My Three Cents

Recent times have not been the best of times for some automotive industry leaders.

On October 26, for example, Car and Driver featured an in-depth article on the Takata airbag recall, affecting 34 million vehicles in the U.S. and 7 million worldwide. Defective devices, when deployed, can shoot metal shrapnel into occupants of the car.

On the 27th (the following day), Reuters reported that General Motors was intending to recall approximately 1.3 million older coupes and sedans, to fix oil leakages that could become fire hazards.

Takata and GM’s problems were completely overshadowed by the uber-messy Volkswagen scandal, documented in a whole series of fascinating articles in The New York Times and elsewhere.  It is the story of how a failure to communicate can break you.

Here are some highlights:

  • On September 3, Volkswagen managers admitted to federal and California regulators that illegal software—designed to produce fewer emissions during laboratory testing than they did under real-life, normal driving conditions—had been installed on 11 million cars.  Managers who may have learned of the deception failed to take action.  At least three members of Volkswagen’s supervisory board, which oversees the chief executive, have said they learned of the illegal software from media reports on September 18, more than two weeks later.
  • When he resigned on September 23, Martin Winterkorn, former CEO of Volkswagen, apologized and took responsibility for the scandal, but said that he had been “shocked” to learn of the deception and had personally committed no wrongdoing.
  • On October 28, Jack Ewing, European economics correspondent for The International New York Times, wrote that “a remarkable period of growth ended at Volkswagen…when the carmaker reported its first quarterly loss in at least 15 years and began the costly process of absorbing the expense of fixing millions of cars designed to cheat on emissions tests. The day also was the end of a defining era of Volkswagen ambition.  Matthias Müller, the new chief executive, signaled that the company would no longer be focused on becoming the world’s largest carmaker.”

What brought Volkswagen to this surprising fall from grace?

The main cause, in my opinion, was a failure to communicate:  an unfortunate by-product of the culture of fear at Volkswagen, which inhibited transparency and the free exchange of critical information…both good and bad.  A long tradition of centralized decision-making at the company’s headquarters in Germany—a tradition that discouraged open discussion of potential problems—“[created] a climate in which people may have been fearful of speaking up,” Ewing reports. And, obviously, the communications issues were ever present from those who installed the faulty software to those in top management

A series of bad decisions and constrained communications compounded the impact of the scandal, which could ultimately cost VW $86 billion, of which the company has already set aside $7.3 billion.  (And according to Credit Suisse, this sum “will be woefully inadequate,” CNET reports.

It’s a big, expensive and messy situation.  Can it be resolved?  It’s possible.  But it’s an arduous task that would have been easier and less costly to prevent than to fix.

It’s a case of closing the stable door after the horse has bolted.

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