Innocence lost, innocence gone. Nobody believes a cheater for the second time. But things may be different for Volkswagen. There might be at least four reasons why it would be so:
First, it happened to a German brand, a rare incident in its culture of strong law enforcement and compliance. The rest of the world would consider this as an “outlier” and it might not be difficult for the brand to recuperate. In fact, stern measures are already under way. Heavy fines and criminal charges are in the offing. Credit Suisse estimated that the scandal might cost Volkswagen up to US$ 82 billion (the company will apparently become bankrupt). However, the company has earmarked about US$ 7.3 billion to handle the crisis. Of course, the bankruptcy may be out of question right now because the cost would accrue over time and can be spread over a series of lengthy law-suits.
Second, the key to manage crisis is to handle the crisis situation quickly. Volkswagen’s top official resigned, indicted diesel model is under prompt recall, refit or shipments halted, two engineers are already under probe and Chancellor Angela Merkel is already in the assuring mood to the rest of the world, refuting the media claim of long term effects on German economy.
Third, only the diesel engine model is under scrutiny (still about 11 million cars worldwide). It is highly unlikely that other models will have the same issue since the scandal is related more to the detection of emission of diesel engines. EPA of USA would obviously come up with stronger scrutiny now and in future on such issues.
Fourth, the company has the ability to support innovation. As time passes, the company can launch innovative models and set aside the past scandals that might already have hurt the consumer sentiment.
Therefore, Volkswagen may face short-term market bumps and costly law-suits, but with a right mix of salvaging strategy, the brand is more likely to rebound later. (Here is Part II)