THE corporate world, most especially in so-called “consumer-facing” sector is Janus-faced. All companies drive hard bargains with suppliers and are constantly looking for ways to wrong-foot or outsmart competitors. That this may involve devious, if not indeed dishonest tactics is generally a matter for the courts to decide. How businesses fight to win largely concerns shareholders rather than consumers. It is, however, a very different matter when it comes to how consumers view businesses that sell them everything from automobiles to mobile phones and breakfast cereals to designer clothes. Corporations invest immense sums in building up and enhancing brands. Sometimes the whole company is seen as a brand. Apple, the most valuable business on the planet, is the sum total of a range of iconic products. Companies spend billions on burnishing their image with consumers, and the quality that they try hardest to instill in the minds of their customers, is trust. Therefore Volkswagen's confession that it used software to fool US regulators and customers as to the environmental qualities and fuel economy of their diesel vehicles, is absolutely catastrophic for the company's reputation. It is no surprise that Volkswagen's share price has gone through the floor. Investors do not simply fear the billions of dollars in fines that are likely to be imposed by the US authorities. They also reason that if the automaker could fix the engine's software control to fool American regulators and customers, it has been doing the same thing in its other world markets. Fines every bit as damaging can be expected elsewhere. But underlying the investor flight from VW shares is also the knowledge that a brand that had based itself on the reliability and ingenuity of German engineering, has been exposed as having feet of clay. The loss of trust in the VW brand is likely to be long-lasting and hugely damaging to an international automaker that was seeking to displace Toyota from the No. 1 producer slot. Part of that ambition was based on the many recalls and other troubles that the Japanese firm has encountered in recent years. Now VW has been caught out in something far worse. The only glimmer of hope for VW is that it may not be alone in the use of the software-based “defeat device” which sensed when the engine had been plugged into a testing process. This immediately kicked in engine management tools that reduced performance but drastically cut the emission of pollutants. As soon as the test was over, the environmental controls were switched off, giving drivers extra performance in what they had been sold as low-pollution vehicles. There have long been doubts about the official figures that automakers put out for the fuel economy and general performance of their products. It seems certain that regulators will extend their reexamination of engine management software to most, if not all cars. Greater revelations may yet follow. VW must be hoping so. Their own betrayal of consumers' trust will be diminished if it is discovered that others have also been fixing the figures, so that their cars can comply with ever-more stringent environmental controls. The demand for automobiles is not going to go away because of this scandal. But the market may be changed radically, with manufacturers having to focus less on eye-catching performance and more the environmental qualities of slower, less polluting vehicles.
