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Tags: EU | Volkswagen | German Image

Will Volkswagen Scandal Tarnish 'Made in Germany' Image?

Thursday, 24 September 2015 05:25 PM EDT

BERLIN (AP) — The "Made in Germany" label has stood for precision and reliability for decades, but since Volkswagen admitted to cheating on U.S. car emissions tests, many are questioning whether the automaker's problems could taint the rest of the country.

It's the second serious blow to a major German company's reputation in six months, following the tragic crash of a Germanwings jet that killed 150 people. Parent company Lufthansa has faced questions over why it failed to identify the psychological issues suffered by the pilot who intentionally flew the plane into a French mountain.

Will such crises tarnish the hard-won, valuable reputations for quality of other German brands, such as BMW, Daimler or Bosch?

Experts say VW's problems could hurt the economy in the short term due to the company's sheer size, but that long-term damage to the country is unlikely.

That doesn't mean others won't try to capitalize. Companies will try to grab market share. And across Europe, people in countries that have been lectured by Germany for years about the virtues of financial honesty could be feeling smug.

"Not only does this make Germany look bad, I think that Germany has been very good at moralizing to the rest of Europe about the financial crisis and other things," said Michael Hewson, chief market analyst for CMC Markets in London.

"Germans have a word for it — 'schadenfreude' — and Germany's getting a big dose of it now," he said, referring to the German word for taking pleasure at the misfortune of others.

Indeed, Internet memes of VWs covered in clouds of smog were already making the rounds, and media commentators were quick to pounce on the issue.

"In Europe, there is a strong dose of schadenfreude ... after the Germans, and primarily Chancellor Angela Merkel, have for years been giving lectures others," wrote Thilo Schaefer for Spain's La Marea news magazine.

Still, in Lufthansa's case, the airline has not appeared to suffer any serious damage following the March crash.

Volkswagen's case could prove more costly for the company, though by how much is still unclear. CEO Martin Winterkorn resigned Wednesday and the company is expected to name a replacement Friday.

The EPA accused VW of installing the so-called "defeat device" in 482,000 cars sold in the U.S. VW later acknowledged that similar software exists in 11 million diesel cars worldwide and set aside 6.5 billion euros ($7.3 billion) to cover the costs of the scandal.

It still faces possible criminal investigations and maybe as much as $18 billion in U.S. fines. The final cost could also depend on a host of class action lawsuits being filed by consumers who feel duped.

This is by no means the first time in recent years that a major German company's reputation for probity has taken a huge knock — though perhaps the first time that the damage has stemmed directly from a product that was popular with consumers.

Volkswagen itself was at the center of an unappetizing scandal less than a decade ago — before Winterkorn took over — that resulted in criminal convictions for the company's then-personnel chief and employee council chief, among others. That case centered on allegations that VW's influential employee representatives received illegal privileges, including lavish foreign trips involving prostitutes paid for by the company. The probe started after Volkswagen alerted prosecutors to possible wrongdoing.

Industrial conglomerate Siemens AG acknowledged dubious payments of up to 1.3 billion euros in a bribery case that came to light in 2007 and prompted the departure of the company's then-CEO and board chairman.

The company's biggest bank, Deutsche Bank, has also struggled to put behind it lawsuits and legal issues that in some cases date back years.

In April, Deutsche Bank agreed to pay $2.5 billion to authorities in the U.S. and Britain to settle allegations its traders rigged important market interest-rate benchmarks used to determine rates on a variety of debt.

Hartmut Dziemballa, who conducts image research for Germany's GfK institute with a focus on the automotive and airline sectors, said past scandals have not had lingering effects and that he didn't expect the Volkswagen scandal would significantly affect other German manufacturers — even car companies.

"The quality and the German engineering is still there, and people know that," he said.

Still, if a scandal with any brand has the potential to smear the whole "Made in Germany" label, it's Volkswagen, which is deeply interconnected with the country's people and politics.

Germany is the world's third largest exporter, vehicles are its largest export, and Volkswagen is its largest automaker. It employs over half a million people globally.

It's the largest single employer in its home state of Lower Saxony, which owns 20 percent of the company and whose governor and economy minister sit on its board of directors. VW's former personnel director Peter Hartz was also an adviser of former Chancellor Gerhard Schroeder, and today's welfare system is still called "Hartz IV" after his reforms.

Carsten Brzeski, an analyst with ING in Frankfurt, said while "the reputational damage is currently impossible to assess," because of its size even if the main impact of the scandal is limited to Volkswagen it could have serious economic effects on the German economy overall.

"While the German economy defied Greece, the euro crisis and the Chinese slowdown, it could now be facing the biggest downside risk in a long while," he said in a research note.

Analysts say there is the possibility that the fallout from the scandal might affect other car companies, whether through the need for tougher regulation or a shift away from the diesel engines at the center of the U.S. scandal.

Vice Chancellor Sigmar Gabriel told reporters at the auto show in Frankfurt after the news broke that the VW scandal would mean nothing to the "Made in Germany" label — before adding "I hope."


Geir Moulson in Berlin and Barry Hatton in Lisbon contributed to this story.

© Copyright 2023 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

The "Made in Germany" label has stood for precision and reliability for decades, but since Volkswagen admitted to cheating on U.S. car emissions tests, many are questioning whether the automaker's problems could taint the rest of the country.It's the second serious blow to...
EU,Volkswagen,German Image
Thursday, 24 September 2015 05:25 PM
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