Volkswagen evaded regulators and deceived the public regarding the emissions of its diesel vehicles by employing a "defeat device" to fool EPA testing equipment. Because this was a deliberate deception that endangered public health and violated its "Clean Diesel branding, Volkswagen seriously compromised its integrity. Even worse, it didn't disclose the deception. The EPA uncovered it -- finding that offending vehicles emit pollutants up to 40 times standard levels.
The right first step that is a little too late
Volkswagen executives have taken the first step of proper crisis management protocols by admitting fault and apologizing. Because 11 million vehicles are involved worldwide, it's unlikely they'll be able to take the second step of limiting the scope, and they have to yet to take the third step - proposing a solution so it won't happen again.
Making the CEO the scapegoat won't solve the problem
Rather than manage this crisis, CEO Martin Winterkorn resigned Wednesday signaling that VW has no effective strategy to repair its image and restore the public trust. It has already experienced a precipitous drop in its stock price and faces an estimated $18 billion in fines and an untold number of lawsuits.
Possible spillover to other brands
While VW uses a "brand separation strategy" whereby Audi and Porche are separate divisions with separate images, this scandal is so serious that many believe it could spill over to these other VW-owned brands. In fact, one of the offending vehicles is an Audi A-3. Even worse, some are concerned that it will damage the "made in Germany" brand that is coveted by those that admire German engineering.
Investment in deception rather than engineering
Because German auto manufacturers liberally use the "German engineering" moniker in their marketing, it is ironic that VW invested so much time, effort, and money to create software to defeat emissions tests. Wouldn't it have been a win-win to invest that money into engineering the "Clean Diesel" vehicles it represented its cars to be? They are already paying a heavy price for this deception, which can only be categorized as a lose-lose strategy. The price is likely to rise as law suits are filed and more fines are assessed around the globe.
Digging out of the hole won't be easy
Volkswagen put itself in a deep hole. To get out of it, it needs to (1) Right the wrong by engineering and retrofitting a device that brings emissions to the legal standard on diesel vehicles, (2) Try to limit the scope by putting the number of offending vehicles in perspective relative to all the vehicles it sells (this will probably be the hardest part), and (3) Propose a believable solution so this is extremely unlikely to ever happen again.
My sympathies go out to the VW diesel owners and to all of us that have to breathe the "40x-the legal limit" of nitrogen oxides they emit.