Louise Vaughan, Managing Director
On 18 September 2015, Volkswagen’s corporate reputation went up in a puff of smoke. Twelve months on and the global ‘dieselgate’ scandal continues to unravel in what is arguably the biggest reputational crisis to have ever hit motor manufacturing.
The scandal, which erupted a year ago this week initially in the USA, revealed ‘the people’s car’ makers had been using software in 11.5m vehicles worldwide to lower emissions of nitrogen oxide in lab testing. Real world emissions were much, much higher.
Just last week Volkswagen faced new claims from Brussels that it had broken consumer protection laws in 20 European countries by marketing cars at the centre of the scandal as ‘green’. EU justice commissioner Vera Jourova is urging national authorities to rally and punish VW for breaching the EU’s “unfair commercial practices directive” which aims to prevent misleading advertising in many EU nations.
In the UK, the Daily Telegraph labelled Volkswagen as the ‘Lance Armstrong of the Motor Industry’. VW dealers are now faced with fixing the 1.2 million cars set for recall. For some, this could mean gridlocked service departments blocked with warranty work delivering minimal financial benefit. The impact of this on the bottom line is easy to measure – but how do you attach a value to the impact on dealer reputation?
For Volkswagen itself the impact of the tsunami of scandal was immediate. The ‘people’s car’ that had successfully built its brand on the pillars of engineering excellence, quality and reliability lost a third of its value in two days – a staggering €25bn. A year on, whilst Volkswagen continues to dominate the UK market along with Ford and Vauxhall, August figures revealed a continuing decline in market share, sliding by nearly 10 per cent to a low of 7.7 per cent.
So what is the value of corporate reputation? According to research by BDO LLP and the Quoted Companies Alliance, the reputational value of all UK listed companies is worth £1.7 trillion. Based on sales impact, share price and employee morale, it found small and mid-cap businesses attach 28 per cent of their value directly to reputation. This compares with the 2015 UK Reputation Dividend Report, which indicated that 30 per cent of the market value of the FTSE 100 is attributable to reputation.
As the full ramifications of the scandal continue to unravel, even twelve months on the full impact on consumer and investor trust is still to be fully determined. What’s clear is that not only the manufacturer – but the dealership network will be under the microscope for some time yet. And it’s the dealer that presents the human face of the brand and has the closest relationship with the customer.
So, whilst VW continues to deal with the fall-out from the crisis, what lessons can be learned by all dealers in how they can best protect their own businesses from a similar reputational and commercial fate?
Have a Plan
When the proverbial hits the fan, having a crisis plan already in place will help you manage and minimise the impact. A crisis by its very nature will be unexpected in timing and specific detail. However, there are fundamental principles to handling any crisis that should be followed. Work through scenarios and lines to take but also the communications channels and spokespeople you’ll use – matching these with the severity of the situation. The age of 24/7 media and advent of citizen journalism means stories can appear online within minutes of an incident happening so you need to be seen to be quick and slick with your response. Factor in all your media channels – direct customer communications, dealership, web and social.
Build and Boost Your Reputation
Proactively share good news stories – award wins, customer service, community initiatives, new service lines – across CRM, website, mainstream and social media. This will help mould how people react if and when a crisis does hit. It will also help you develop strong relationships within the media that are critical when you have negative news to share.
Reason, Regret, Remedy
These are the three core principles of dealing with a crisis. Explain the reason for the problem, express regret (and this doesn’t mean assuming legal liability) for the impact on your customers and explain the remedial actions you are taking to rectify matters.
Embrace the ‘F’ Words – First, Fast and Frank
You can’t always prevent a crisis hitting. But you do have some control over how the media covers the story. Being the first to publically announce it, rather than an unhappy customer, journalist or whistle blower, can help you set the tone. Above all you also need to be frank and honest. Attempting to cover up, half tell or dissemble the facts of an incident always, always lead to more severe consequences than admitting the actual problem in the first place. Factor Twitter into your response strategy – the vast majority of journalists use it as a primary source.
Make More than your Marque
Successful dealer groups are seen as an integral part of the community – not just a manufacturer’s shop window. Look at the issues affecting the local area and how you can add value – our campaigns for dealers have spanned national charity initiatives to apprenticeships and training – all have resulted in measurable commercial benefits in terms of brand recognition, commercial opportunities and footfall.
According to research by JudgeService, the UK’s leading provider of car dealer reviews, 80 per cent of buyers check out individual dealer reviews online before purchasing a car– meaning social media comment and rankings are vital in converting sales. Fusing together specialist customer service tools like JudgeService with a content marketing and social media strategy will ensure you’re regularly engaging with target buyers online, giving them the brand confidence to make an enquiry.
The emissions scandal will roll on for some time yet but one thing is for sure – it is not just a problem for VW. It undermines trust in the wider industry among a public that has had its faith in other major institutions – Parliament, Banking, the Church, the Media – eroded by a series of scandals. It is incumbent on dealerships to adopt an effective crisis management plan as part of their own risk management strategies.
This blog first appeared via AM here.