Erin Baker: Has VW turned scandal into a blessing in disguise?

The answer to both questions is the same: Volkswagen. Oh, the vicissitudes of corporate fate. And yet, too, wow! The complete unpredictability of how a crisis will affect a carmaker. 

In 2015, it would have been a fairly safe bet to surmise that the VW Group would have to break up, post diesel-gate. That, perhaps, the entire empire would fold under a series of class actions and decimated sales. So long, farewell, to the car of the people.

Instead, more than two years on, just shortly before monkey-gate was revealed last week, VW had absolutely soared above the scandal, with sales rising by 4.3 per cent in 2017, and rising profits enabling a pledge from the very top to spend 20 billion euros on electrification research and development in the next seven years. 

A crisis of the magnitude that enveloped VW in 2015 does, of course, take more than two years to play itself out: more legal action may well come out of the woodwork. And yes, the crisis cost the group a quoted $25bn. But hats off to the board of VW, who performed the absolute embodiment of Churchill’s Keep Buggering On, and, instead of crying into their pillows late at night, made the best of a bad fist and used the crisis to increase internal efficiencies and cut costs. They should teach a rather simplified version of this corporate governance in the school playground: when you get knocked down, get up and go again. You’re part of the problem until you’re part of the answer. You’re not a failure until you fail to try. And so on.

First of all, according to a Financial Times report on the handling of the crisis, the group screwed internal spending to the sticking point and squeezed the margins until the pips squeaked, in order to stem the catastrophic losses it was suffering from the adverse publicity. “It’s obviously never, ever a net positive to have done something illegal and to have had such negative press,” Kristina Church, an analyst at Barclays told the FT, “but actually this was a company that was going down the wrong path.” In other words, it’s been the mother of all cosmetic surgery for a company that was due a tummy tuck anyway. 

On top of that, there was growth across the market in the US anyway, which helped VW’s fortunes stabilise, and the rude health of the European market at the time added pace to the speed of VW’s return to fortune.

What happens next is less certain. Monkey-gate coincides with the first serious downturn in the UK market for years, and the Government’s ill-advised budget announcement about a tax levy on the newest, cleanest diesels has ensured that what began as a slap across the face for the fuel with VW has pretty much turned into derv’s death knell – December diesel sales in the UK were down a staggering, but not shocking, 30 per cent month on month.

Some will feel that VW deserved a harsher punishment for its actions in both crises. Personally, I find it a fascinating business study and absolute textbook, the key lesson to all prospective captains of industry in how to ride the waves of a publicity storm the likes of which haven’t been experienced by the company in 80 years. KBO, people, KBO.