the developed software is admitted [20:13] and thereby attributes responsibility for allowing defeat devices to go forward. Company attitudes such as pressure to meet deadlines or keep costs down [20:40] and some acknowledged “deficiencies (…) in the reporting and monitoring systems” [18:18] that allowed the deceit to be developed may also be considered external, in that they are situational factors affecting the behaviour of individual employees.
In the documents resulting from the Transport Select Committee hearings, the VW representatives draw on external attributions relating the effectiveness of the testing regimes. For example, there are frequent references to the emissions regime [in the EU] being “out of date” [8:29] and the wider regulations relating to air quality that “needs to change” [sic] [8:40].
VW repeatedly highlights the fact that existing testing protocols do test real-time driving conditions: the inevitable discrepancy between testing situations and “what happens in the real world” [8:39] is offered as evidence of the present testing regime failure. Costs are further mentioned as a reason for the development of defeat software. These may be seen as an external or an internal factor, because they relate both to the company culture and to the wider pressures of business and competition.
4.1.2 Kelley's covariation model distinctiveness, consistency, and consensus
Many statements validate Kelley's covariation principle and illustrate the three aspects of distinctiveness, consistency, and consensus to help determine attribution. A number of statements emphasise the distinctiveness of the events of the scandal both in terms of its contrariness to the values history of the company and its actions history. The scandal is presented as “contrary to VW core principles” [7:21]. These are described in key words such as “solidity, reliability, credibility” [5:8]. The company sees itself as “ethical” [20:48] and “upstanding [20:31].” Frequent references to the “VW brand” [5:8] act as reminders about enduring core principles, as detailed above, and help to give historical context.
There is emphasis on VW's history of positive environmental actions including previous green initiatives and reference to the company “that has invested in environmental efforts” [7:24] and spent “billions on developing plug in hybrid vehicles” 20:54]. Unsurprisingly, the company volunteers no instances of the events of the emissions scandal being consistent with previous actions. The assertion that this is “not a one-time action but a series of errors” [18:31] is presumed to relate only to the events leading up to the discovery of the emissions scandal, not to previous instances of corporate wrongdoing.
There are some examples of consensus, where the company statements refer to similar instances involving other companies, identifying practices where it is “allowed to recognise the test” [20:46] and “comparable cases involving passenger vehicles” [21:4]. Inversely, the Managing Director at VW Group United Kingdom denies to the UK Transport Select Committee that he is aware of certain practices being prevalent in the industry [8:31] and refutes that the whole industry is dogged by similar problems [20:30]. He seems to be employing a reverse consensus strategy, by suggesting that if a type of malpractice is unknown in the industry, it would be highly unlikely to be occurring at VW in this point.
4.1.3 Weiner's attribution theory and attribution–responsibility–action model
Weiner's attribution–responsibility–action model proposes outcomes to punish attributed wrongdoing or prevent its recurrence. Both aspects can be seen observed in the documents analysed. Punitive actions exacted on the company fall into two categories: utilitarian and retributive. The utilitarian aspects chiefly relate to consumer safeguards and restorative practices. These include first and foremost software and hardware fixes, paid for by the company, where the “vehicles will be corrected” [3:1] and buy-back end of leases schemes in the United States [23:8]. As a further restorative outcome, the company has also been required to pay towards costs of consumer protection training and enforcement measures [23:17].
Measures agreed in the U.S. settlement include $2.7 billion to be paid over 3 years into an environmental trust [23:15] and $2.0 billion over 10 years to develop zero emissions vehicles [23:16] may be seen as both restorative and retributive. Although retributive in their financial scope, these are also restorative measures in the sense that they are designed to make practical compensation for the adverse impact of the emissions deceit upon the environment.
It is anticipated that further retributive measures such as fines, legal costs [18:29], and potential criminal proceedings against individuals may follow but these, at the point of analysis, are unspecified. It is assumed that specific measures designed to prevent recurrence will be identified from the Jones Day report. They are not specified in the U.S. settlement, although the company itself offers a number of early suggestions to improve its practices. As these are voluntary measures, it is more appropriate to discuss them as part of the company's crisis management and image restoration strategy.
Strategies to prevent recurrence are discussed in detail in the following section on reduction of offensiveness in crisis management and image restoration strategies.
