The Volkswagen Revolution

NEW YORK – When Michael Horn, the president and CEO of Volkswagen Group of America, recently testified before a committee of the US Congress about the software that Volkswagen installed on its diesel-powered cars to defeat emissions tests, he expressed his own incredulity that the blame lay with a couple of engineers. “I did not think that something like this was possible at the Volkswagen Group,” Horn said.

Horn and the members of Congress are not the only ones who feel betrayed by Volkswagen’s purposeful malfeasance. So do the consumers who bought into the company’s “clean diesel” marketing and purchased one of the 11 million affected Volkswagen, Audi, Skoda, and Seat cars. And the dealers, suppliers, workers, regulators, and legislators in every country who now have to deal with the aftermath feel betrayed as well.

When a high-profile consumer company, one built on confidence and specialized skill, breaches the public’s trust, the damage is enormous. The US hearings have been followed by parliamentary hearings in the United Kingdom, and more official inquiries are being launched elsewhere. In Italy and Germany, the police have searched offices and private homes to secure relevant documents. There is talk of consumer class-action suits around the world, from the US to Australia. And the European Investment Bank plans to investigate whether any of the loans extended to the company – which were linked to fulfilling climate targets – were used to rig emissions tests. If so, it could demand the money back.

With Volkswagen announcing the recall of 8.5 million cars in Europe, the company may not survive – at least not in its current form. The financial damage is set to be enormous: Volkswagen now says that it will set aside €6.5 billion ($7.4 billion) to cover the costs of the scandal. That may not be enough, and the company’s stock is reflecting the market’s concerns, as is its Standard & Poor’s credit rating.