How Dieselgate forced Volkswagen into the EV market
Volkswagen Bettle Interior

Written by Bartek Bezemer

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November 14, 2020

Volkswagen got caught up in such bad press, they had to do a complete 180 and become the leading force in the transition to electric mobility. 

Volkswagen is going all in on electric transportation, but it wasn’t always this way. The car manufacturer was pumping out gasoline vehicles at unprecedented rates. The sky was the limit. But the skies became cloudy as malicious practices were used to wade out competitors to win market share. This couldn’t last forever and the empire started to crumble underneath its feat in 2015, receiving the infamous name Dieselgate. To curb its negative image Volkswagen turned over a new leaf with the marketing to match. 

Dark beginnings

For us to understand how Volkswagen became what it is today, we have to go back to Nazi Germany. A lot of companies start with humble beginnings, but the start of Volkswagen wasn’t as glamorous, nonetheless is it an integral part of the growth and Volkswagen we see today. Volkswagen started out as what they themselves call the “Nazi prestige project” in the year 1934 with the “Käfer”. The company itself was formally established in 1937 as the Company for the Preparation of the German Volkswagen Ltd and later changed to a more easy to remember Volkswagenwerk GmbH in 1938. Volkswagen’s core mission was to manufacture a car for the people, hence its name. The German population should have the right to own an affordable vehicle. On top of just owning a car, Hitler wanted to build a state of the art road network to connect the different parts of Germany. 

In 1945, at the end of the Second Worldwar and Germany in shambles, Volkswagen came under the control of the British Military Government. The Brits ordered Volkswagen to create a saloon and mass production began for the Volkswagen Beetle. You might think it counterintuitive that the Allies helped the Germans rebuild their economy after how they plunged the world into chaos. But kickstarting the German auto industry was an attempt of the Allied forces to breathe life in the crippled German economy. After all, history taught everybody that punishment would result in even bigger troubles. Through its increased production the Volkswagen group became the staple of a revitalized Germany. In 1950 Volkwagen began adding more products to its portfolio with the Type 2, a small van better known as the Transporter or Kombi. Eventually in 1956 a production line for the transporter was opened in Hanover, which was the birth of the commercial vehicle branch of the group. Production was going full steam ahead and on the 17th February of 1972, Volkswagen set a global production record with slightly more than 15 million vehicles, surpassing the Model T. 

In 1945, at the end of the Second Worldwar and Germany in shambles, Volkswagen came under the control of the British Military Government

After several decades Volkswagen wanted to expand its business outside of Germany and in 1982 it did so through signing a co-operation agreement with Spanish based car manufacturer SEAT. Four years later in 1986, Volkwagen bought a majority stake of 51% of SEAT shares. With this acquisition SEAT became a subsidiary outside Germany. In 1999 Volkswagen took full ownership of SEAT.  

The company kept expanding its international reach and purchased a 30% stake in Czech based Skoda, acquiring 70% of the shares in 1995. The thirst for more brands didn’t end with Skoda and SEAT. Bentley, Lamborghini and Bugatti were added to the group’s portfolio in 1998. Volkswagen was now present in the affordable consumer market and the ultra luxury high performance market. In 2009 Volkwagen acquired a 49.9% stake in the Porsche company and in July 2012 the remaining shares of Porsche were bought for $5.58 billion, finalizing the merger in August 2012. Volkswagen was going full steam ahead. It was expanding rapidly. But the party couldn’t go on forever. 

The crumbling empire

On the 15th of September 2015 the Unitested Environment Protection Agency (EPA) issued a Notice of Violation to Volkswagen. I’m not versed enough in the art of law so for this tipping point we need to turn to another source. According to Law Insider, a Notice of Violation is, “any written notification from a governmental entity of a violation of law or regulation, whether by letter, memorandum, legal or administrative pleading, or other written communication.” This may sound like a minor ordeal, but not only was it a PR disaster, it sparked a chain of investigations into Volkswagen. 

After the fallout, the market value of Volkswagen dropped with €25 billion.

The controversy was still fresh and the scale and full details unclear. In the Notice of Violation the EPA said that Volkswagen was, “Using a defeat device in cars to evade clean air standards is illegal and a threat to public health.” Volkswagen was allegedly using software in the period of 2009 to 2015 that detected when a vehicle was undergoing emissions testing, which adjusted vehicles operations to decrease emissions to meet regulations. While the vehicles would meet emissions standards during the testing phase, they would emit up from 10 to 40 times the standard once they were on the road again. A wide range of vehicles within the Volkswagen portfolio used this technology like the Jetta, Beetle, Passat and the eventual spillover onto other group brands with the Audi A3. At the time Bloomberg was already speculating about a fine of $18 billion. 

Obviously a fine wouldn’t suffice to keep Volkswagen from falling out of line. The then CEO Martin Winterkorn stated he would take full responsibility for the diesel scandal, admitting the usage of software, yet distancing himself from being personally responsible. Obviously that didn’t go well with the management of Volkwagen and Winterkorn announced he would step down in 2015 as the current leader of Volkswagen, ending his career that started in 2008. He would come under investigation into the emissions scandal by the German prosecutors office. Winterkon was succeeded by Mathias Mueller. After the fallout, the market value of Volkswagen dropped with €25 billion. 

One might wonder why Volkswagen would go such lengths to omit all the different regulations. We can only speculate, but I think we can make an educated guess. Money. Companies like Volkswagen are there to turn a profit. More and more, year over year to meet the demands of their shareholders. At its core that’s not a problem, that’s how our system is designed and has been working efficiently for quite some time now. But Volkwagen lost touch with its core values, delivering affordable mobility to the masses. Volkswagen got sidetracked by projects such as the Volkswagen Phaeton and sub brands such as Bugatti and Lamborghini. Products that do not adhere to the core value of what Volkswagen was built upon, may it during a dark chapter of Germany’s history. 

