As Scandal Cools, What Next For Volkswagen?

Nov 1, 2016

Near the entrance to Santa Monica pier stood a circle of Volkswagen Golfs, each with a driver. The purpose was to ferry attendees of a weeknight car unveiling to their own vehicles somewhere in the vast oceanfront parking lot. Perfectly framed by the pier's roller coaster in the background is the Volkswagen Atlas. If you want the company's answer to a year of scandal, this is it: what VW calls a mid-size SUV that has three rows that seat seven passengers.

The party for the launch of VW's new SUV came just days after a judge agreed to the largest settlement in the history of the Federal Trade Commission. Despite the most recent controversy, the party was a cross between a Silicon Valley product launch and a Hollywood premiere.

On the perimeter, vintage VW buses stood in as photo booths. Caricature artists, hired for the event, turned engineers into jocks, and reporters into superheroes. You'd almost forget Volkswagen is a company going through a crisis. Renting out a tourist attraction for a day and flying executives from around the globe for a weeknight party show how intent VW is to turning the page and how much money they can spend doing it.

Dieselgate, as you might call it, has shaken the company for over a year. Put as simply as possible: VW engineers installed software in the company's diesel vehicles which made them appear to be performing within regulations when tested.

That set off investigations here and around the globe. Just two days before this party, a federal judge had agreed to a settlement between V.W. and the government, reimbursing owners for the cost of their cars plus $5,000 to $10,000 depending on the vehicle. Now, ahead of the U.S. car show season and the end-of-the-year sales push, Volkswagen is trying to move on.

How does Volkswagen convince consumers to return after this year? "We did not make this one a diesel," joked Mattias Erb, Volkswagen's chief engineer. Erb stood next to the Volkswagen Atlas, which executives take pains to note will be built in the U.S. at the company's Chattanooga plant.

(Interestingly, VW's first SUV was part of a trade war that effectively closed the U.S. market to foreign-made trucks.)

"We are focusing on the engineering, the performance ... the things we are known for. That is how we convince customers. We are getting back to our roots," says Erb.

The SUV was shown in a color reminiscent of a yellow school bus. Brandy Schaffels, chief editor of AskPatty.com, a car advice site for women, says the vehicle succeeds at distinguishing itself from competitors. "They've done a good job of getting the existing Volkswagen DNA into it. It looks like a Volkswagen," she says. Schaffels says with more and more consumers opting for SUVs, especially upscale consumers, VW saw a new SUV as a must.

"If you don't give them the type of vehicle they want they'll buy it from your competitor," she says. "When they're going down the freeway, people aren't going to confuse it with [a Ford] Explorer."

"They're late to the party," says Michelle Krebs, senior analyst with Autotrader. While the diesel scandal raged, a change happened in the car industry. SUV sales overtook sedan sales. Volkswagen only offers two SUVs under its Volkswagen badge and sales for both the Tiguan and Touareg (the two VW-brand SUVs available in the U.S.) are anemic. Krebs says "Better late than never and the mid-size [SUV] is where the growth is because millennials are starting families and opting for bigger utes." Krebs says.

"The public has a short attention span for scandals like this," says Mark Takahashi with Edmunds. He says the public is distracted from the emissions controversy by other news. Takahashi notes the rebound in sales for companies such as Toyota and General Motors after their recent scandals involving deaths.

Whether consumers do have a short attention span is irrelevant when it comes to regulators. The EPA is still suing VW for civil penalties under the Clean Air Act. There are still cases pending in Europe. The Justice Department has an ongoing investigation. Dan Becker, with the Center for Auto Safety, says one of the biggest hurdles Volkswagen has to face is how it will make the diesels that are on the road meet regulatory standards. "It isn't entirely clear that VW knows how to fix it," says Becker, "they know how to perpetrate a fraud. But they don't know how to fix the problems they created."

Becker says the financial cost of the diesel cheat is enough to deter Volkswagen and other carmakers from doing something like it in the near future: "Every one of those other automakers gets the lesson that they can't perpetuate this kind of fraud. They can't pollute too much, or they will be severely punished." He adds that $15 billion in fines is not a slap on the wrist.

Volkswagen announced its October results for the U.S. Tuesday and sales were down 18.5 percent for the VW brand and 9.5 percent for the company overall.

Volkswagen is expected to slog through the rest of the year with sales down in the U.S. But if current trends keep going, despite slack U.S. sales, Karl Brauer, executive publisher of Cox Media, says VW will likely be the top global brand. "I think what you see here is the impact of the global economy that we all live in now," Brauer says.

A company can have an issue in one market or even multiple markets, Brauer says, but can mitigate that problem with its performance in other markets. Volkswagen, despite slipping in the U.S., remains dominant in China and elsewhere. "If there is another lesson that comes out of this it's ... we are not the big dog anymore," he says. If you are having success in China or India, Brauer says "the U.S., not that it doesn't matter anymore, but it doesn't have nearly the impact on you as a global automaker as it would have once upon a time."

Copyright 2016 NPR. To see more, visit http://www.npr.org/.