The admission by Martin Winterkorn the CEO of VW that the company had deliberately fitted ‘defeat device’ software to falsify the results of emissions tests in both the US and Europe has sent shock waves through the car industry.

I have been working with the retail automotive sector for over 20 years at the Centre for Automotive Management at the School of Business and Economics at Loughborough University.  Throughout that time we have worked to try to improve the professionalism of car dealerships and a number of the senior managers from local Leicestershire businesses have been on our programmes.

Loss of consumer trust

For years the industry had been tarnished by stories of ‘dodgy deals’ epitomised by the TV character ‘Arthur Daley’ and reinforced by the ‘Rip Off Britain’ campaign that started in the late 90’s. During that time there have been many occasions when car companies have got things wrong and there has had to be a recall of cars sometimes within one country or in some cases on a global scale.  The issue behind these was often a technical fault either in the supply of a part or in the manufacturing process.

In all of these incidents the fault has been a failure to do something properly.  The current VW case is completely different, this is a deliberate attempt to misrepresent the performance of their vehicles.  The issue is that this is not just a small technical aberration it represents a loss of trust between them and their customers.

The problem with this situation is that potentially everyone loses except for the lawyers. Obviously VW will quite justifiably lose out heavily in the way of fines and the compensation.  The problem is that it is likely that car owners who have bought as opposed to leased their car will find that the residual value of their vehicle is likely to fall as the demand for second hand VW diesels falls dramatically.

Who will be the losers in all of this?

After all the bad press they have received over the years I must confess to having sympathy for the VW dealers who could potentially be some of the biggest losers in this situation.  These are predominantly British owned businesses that overnight will have seen the value of their stock start to fall.

Their customers will be unhappy to have been fed false information a situation with which the dealer had no control as they trusted the information provided by the manufacturer.  Basically a bond of trust has been broken, the customer trusted the dealer and the dealer trusted and invested in the VW brand.  The breaking of that trust and the damage to the brand could potentially last longer than Martin Winterkorn’s  28million euro pension pot.