4.2 Crisis management and image restoration
In the context of Coombs' (2006) SCCT, the VW emissions crisis may fall into either the “organisational misdeeds management misconduct” or the “organisational misdeeds no injuries” categories. Much of Coombs' (2006) theory relates to the way crisis management relies on consistency and distinctiveness, and this is a recurring theme throughout the data corpus. Added to this, there is evidence of a number of specific image restoration strategies identified by Benoit (1997). These are chiefly intended to protect the “reputational assets” (Coombs, 2006) of the company.
The early responses from the company are all targeted chiefly to the public and consumer audience. The most common response targeted on reducing the offensiveness of what had happened (vide Figure 1). The “reduction of offensiveness” strategy was used twice as much as any other.
Most statements overwhelmingly express mortification, in the form of various apologies. Some of these apologies are phrased as if coming from the individual: “I absolutely apologise to all of you and to our customers” [8:45]. Other instances involve the personification of the company, particularly in press releases: “VW deeply regrets the incidents” [21:2].
Another persistent case of mortification is VW's apparent willingness to accept responsibility for the situation. Emphasis is placed on how a representative “volunteered” [7:1] to come before the UK Transport Select Committee, rather than having to be coerced. “Full responsibility” [7:10] is iterated, as is the company's readiness to “accept the consequences” [7:12].
4.2.2 Reduction of offensiveness
By far the most common response from VW was to reduce perceived offensiveness of their actions by downplaying the damage. This is shown by the chart in Figure 1. VW made repeated references to how the vehicles still “comply with legal specifications” [5:15], emphasising the relatively small effect of their actions [8:10], stressing the fact that the engines “remain safe and legal to drive” [7:16], highlighting the lack of cost to consumers [18:37] and convenient recall strategy [8:54], and stating that there is no effect on business and dealers.
Euphemistic language was employed repeatedly to accentuate the perception that there is no crisis at all. For instance, VW assert how the engine “seems [to have] behaved differently” [8:20], using the artistic language to imply both that the irregularities were unexpected and that they were somewhat due to the idiosyncratic nature of the engine rather than human deed. In addition to this, VW denied that that the mechanism used to produce the engine irregularities was a defeat device at all [20:59] and that such labelling is incorrect. In many cases, the language is deliberately informal, suggesting that VW's focus is on keeping the public onside. Such language gives off the suggestion that there are no legal consequences associated to the crisis, which is another example of downplaying damage. There are clear instances of responses being worded to avoid the suggestion of legal responsibility. For example, software is said to be “not adequately described” [10:3], rather than hidden or misrepresented. Defeat devices are referred to as “irregularities”; perpetrators are thought to be “a few” “rogue engineers” [8:23]. Such colloquialisms replace accurate terms, with the tone being informal and softened.
Another technique VW employed to reduce the offensiveness was to bolster their positive image, making the problem appear less significant in comparison. VW highlighted their ethical values such as stating that they “stand for good and secure jobs” [5:19] and purporting that their business has not been negatively affected because customers are “returning to buy vehicles” [20:45]. Statements bolstering positive image are likely to be targeted at the shareholders and workforce, promoting a vision of the future beyond the current crisis, chiefly focused on the development of new technology and investment in the workforce. This is done in response to the need to restore business confidence as well as consumer confidence.
Correction is a large part of the crisis management response (as well as part of punitive action—see Attribution). It can be divided into actions designed to restore the original conditions (in this case, legal conditions in making the cars compliant) and actions designed to prevent recurrence of the incident.
There is emphasis on the way in which corrective actions will be carried out with respect to customers, which is seen as crucial to the image restoration process. Early responses speak of “remedy” [7:26] and the need to “rebuild” [7:13] and “make things right” [7:20]. Later statements, offered to the regulators, address issues such as compensating the Vehicle Certification Agency [20:75] and Her Majesty's Revenue and Customs for costs and loss of tax revenues [8:60]. There is also discussion of new, lower bonus thresholds for dealers who may struggle to achieve existing sales targets because of the scandal [8:58]. For shareholders and the workforce audiences, corrective measures centre on organisational change, such as company re-alignment and better security processes (e.g. “4-eyes principle” [20:11]). Details are sparse, probably because they will ultimately depend on specific and as yet unknown recommendations from the Jones Day investigation.
