VW: will it contaminate ‘Made in Germany’?

5 November, 2015

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It’s too early to understand the consequences of VW’s stupidity, but here – as everywhere – there is much speculation. Some of it is pessimistic: Dieselgate, following the Siemens scandal in 2006, shows that ‘Made in Germany’ isn’t trustworthy. That popular English word Schadenfreude describes many of these comments. Some is more optimistic, predicting a long and painful rehabilitation for VW, but limited contagion.

Although too early to reflect the VW scandal, some interesting brand studies appeared in October. Brand Finance and Interbrand, both consultancies, confirmed Germany’s strength as a national brand in its own right, and its status as home to world-class corporations. Germany is valued 3rd behind the USA and China, unchanged since last year (see ‘Nation Brands 2015’). And ten of its companies are among the best 100 global brands for 2015 (see interbrand.com/best-brands and bestgermanbrands.com).

Nation brands 2

The reports remind us how much Germany’s commercial status depends on manufacturing: 8 out of its 10 top global brands make things and five of these make cars, reinforcing what many already think about Germany. Research 15 years ago on national brands by Wolff Olins, another brand consultancy, found that people are reassured by the German-ness of Mercedes, BMW etc. All respondents associated Germany with technical know-how and quality. Curiously, almost none thought of Germany as emotional or creative. (Er, Schubert, anyone? Dix? Einstein? Anne-Sophie Mutter? (To say nothing of Europe’s other German speakers.) Although it’s daft, this perspective does help to explain why so few know that Hugo Boss is German.

National origins are promoted when they’re useful, and quietly dropped when harmful. During the First World War the English royal family changed its name to Windsor from Saxe-Coburg & Gotha, because it wanted to make its loyalties absolutely clear. Germany’s car firms see themselves as supra-national: their beginnings are local but their ambitions global. The story of BP is relevant here. A series of mergers and a changing energy strategy led to a new name in 2000: BP now meant Beyond Petroleum. Ten years later disaster struck and millions of litres of oil polluted the Gulf of Mexico. Americans saw it as a foreign attack on their environment, and renamed BP again: politicians and commentators talked only of British Petroleum.

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But the question here is whether the child will harm the parent. The example of BP is again helpful. In the 5 years since BP’s oil disaster, it has agreed to pay an eye-watering $54 billion in reparations, and it must still negotiate 3,000 civil cases – individuals and companies that chose to remain outside the class action lawsuits. But since 2010 there has been no impact on the UK’s exports to the US that can be traced to the oil spill. This supports the view that American anger was really about the company, not the country. Some will argue that VW is a bigger problem for Germany: in 2013 oil was just 15% of what the UK sold to Americans; 28% of Germany’s exports to the US were cars and car parts (source: Observatory of Economic Complexity).

If Americans and the rest of the world took a dislike to German cars, the consequences for Germany would be serious. But I think this is a fanciful idea for at least 3 reasons.

First, the world hasn’t suddenly forgotten decades of German quality and service.

Secondly, they may generalise at first, but angry people prefer the specific. Consumers will struggle to see how punishing BMW or Mercedes will fix anything at VW. After the fall of Lehman Brothers in 2008, CNN provided focus by identifying the ’10 most wanted culprits of the credit crisis’.

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The full complexity of the situation was just too much to digest.

Thirdly, Dieselgate is bigger than VW or Germany. Yes, it shows that the software engineers did not think hard enough about the risks they were taking. (A senior figure in the British motor industry tells me he doubts that senior leaders authorised the defeat device). And Dieselgate shows poor internal governance standards. But it also points to a universal problem which is not explained by corporate stupidity or greed: how to reconcile our appetite for travel with our desire not to harm the environment. This is a tension we have not solved, and it helps to explain how priorities about emissions have changed. After focusing on lead free petrol, Europe concentrated on reducing particulates, then CO2 emissions. Now we’re increasingly aware of the dangers of nitrous oxides: in London there is talk about banning diesels, for example. So diesel engineers must deal with contrasting imperatives: (i) they must achieve performance, fuel efficiency and lower CO2 emissions; (ii) they must also achieve low pollution from NOx and particulates; (iii) they are not allowed to say this is impossible. Perhaps the VW scandal and better emissions testing will lead to a miracle solution. Or perhaps it’s time for car owners to see that they cannot have everything they want. Higher performance and a greener climate and lower costs? They may pick two but not three – not yet. And this is a choice which should be made by us, not left to Wolfsburg*.

(This article appears in the current edition of German magazine Marke 41)

*Charming but naïve idea, I know.

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