How the Clean Diesel Scandal Just Destroyed Volkswagen’s Image

It was 1995. I was 17 and a new driver. Volkswagen had just unleashed a great marketing campaign, with the slogan “Drivers wanted”. My dad took me to look at a great VW Jetta that we had found in the newspaper classified ads (for you young folk, that's the ebay of old).

I loved that car.

I’ve been a VW fan ever since. I applauded when it was announced two months ago that Volkswagen had overtaken Toyota to become the world's largest automaker. (By the way, I’m a Toyota fan, too. Can’t help it--I love great competition.)

Then, the unbelievable happened. I read along with you as the story broke:

For a number of years, Volkswagen has been purposefully deceiving environmental regulators in the U.S. to believe their "clean diesel" cars were…well, clean. But that wasn’t reality.

 Here are the allegations:

• Since 2009, Volkswagen has installed software (dubbed a “defeat device” by regulators) in certain cars sold in America that turned on emission controls only when being tested. On the road, cars were emitting from between 5 to 35 times as much pollutants as allowed by law. The number of cars affected? About 482,000.
• Even after regulators smelled foul play (over a year ago), VW executives claimed that the discrepancies between pollution tests in the lab and higher levels measured on the road were due to a technical error. After additional pressure from the Environmental Protection Agency (EPA), they finally admitted this month that software had been intentionally installed to cheat on the tests. (As reported yesterday by The New York Times.)

Volkswagen CEO, Martin Winterkorn, has been abundantly apologetic since the story went public. He admitted that the company has "broken the trust of our customers and the public." (Now we know why he was so strangely quiet last week at the international auto show in Frankfurt.)

But why?

Many can’t help but wonder:

Why would Volkswagen go to such lengths to deceive when relatively few American consumers own diesel cars? It’s not just morally wrong; it’s stupid.

The answer has to do with VW’s strategy. One reason behind the company’s recent success is the fact that VW currently leads sales in China, the world's largest market. (VW is Europe’s leader as well.)

But Volkswagen already knew what many have discovered over the last few months: China is a volatile market. In order to hedge its bets, the company looked to the American market, where they only hold a two percent share of sales.

To win over Americans, Volkswagen focused on a market that no one else valued: Diesel.

Americans typically shy away from purchasing diesel cars, despite their positives: Diesel engines are more fuel efficient and generally last longer. But traditionally, these engines don’t perform as well as their gasoline counterparts.

Then there’s that bad reputation: Diesels are "dirty". They're known to emit more nitrogen oxides (NOx) and particulates, substances that add to air pollution.

But VW claimed to have fixed these issues with its "clean diesel" technology. The four-cylinder turbocharged direct injection (TDI) engine supposedly fell well within approved emissions levels and sported high performance. (Brad Plumer's article on VOX explains it better than I can.)

Just take a look at this recent Google search (the link now redirects to a 404 page):

"Volkswagen has sold more diesel cars in the U.S. than ever other brand combined," stated the official VW website. I wonder why. These cars were cheating all along.

Meanwhile, Germans are taking it especially hard. The latest headline of popular German daily newspaper Die Welt (The World) essentially translates to:

"Exhaust Scandal" Damages the "Made In Germany" Brand

Now what?

On Friday, the EPA announced that Volkswagen had directly violated the Clean Air Act, and ordered the automaker to repair all affected vehicles. Interestingly, the EPA has the authority to fine the company up to $37,500 per car--an amount that could total up to $18 billion.

Last year, Volkswagen's pretax net income was about $4.7 billion.

Here’s what happened to the company’s share price:

Ouch.

There's an old saying that goes like this:

Trust takes years to build, seconds to break it, and forever to repair.

Seems fitting in this case. Will Volkswagen ever recover? Time will tell.

By the way, this isn't the first time my heart's been broken in relation to Volkswagen. I never finished my story--I didn’t buy that Jetta years ago.

My father and I hadn't brought along enough money and the owner wouldn't accept a check. He promised to keep the car for me until the next day. We promised to bring cash first thing in the morning.

I was ecstatic. My first car.

But by the time I arrived home, I discovered some sickening news: The owner called. He sold the car to a person who arrived minutes after we left.

That time, it wasn't Volkswagen's fault. This time is different.

What do you think? Is the VW scandal as bad as it sounds? Would you still buy from them? Happy to hear from you in the comments section below.

(I published a different version of this article today on Inc.com, containing some interesting comments from VW consumers. Read it here.)

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