Volkswagen has become a prime example of a damaged brand in the wake of the diesel scandal. The iconic automaker; which had nearly overtaken Toyota as the world’s largest automaker last year, is now struggling to maintain its position.

The brand’s biggest problems are in the United States; where VW’s sales for May 2016, were 17.2% lower than those for May 2015, USA Today reported. Volkswagen sold 33,729 cars in the USA in May 2015 and 28,779 vehicles a year later.

Significant Market Share Loss

Overall Volkswagen’s sales in the United States for the first six months of 2016; were 13% below what they had been for the same period a year earlier. Sales were so bad that VW trumped a 38.8% increase in sales of the Golf R performance model in May as a major achievement. The problem with that statistic is Volkswagen sold just 433 of the vehicles in the entire USA; a nation of 318.9 million people.

The sales figures indicate that Americans no longer trust or possibly even like the Volkswagen brand. Just last year before the scandal, VW was having tremendous success in the USA; its Jetta was well on the way to taking the Toyota Corolla’s place as America’s most popular sedan.

No amount of advertising or compensation to diesel owners has been able to stem mounting decline in sales. It appears that Volkswagen has lost a significant portion of its American market share and might never get it back. A major drop in revenue in addition to the $18.2 billion (€16.2 billion) the company is paying in fines and repairs to diesels can be expected.

A Badly Damaged Brand

It appears that Volkswagen is a badly damaged brand that might never totally recover from this scandal. Even the company’s CEO; Matthias Mueller seems to have acknowledged that, Bloomberg reported that management is undertaking a sweeping strategy review to find a new direction for the company.

Possible changes at Volkswagen include selling off assets or brands, shrinking the company and shifting its focus from fossil fuel to electric-powered vehicles. News reports indicate that Volkswagen plans to invest $11 billion (€9.79 billion) in a factory that will produces batteries for electric vehicles.

Such initiatives will help salvage Volkswagen’s reputation but it will take years; or even decades, for the company to regain lost market share and customer trust. There are now millions of consumers that distrust Volkswagen; and refuse to believe anything the company tells them. Some formerly loyal customers will never buy a Volkswagen again.

What can Volkswagen Teach Entrepreneurs about Branding?

Entrepreneurs and marketers can learn several important lessons about branding from Volkswagen. These lessons take the form of mistakes that every business leader should try to avoid.

Important lessons about branding to be learned from Volkswagen and the diesel scandal include:

  • Ethics are everything. The most successful brands; such as Apple, have a reputation for highly ethical behavior. Volkswagen had such a reputation before the scandal and lost it. Sales figures reveal that many customers view VW as an unethical company and refuse to buy its vehicles.

  • Customer trust is the basis of a successful brand. Volkswagen’s biggest problem is that customers no longer trust it. They look at the false claims about the diesel emissions; and wonder if they can believe anything the company or its people tell them. Trust is vital to an automaker because customers entrust their lives to its’ products; every time they get behind the wheel.

  • A brand and its reputation can be destroyed instantly. All it took was a wave of news reports; about the diesel scandal, to destroy Volkswagen’s brand in the United States. Generations of work spent building up a dealer network, auto plants and a strong market presence were wiped out overnight. In today’s world of social media, 24-hour news coverage and Google; all it takes is one negative news story to destroy a brand.

  • There are no secrets because bad news will always get out. Volkswagen compounded its problems by hiding them. Hiding the wrongdoing did not make it or the problems it created go away. Instead the problems only exploded into catastrophe when they were finally exposed.

  • The brand is more important than growth. The root of Volkswagen’s problems lay in former CEO Ferdinand Piech’s obsession with growth. Piech; and his team, pursued a growth at any cost strategy that included the abandonment of the company’s values. The unethical behavior provided some momentary sales growth but it ultimately undermined the company’s reputation. The long-term damage to the brand exceeded the short-term gains.

Volkswagen teaches us that a successful brand must be built upon ethical behavior and trust. Unethical behavior; and the distrust it breeds, can destroy even the biggest and richest brands.

Every business leader should take note of the situation at Volkswagen and learn the high cost of unethical business practices. The cost of repairing the long term damage done to the brand by unethical behavior will always exceed the short-term profits; gained from cheating, or cutting corners.

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