There are few statements to the public about preventing recurrence. Responses to the regulators express intention to “learn the right lessons” and make sure it “cannot happen again” [7:18]. Finding out “what went wrong” and avoiding future “misconduct” [11:5] are part of these responses, but the implied acceptance of a degree of wrongdoing is evidently not something VW wish to promote to the public audience.
Finally, statements are used to express differentiation to show that this behaviour is exceptional and not characteristic of VW as a company. VW state that they “do not tolerate any kind of violation of laws” [2:6] and that the incident has gone “against everything the Group and its people stand for” [5:2].
Positive adjectives were used to describe the company's character as “ethical” [20:48], “upstanding” [20:31]. The company's historical legacy was mobilised to emphasise the VW brand and values such as “solidity, reliability, credibility” [5:8], “sustainability, responsibility” [5:20]. Their use of language emphasises continuity. For instance, “continue to stand for good and secure jobs” [5:5] is a largely unsubstantiated assertion, although there is reference to “billions” spent on developing hybrid vehicles [20:54]. These statements may have relevance to all audiences, although particularly the public and shareholders.
When looking at the entire data corpus, two of the largest documents—the evidence sessions given to the UK Parliament Transport Select Committee—stand out as containing the highest variety of crisis management and image restoration techniques, but comparatively fewer instances of C3c “bolstering positive image.” This is evidenced in the two spikes in Figure 2. However, in the other shorter documents, C3a “bolstering public image” and C3a “downplaying damage” are used almost exclusively.
This is Volkswagen Group SWOT analysis. For more information on how to do a SWOT analysis please refer to our article.
|Name||Volkswagen Group (Volkswagen AG)|
|Founded||May 28, 1937|
|Industries served||Automotive (cars, light trucks, heavy trucks, busses, motorcycles)|
Maritime (engines, machinery)
|Geographic areas served||Worldwide (117 countries)|
|Headquarters||Wolfsburg, Lower Saxony, Germany|
|Current CEO||Matthias Müller|
|Revenue (Euro)||€213.292 billion (2015) 5.4% increase over €202.458 billion (2014)|
|Profit (Euro)||€-1.582 billion (2015) a significatn decrease over €10.847 billion (2014)|
|Main Competitors||Bayerische Motoren Werke AG, Chrysler Group LLC, Daimler AG, Ford Motor Co., General Motors Company, Honda Motor Company, Nissan Motor, Tata Motors, Ltd., Toyota Motor Corporation and many other automotive companies.|
Volkswagen AG (further Volkswagen) is the world’s leading automotive manufacturer based in Wolfsburg, Germany. The company is producing over 10 million vehicles annually and often shares 1-2 place with Toyota Motor Corporation.
Volkswagen has the widest brand and product portfolio among all automotive companies. Volkswagen is the leading automaker in Europe, where all its brands are based. The largest company’s market is China.
The company has been involved in “dieselgate” scandal, which shook the company and the whole automotive industry and resulted in seriously damaged brand reputation, enormous fines and lost sales.
You can find more information about the business in Volkswagen Groups' official website or Wikipedia’s article.
1. The widest brand portfolio among all automotive companies
Volkswagen’s brand portfolio is the largest among all automotive companies. The company sells its vehicles under 12 different brands.
Figure 1. Volkswagen’s brand portfolio
Company’s cars are sold under Volkswagen, Audi, Seat, Škoda, Bentley, Bugatti, Lamborghini and Porsche brands. Ducati is Volkswagen’s motorcycle brand. The company’s buses, heavy trucks and other commercial vehicles are sold under Scania, Man and Volkswagen’ Commercial Vehicles brands.
No other Volkswagen’s rival has so many brands under its management. General Motors, which is the 3rd largest automaker in the world, only has 10 different brands and Toyota currently sells its vehicles only under 4 different brands.
2. New “TOGETHER – 2025” strategy
In the wake of their emission scandal and the external market pressures Volkswagen has introduced a new strategy plan that will focus on delivering key goals by 2025. The company’s key objectives are:
- Introduce 30 new electric vehicles by 2025. Volkswagen calls this objective as the ‘major company’s electrification’. Up until now, the company was reluctant to engage in costly race for electric vehicles.
- Develop new competence in battery technology, digitalization and autonomous driving.
