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The Big Lesson From the VW Debacle Is...

Justin Fox is a Bloomberg View columnist. He was the editorial director of Harvard Business Review and wrote for Time, Fortune and American Banker. He is the author of “The Myth of the Rational Market.”
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Careful readers of business news have learned this week that automakers have been cheating on emissions tests for as long as there have been emissions tests. They also have learned that, while Volkswagen’s cheating on tests for emissions of nitrogen oxides “added the equivalent of as many as 19 million chemical-spewing cars to American roads,” this amounts to less than 0.1 percent of total U.S. NOx emissions (let’s not even get started on Icelandic volcano eruptions). And they are beginning to learn that every manufacturer of diesel cars may face big problems as regulators start to look at what their vehicles spew out in normal driving conditions as opposed to during a standard emissions test.

So why exactly is VW’s emissions-cheating this huge deal that has already cost the chief executive officer his job and may now pose an “existential threat” to the company? I’ve been wondering about this all week. Two answers keep rising to the top, and the weird thing is that they offer diametrically opposed lessons for other corporations.

  1. VW actually admitted that it cheated. It took more than a year, as Bloomberg’s Dana Hull and Mark Niquette tell the story, but on Sept. 3 VW engineers broke down and told California regulators that the company had installed a “defeat device” to thwart emissions testers. Contrast this with the usual approach by corporations faced with such charges: stonewalling followed by years of legal wrangling, then a legal settlement in which the culprits neither admit nor deny guilt.
  2. Two words: “clean diesel.” Perhaps the biggest selling point of VW’s diesel cars in the U.S. was that they were environmentally friendly. They got good mileage, and they had low emissions. So they appealed to customers who wanted to be green, customers who now feel quite betrayed to learn that they are instead the owners of pollution belchers (I am especially impressed with the woman in Portland, Oregon, who is planning to replace her Jetta SportWagen with a cargo bike). More generally, Germany’s recent reputation as a model of forward-thinking environmental probity has also been exposed as less than it seemed.

Neuroscientists, social psychologists and others use the term salience to describe what makes one object stand out from others. One factor is that it’s striking and easy to see; another is that it’s so different from what you expected. This is why, for example, airplane crashes freak us out even though driving/riding in a car is much more dangerous. The VW cheat is both easy to see (the narrative of what happened is well-established and undisputed, in part because the company’s engineers admitted cheating) and surprising (it goes against VW’s green reputation). The result: high salience.

It could be that I’m overthinking things and people are outraged simply because VW did something illegal that may lead to thousands of pollution-related deaths. But if you buy my salience line of reasoning, it’s hard to know what other companies should be taking away from this Volkswagen mess.

Is the most important lesson that you can’t get away with claiming to be something you’re not? If that’s the case, companies should take care to be genuine, to live up to their brand promises and to try to adhere to the spirit of regulations. What a wonderful world this would be! But what if the lesson other companies take to heart is that they need to shut up and lawyer up the second regulators start asking them questions? Surely there are people at law firms and crisis-management PR shops urging just such an approach on clients and potential clients -- such as other makers of diesel cars -- as I write this. What a muddled world we live in.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

To contact the author of this story:
Justin Fox at justinfox@bloomberg.net

To contact the editor responsible for this story:
James Greiff at jgreiff@bloomberg.net