What Volkswagen Can Learn From Toyota About Ruthless U.S. Regulators

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.

VW, Uncle Sam's coming after you next
VW, Uncle Sam's coming after you next
Thomas Fromm

MUNICH â€" 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.

Toyota CEO Akio Toyoda â€" 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 â€" how to keep growing in the difficult American market â€" 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 â€" 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.

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How China Flipped From Tech Copycat To Tech Leader

Long perceived as a country chasing Western tech, China's business and technological innovations are now influencing the rest of the world. Still lagging on some fronts, the future is now up for grabs.

At the World Semiconductor Conference in Nanjing, China, on June 9

Emmanuel Grasland

BEIJING — China's tech tycoons have fallen out of favor: Jack Ma (Alibaba), Colin Huang (Pinduoduo), Richard Liu (Tencent) and Zhang Yiming (ByteDance) have all been pressured by Beijing to leave their jobs or step back from a public role. Their time may be coming to an end, but the legacy remains exceptional. Under their reign, China has become a veritable window to the global future of technology.

TikTok is the perfect example. Launched in 2016, the video messaging app has been downloaded over two billion times worldwide. It has passed the 100-million active user mark in the United States. Thanks to TikTok's success, ByteDance, its parent company, has reached an exceptional level of influence on the internet.

For a long time, the West viewed China's digital ecosystem as a cheap imitation of Silicon Valley. The European and American media described the giants of the Asian superpower as the "Chinese Google" or "Chinese Amazon." But the tables have turned.

No Western equivalent to WeChat

The Asian superpower has forged cutting-edge business models that do not exist elsewhere. It is impossible to find a Western equivalent to the WeChat super-app (1.2 billion users), which is used for shopping as much as for making a medical appointment or obtaining credit.

The flow of innovation is now changing direction.

The roles have actually reversed: In a recent article, Les Echos describes the California-based social network IRL, as a "WeChat of the Western world."

Grégory Boutté, digital and customer relations director at the multinational luxury group Kering, explains, "The Chinese digital ecosystem is incredibly different, and its speed of evolution is impressive. Above all, the flow of innovation is now changing direction."

This is illustrated by the recent creation of "live shopping" events in France, which are hosted by celebrities and taken from a concept already popular in China.

10,000 new startups per day

There is an explosion of this phenomenon in the digital sphere. Rachel Daydou, Partner & China General Manager of the consulting firm Fabernovel in Shanghai, says, "With Libra, Facebook is trying to create a financial entity based on social media, just as WeChat did with WeChat Pay. Facebook Shop looks suspiciously like WeChat's mini-programs. Amazon Live is inspired by Taobao Live and YouTube Shopping by Douyin, the Chinese equivalent of TikTok."

In China, it is possible to go to fully robotized restaurants or to give a panhandler some change via mobile payment. Your wallet is destined to be obsolete because your phone can read restaurant menus and pay for your meal via a QR Code.

The country uses shared mobile chargers the way Europeans use bicycles, and is already testing electric car battery swap stations to avoid 30 minutes of recharging time.

Michael David, chief omnichannel director at LVMH, says, "The Chinese ecosystem is permanently bubbling with innovation. About 10,000 start-ups are created every day in the country."

China is also the most advanced country in the electric car market. With 370 models at the end of 2020, it had an offering that was almost twice as large as Europe's, according to the International Energy Agency.

Photo of a phone's screen displaying the logo of \u200bChina's super-app WeChat

China's super-app WeChat

Omar Marques/SOPA Images/ZUMA

The whole market runs on tech

Luca de Meo, CEO of French automaker Renault, said in June that China is "ahead of Europe in many areas, whether it's electric cars, connectivity or autonomous driving. You have to be there to know what's going on."

As a market, China is also a source of technological inspiration for Western companies, a world leader in e-commerce, solar, mobile payments, digital currency and facial recognition. It has the largest 5G network, with more than one million antennas up and running, compared to 400,000 in Europe.

Self-driving cars offer an interesting point of divergence between China and the West.

Just take the number of connected devices (1.1 billion), the time spent on mobile (six hours per day) and, above all, the magnitude of data collected to deploy and improve artificial intelligence algorithms faster than in Europe or the United States.

The groundbreaking field of self-driving cars offers an interesting point of divergence between China and the West. Artificial intelligence guru Kai-Fu Lee explains that China believes that we should teach the highway to speak to the car, imagining new services and rethinking cities to avoid cars crossing pedestrians, while the West does not intend to go that far.

Still lagging in some key sectors

There are areas where China is still struggling, such as semiconductors. Despite a production increase of nearly 50% per year, the country produces less than 40% of the chips it consumes, according to official data. This dependence threatens its ambitions in artificial intelligence, telecoms and autonomous vehicles. Chinese manufacturers work with an engraving fineness of 28 nm or more, far from those of Intel, Samsung or TSMC. They are unable to produce processors for high-performance PCs.

China's aerospace industry is also lagging behind the West. There are also no Chinese players among the top 20 life science companies on the stock market and there are doubts surrounding the efficacy of Sinovac and Sinopharm's COVID-19 vaccines. As of 2019, the country files more patents per year than the U.S., but far fewer are converted into marketable products.

Beijing knows its weaknesses and is working to eliminate them. Adopted in March, the nation's 14th five-year plan calls for a 7% annual increase in R&D spending between now and 2025, compared with 12% under the previous plan. Big data aside, that is basic math anyone can understand.
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