- Increase research and development (R&D) spending to double-digit billion range.
Volkswagen’s further objectives outlined in the plan are to increase company’s efficiency and profitability. The new strategy will focus company’s efforts on some of the most important areas and will provide a clear direction, which is something many automotive companies lack right now.
3. Diversification strategy
Volkswagen’s revenue is much more spread across different brands, types of products and geographic areas than its rivals’ revenues.
The company’s wide brand portfolio allows to target different consumer segments and satisfy their diverse needs better.
Moreover, Volkswagen offers many types of automotive and maritime products and financial services, which further diversify company’s sources of income.
Only 74.5% of Volkswagen’s income come from the main ‘Passengers Cars’ segment. ‘Commercial Vehicles’, ‘Power Engineering’ and ‘Financial Services’ generate the rest 12.4%, 1.9% and 11.2% of the revenue, accordingly.
No single market generates over 20% of Volkswagen’s revenue, which is by far the best geographically diversified income among all automotive companies.
Figure 2. Volkswagen Group’s Sales by Region
Source: Volkswagen’s financial report
4. Synergy between brands
Synergy between the brands is one of the key Volkswagen’s strengths. Many of Volkswagen’s brands, including Škoda, SEAT and Volkswagen, or Bugatti, Lamborghini and Porsche, share their R&D spending, build technology, access to different markets and customer knowledge to increase sales and decrease costs. At the same time, they are able to cater for different consumer groups.
Synergy would not be possible between only a few brands.
5. Joint ventures with local Chinese automakers
China is the world’s largest automotive market share and the largest Volkswagen’s market in terms of the number of vehicles sold. Volkswagen operates in China through two joint ventures: SAIC Volkswagen and FAW-Volkswagen.
Through both partnerships, the company offers over 150 different models for the market and sells over 3.5 million units a year. This allows Volkswagen to capture 14.6% market share and to become the second largest automaker in China behind General Motors.
By establishing itself in China, Volkswagen will be able to compete in the world’s largest automotive market better.
1. Negative publicity weakening the whole Volkswagen brand
Volkswagen receives a lot of criticism and negative publicity for the following things:
‘Dieselgate’ scandal. In 2015, the company was found to install software code into its diesel vehicles, which would control different emission levels during the vehicle testing in a laboratory when compared to the real world emission levels.
The company was investigated and found guilty in many countries, which fined the company. The fines, damages and other losses from the scandal totaled €16.2 billion for Volkswagen.
- Vehicle recalls. Over the last few years, Volkswagen had to recalled millions of vehicles worldwide and has received lots of criticism for that.
Negative publicity has hit hard Volkswagen Group. The company’s sales declined in 2015 and will likely decline in 2016. The company experience billions of losses, many current and potential customers. Company’s brand image has been severely affected and it will take lots of time to recover it.
Negative publicity is one of the worst weaknesses Volkswagen has brought upon itself.
2. The highest recall rate in the U.S. market
Volkswagen’s massed produced vehicles have the highest recall rate in the U.S. market among all the automakers. A study published by iSeeCars.com has revealed that Volkswagen Group has a recall rate of 1805 vehicles per 1000 vehicles produced.
Figure 3. Volkswagen recall rate
This means that Volkswagen Group has recalled each of its vehicle nearly twice. A high recall rate results in additional costs, disappointed customers and negative publicity.
Volkswagen should implement better quality control procedures to minimize this weakness.
3. Low market share in the U.S. automotive market
United States is the second largest automotive market in the world with over 18 million vehicles sold. Moreover, it is the largest automotive market in the world in terms of value. A high market share in the U.S. automotive market would guarantee huge earnings as in the case of General Motors and Ford, both relying on the U.S. to generate 55.5% and 62.3% of their revenue, accordingly.
At the moment Volkswagen’s share in the U.S. automotive market is at best weak. The company sold less than 850,000 thousand vehicles in the U.S. and captured less than 5% market share, despite being the largest automaker in the world.
4. Little expertise and no competence in making battery driven vehicles
Volkswagen has long disregarded the demand for electric vehicles and made little efforts to enter the market. The company’s first all-electric e-Golf has been introduced to the market only in 2014. At that time, many e-cars have been in the market for a few years already. Up until now, Volkswagen only has 2 all-electric vehicles. Volkswagen e-Golf range is only about 83 miles, compared to Nissan Leaf’s 107 miles at nearly the same price.