A new electric future

Volkswagen had destroyed the trust in its brand and raised scepticism at governments, which trickled down over the industry. To mitigate some of the damage, Volkswagen began running an apology campaign in 2015 across different newspapers. Buying up ad space headlining with “We have broken the most important part in our vehicles: your trust”. In 2016, shortly after the fallout of Dieselgate and its apology campaign, Volkswagen announced its new vision for the future called ‘Strategy 2025’, where it laid out the foundations for mobility ‘for generations to come’. 

The 2025 deadline isn’t a random date. Volkswagen was obviously well aware that winds of change were blowing through the European Memberstates and the EU commission who wanted to take a leadership stance in the fight against global warming. In October 2019 Denmark and 10 other member states, urged the European Union to phase out diesel and petrol vehicles by the year 2030. This came a year after Denmark announced it would ban the sales of new fossil powered vehicles by 2030 and aiming to scale up its plan to the European peninsula. The United Kingdom sharpened its deadline by banning the sales of fossil powered cars, including hybrids, from 2040 to 2035. The Dutch municipality of Amsterdam, would ban petrol or diesel powered cars from entering its premises from 2030 onwards. Even if Volkswagen wanted to proceed with producing internal combustion powered vehicles, it would find itself locked out of potential markets. Together with its subsidiaries it had to move into another direction. 

But the government telling you that you should change your business model doesn’t really translate well into customer loyalty. So Volkswagen grabbed the mighty pen and got to work to pitch its renewed strategy to the world. Through some marketing fluff on its website it planned out four dimensions it would excel in and reach its target of being the beacon of light for mobility. These four dimensions are: Excited customers, Excellent Employer, Role for the environment, safety, integration and Competitive profitability. Those dimensions are nothing without values so I’ll pick my top 3. “We take on responsibility for the environment and society.”, “We are honest and speak up when something is wrong.” and “We keep our word.” I can only imagine you reading these with a necessary dose of scepticism, you might even have a small grin on your face. Did they really just say that? 

The company replaced its ‘Das Auto’ tagline for ‘Then. Now. Always.

After realizing the scale of the corrupt behavior, these claims seem bold. Unrealistic even. But I dare to give them the benefit of the doubt, because they had no other option. They have no choice but to go hard or go home. If they would go on the same way, they would be ostracised by the industry, their customers and governments. The whole world would practically be against them at this point. And credit where credit is due, they have made some serious steps to curve their negative image and become the example of electrified mobility. In the same year Volkswagen launched their first marketing campaign in cooperation with DDB Berlin after the damage of Dieselgate, emphasizing on people and their cars, and not the technology, according to Marketing Week. The company replaced its ‘Das Auto’ tagline for ‘Then. Now. Always.’ Jurgen Stackmann, Head of Marketing at Volkswagen said, ‘Traditionally there is a close emotional bond between the Volkswagen brand, its customers and our products. This is the foundation of the Volkswagen brand. We want to harness that strength and reinforce that bond.’ 

Volkswagen logo. Courtesy of Volkswagen

To emphasize its reinvented values and bright future, Volkswagen unveiled a new logo in 2020. It’s a replacement for the logo that has been decorating the grills of millions of Volkswagen vehicles for more than 70 years. Volkswagen Chief Designer Klaus Bischoff said, “this rebrand also brings Volkswagen into the digital era, transforming our classic logo into a trademark that is easily displayed digitally on devices and applications.” While it all sounds very space-age, we can say that this operation is one of the multiple steps that Volkswagen is taking to wash away its past and separate the new electric vehicle portfolio from its gasoline past. 

Besides plastering a new logo onto its upcoming vehicles and creating a webpage for its 2025 vision, Volkswagen has been investing heavily in different parts of its business to prepare itself for the targets it has set out for itself. Not completely surprising, Volkswagen CEO Herbert Diess, announced it would produce electric vehicles in the Chattanooga plant, as the US was one of the most important markets for the company. Obviously they had a lot of PR to do in the US, where the chain of events started. It would invest $800 million into the plant, creating a 1,000 new jobs with the first electric car, it’s ID. CROZZ, being delivered in 2022. Furthermore would Volkswagen invest over €30 billion euros into its transition to electromobility. 

A changing world

Through this piece, it may sound like I’ve been overly harsh for Volkswagen. But in some way it saddens me to see that a near environmental fall out was needed to get rid of a corrupt management body at one of the most well-known car manufacturers in the world and accelerate into a sustainable future. But sometimes extreme measures are needed. 

For Volkswagen as a company there was no turning back. It could not go on with its heritage and had to part ways with it. Through rebranding itself with an updated design and heavy investments into modernizing its production line it will attempt to remain relevant among upcoming rivals such as Tesla which were eating at the premium segment of not only Volkswagen, but other brands in its portfolio. Consumer behaviour proved that the market was ready for a new type of mobility and Volkswagen wouldn’t be one of them if they decided to carry on with their malicious practices. A few marketing campaigns won’t persuade the general public to go all electric. Manufacturers themselves have to set the example. 

For now we can only speculate whether this was one of the triggers that moved governments into tightening its regulations, but one thing is for sure. It showed that treating gigantic conglomerates as mere growth machines for the global economy can only result in tears. As a company you should aim to serve the community that made you prosper, even when you become so large you lose touch with reality. Keep track of your values and make sure they benefit the world, not only your shareholders, because in the end, it’s the customers that generate profits.

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