There are billion-dollar fines, but the humiliation is what really hurts the bottom line. This is the lesson VW faces amidst the emissions scandal snowballing in the U.S.
MUNICH — The car industry knows how unpleasant legal problems in Europe can be. And yet, somehow, they always seem to find a way of getting resolved. In the United States, such matters are handled differently. Very differently.
For starters, there are the penalties. The current fraud scandal around falsified auto emissions may cost Volkswagen up to $18 billion and has already forced the resignation of CEO Martin Winterkorn. Add to that huge number billions more from recall costs and potential claims of recourse from disappointed clients and shareholders.
But that's not all. Foreign automakers that wind up in a battle with U.S. authorities will also suffer damage to the brand's image, the cost of which simply cannot be measured. In 2010 Akio Toyoda, the CEO of Japanese automaker Toyota, had to sit through an excruciating hearing in front of a Congressional committee. It's the kind of appointment most top managers would do anything to avoid. Back then, Toyota had to recall millions of cars due to mechanical defects that had led to multiple deaths of American motorists. The hearing lasted seven hours, and it was described as nothing less than a "grilling," as a long series of accusations and allegations prompted a final kowtow, and Toyoda acknowledging that both he and his company fell far short of being "perfect."
At the end of the day, the group paid a $1.2 billion penalty for its sins. But the words and images, capped by the U.S. Attorney General chiding Toyota for "deceiving its customers," were far more damaging.
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Toyota CEO Akio Toyoda — Photo: Bertel Schmitt
Toyota's experience offers a hint of what may happen to VW, following the accusation that it manipulated software that measured its car emissions. One thing is clear: A special commission from the U.S. congress will investigate the case, while the Environmental Protection Agency is obliged to probe which regulations have been violated. "The American people deserve some answers," said one lawmaker. Other reports suggest that Volkswagen and its managers could face criminal charges.
The central concern over the last couple of years for Volkswagen — how to keep growing in the difficult American market — is no longer on the agenda. Today, instead, the question is whether VW can even survive in the U.S. Some executives from Toyota, VW and other foreign car companies have said in the past that U.S. regulators have a tendency to target non-American groups. The fight for market share is ruthless. Still, a recent example of General Motors undermines such a theory, as a case of broken ignition keys led to a settlement that forced the American automotive giant to pay penalties. Nevertheless, we're not speaking of billions here — a mere $900 million.
The U.S. National Highway Traffic Safety Administration (NHTSA) had accused GM of not having reported the broken ignition keys soon enough. As a result, GM had to order back 2.6 million vehicles worldwide. There is also a compensation fund for victims' families in the 124 deadly cases linked to the faulty piece.
GM's CEO Mary Barra was sent to Washington, to sit in front of another Congressional hearing. The lawmakers wanted to understand how it could be that it took more than 10 years for such a dangerous defect to be detected and corrected. Barra and Toyoda: Two recent examples of how serious the U.S. really is about corporate responsibility. Now get ready to see some German executives in the American hot seat.