Volkswagen Scandal Opens Door for Hybrids

SMITH BRAIN TRUST -- By now you’ve likely heard how the Environmental Protection Agency caught Volkswagen cheating its way to clean emissions tests. The world’s second-largest automaker admitted 11 million vehicles worldwide were rigged to mask the diesel engine’s true emissions — which contained up to 40 times more harmful gases than tests suggested.     

“It’s really unbelievable,” says Roland Rust, Distinguished University Professor and David Bruce Smith Chair in Marketing at the Smith School. “They have absolutely cheated their customers.”

Though Volkswagen will survive, Rust says the German company won’t be the world’s No. 1 carmaker anytime soon. It was well on its way, but that will be impossible with fines, fixes and lawsuits from car owners and shareholders expected to cost the company billions of dollars. Plus there’s the lost market share on declining future sales.

Volkswagen CEO Martin Winterkorn resigned as a result of the scandal, but Rust says the company’s problems likely reach beyond a few individuals. Though he hasn’t studied Volkswagen specifically, he has seen the pervasiveness of this kind of culture running through organizations in his research.

He says this scandal reveals “pressures within the company to cut corners and do things that are unethical to succeed.” He says companies with culture problems need to make sweeping changes throughout the organization to overcome them. 

Volkswagen isn’t the first car company rocked by scandal. The 2014 fallout from GM’s faulty ignition switches comes to mind. But from a marketing standpoint, Rust says Volkswagen’s deceit is especially terrible. Volkswagen had been pushing “clean diesel” and aggressively targeting environmentally conscious millennials in the U.S. “They have totally betrayed a key market segment,” Rust says. “I don’t know how they can be successful with that group anymore.”

All the consumers that did buy VWs have cars worth a lot less now. Rust says Volkswagen’s reaction will probably be to try to appease car owners with a lump sum to forgo legal action. But some customers will still take their grievances to class-action lawsuits. 

Rust says the entire diesel market will suffer, and other carmakers will swoop in to fill the void. Hybrid makers, for example, should come out well.

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