How Volkswagen’s Lost Purpose Cost Them $22 Billion

In Aug. 2015, an unnamed Volkswagen representative walked up to the director of the EPA Office of Transportation and Air Quality, and dropped a $22 billion bomb. Volkswagen, he said, had been lying to the EPA.

In the blink of an eye, Volkswagen went from being the world’s largest automaker to a worldwide pariah. How could such a beloved company fall so far? The answer: By losing track of their purpose and by tossing aside their ethics and standards in favor of profit.

volkswagon brand image

“Why” is a buzzword in modern business right now, and for good reason. If you and your company don’t have an established “why” and a commitment to stick to it, you could find yourself in the same boat as Volkswagon when they ditched their purpose for profit. The sad part is, their “why” in the beginning was as substantial as they come.

Rising From The Ashes

In 1937, Germany was reeling from the war. They were ravaged, economically depressed, and dealing with an unemployment rate of just over 30%. To top it all off, they were facing a massive transportation crisis too. Since Germany mostly manufactured high-end, luxury cars, the cost of 1 vehicle was more than the average citizen’s yearly salary.

The German government decided to act. In 1937, Volkswagenwerk or “The People’s Car Company” was born.

volkswagen vanIts purpose was perfectly clear: To create an affordable, rear-engine car, capable of fitting a family of 5, that was, on average, the same cost as a small motorcycle. Volkswagen began producing their signature vehicle. The price tag? $140 — less than 17% of the cost of the average vehicle.

After World War II, as Germany rebuilt its image, Volkswagen’s brilliant advertising, reliable and inexpensive engineering, and unique shape became a worldwide symbol for a modern ideology: “Think small.”  They  touted energy efficiency and the power of the underdog, long before the rest of the world caught on to its appeal. They eventually became a worldwide force in the auto industry — all while remaining true to their original principles of high-quality engineering, efficiency, and affordability.

A Change Of Purpose

Then, in 2007, Volkswagen announced a new company purpose: To be the largest automaker in the world by 2018. They promptly announced a new CEO and massive leadership changes. When Volkswagen reached its goal 3 years early, everyone thought they were unstoppable — but no one knew just how much the company had sacrificed to get there.

In 2014, the California Air Regulatory Board (CARB) began noticing some discrepancies in the emissions testing process. The cars seemed to change their performance and tonality when being tested. Volkswagen wrote the discrepancies off to a technical glitch and continued to lie about it for over a year.

exhaustIn reality, Volkswagen had installed a “defeat device” in its vehicles — one that would lie to emissions testing machines while allowing their vehicles to remain powerful and quick. Volkswagen vehicles were producing 40 times the allowable amount of toxic greenhouse gasses.

Volkswagen finally admitted to what would become known as the “diesel dupe” and “emissionsgate.” CEO Martin Winterkorn publicly apologized, saying, “I personally am deeply sorry that we have broken the trust of our customers and the public.”

But Apologies Are Cheap

… and repercussions expensive. After the news broke, Volkswagen reported its first quarterly loss in a decade. The company restructured its entire business plan, relinquishing much of its hold on the industry. They eventually agreed to $22 billion in settlements.

Of course, it’s not all about the money, or even the emissions. Volkswagen, a company born out of war and turmoil to become a global example of efficiency, betrayed their purpose for profit.

purpose

So remember when you’re faced with a business decision that goes contrary to your “why” — it didn’t work out for Volkswagen.

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