Lots of ink has been wasted discussing the implications of the recent Volkswagen scandal. However, few articles tried to uncover its underlying reasons beyond a large investment in a new diesel motor that provided a fantastic performance but at a huge environmental cost (between 30 and 40x allowed emissions in the US).
Behind this battle is the battle in the automotive industry for being number 1. Toyota and its innovative Prius caught the whole sector by surprise and created a need to counterattack with a performing, high mileage and environmentally conscious car.
The new diesel engine looked like the best and easiest solution to counter the threat of a sweeping victory by the new hybrid models.
However, was it a simple fix for a bigger problem ?
The consequences of the fiasco go far beyond the cost of fixing the 11M+ cars involved, a number that increases every day. To list only a few,
1.- Car owners are not going to be happy with a much less performing car. How are they going to react to suddenly becoming proud owners of an “average” or “less than average” performing car.
2.- Ambientalists are probably going to sue Volkswagen with class action in the US and outside. The link between emissions and deaths is strong enough to demand huge compensations.
3.- Stockholders will also fill a class action to cover from the fall in the stock price. Stock price reached a 30% decrease in the recent days and nobody really knows where could be the the support line as the matter develops.
4.- The consequences for the image of quality and trust of the German industry are not easy to quantify. German industry depends a lot on Germany as a brand strongly linked to trust and quality. This scandal hits its bottom line.
We are all becoming aware that this scandal is rapidly mounting to be the worst fiasco of the German industry ever with consequences well beyond car manufacturers.
Why all this happened? Was only a mindless shortcut in a hyper-competitive industry or we have to look deeper?
Volkswagen, like many other companies normally competes on price/quality. In cars the general awareness on environmental issues, the raise of the price of oil and the new technologies have disrupted competition with companies and models such as Tesla or Toyota Prius. German companies have been slow to react while some of these innovations aimed at their core business addressing many of the concerns and needs of their larger customer segment. This was the case with hybrid cars where competitors were able to create an image of a cool, modern car well beyond the savings in oil.
The new diesel engine was a way to counteract all this, but, as we know now, it was fake.
From the outside the whole story looks like the response of an incumbent that tries to compete with all weapons available into a new scenario that is being disrupted.
Was this the case?
In fact, competition in the car industry has been moving to innovation while Volkswagen and many other companies were still competing with efficiency – the price/quality ratio. This change in the way companies compete is at the core of this story.
Therefore, perhaps this is not only one case of a massive cheating but a failure to compete in a world where the rules changed and if so, it has implications for the company and the whole industry that go far beyond the scandal itself.