In order for Volkswagen to fulfill its plans to introduce up to 30 all-electric vehicles by 2025, the company will have to acquire more patents, new skills and gain more expertise. The company has pledged to invest billions in order to acquire the technology.
At the moment Volkswagen can barely compete with other electric cars’ automakers and is far behind Tesla, the key rivals in the industry.
1. Fuel prices are expected to rise in the near future
Fuel prices have been low for the last few years and are expected to rise in the near future due to the changes in the supply. Low fuel prices have increased the demand for large vehicles such as pickup trucks and SUVs. Many companies, including General Motors, Ford, Chrysler have benefited from the low fuel prices, because of their strong SUVs and pickup trucks offerings.
On the other hand, Volkswagen didn’t invest much into growing its line of light trucks and has opted to compete in the smaller vehicle range. The demand for small vehicles always rises when the fuel prices are high.
Volkswagen could also push its plans to introduce the first competitive electric vehicle earlier than 2020 and benefit for the growing demand for them.
2. Acquire skills and competences through acquisitions
In order to fulfill its goals outlined in the new strategy plan, Volkswagen will have to develop new competence in battery technology, digitalization and autonomous driving.
The fastest and least costly way to do that is by acquiring smaller startups, which have already developed the skills and the technology needed for Volkswagen. Usually, acquisitions are costly, but the current interest rates are the lowest in history, so capital can be acquired cheaply.
3. Demand for autonomous vehicles
Currently, nearly 33 companies are working on autonomous vehicles. Few of them, including Google, Ford and Tesla, are testing their autonomous vehicles on the roads and none of them are selling these cars to the general public. It is hard to estimate the exact demand or the market value (it is expected to be worth US$45 billion by 2025) for the autonomous vehicles, but according to the efforts of all the major automakers, it seems that autonomous vehicles is the next ‘big thing’ for the industry.
Volkswagen is in plans to introduce its autonomous vehicles by 2025. The company should introduce its autonomous vehicles earlier to gain higher market share and increase sales.
4. Weakening euro exchange rate
The majority of Volkswagen’s revenue come from Eurozone countries, where euro is the only currency. Therefore, the changes in euro exchange rate have little effect on the company’s revenue and profits. Nevertheless, exchange rates still affect exports to other countries and this is where weak euro exchange rate against other currencies, benefits the company.
Lower euro exchange rate against the U.S. dollar makes Volkswagen’s vehicles cheaper for the U.S. citizens. The company could push its exports to the U.S. or other countries for as long as the euro exchange rate is low against other currencies.
5. Focus on significantly improving sustainability policies to remedy damaged brand reputation
Volkswagen’s reputation as the environmentally friendly company has been severely damaged by its emissions scandal. The company is no longer trusted as the business, which protects the environment and is concerned about the communities around it.
The company identifies this as the key damage done by its emission issue.
If Volkswagen wants to regain the trust of its stakeholders, the company should increase its efforts in sustainability significantly.
1. Intense competition
Volkswagen is faced with an ever increased competition from the traditional automotive companies, the new players and saturation of its main markets.
In China, one of the key company’s markets, new home based Chinese manufacturers are competing by offering lower prices, but similar quality build vehicles.
New companies, such as Tesla with its electric cars will make it very hard for Volkswagen to compete in the electric cars segment. In addition, Google, which tries to build self-driving cars is also threatening the traditional automotive industry. The competition is further fueled by the fact that the global automotive production capacity far exceeds the demand. In 2015, there was an estimated global excess production capacity of 31 million units.
2. Further fines and damages that will have to be paid
Volkswagen’s emission scandal has already resulted in damaged brand reputation, lost consumer confidence and €16.2 billion in damages and fines. This, though, is not the end of it.
The company is still involved in many lawsuits all over the world, which seek to convict Volkswagen for cheating on their emission data. The company will have to pay billions in additional fines and damages, decreasing its profits for the next few years.
3. Increasing government regulations
Many governments around the world are committed to reducing the greenhouse gas emissions and are encouraging fuel efficiency initiatives. There is always a risk that such environmental initiatives may increase production costs for the car manufacturers and that these costs won’t be able to be recouped in such a highly competitive and price-sensitive market.