For Lack of Sense, Automotive Companies Pay Billions

Volkswagen, Takata, crisis management, The Knight Canney Group,

This week was a bad one for overseas automotive companies. The CEO of Takata announced his resignation, and Volkswagen agreed to shell out as much as $14.7 billion.

Shigehisa Takada was caught up in his company’s defective-airbag crisis that engulfed more than a dozen automakers and resulted in the recall of 60 million vehicles in the U.S. and millions around the globe. Fourteen deaths and more than 100 injuries have been linked to those faulty airbags.

Scarier still is that last month the Senate Commerce Committee reported that Fiat Chrysler, Mitsubishi, Toyota, and Volkswagen were still selling new vehicles equipped with defective Takata airbags – airbags that will eventually need to be recalled.

Takata and its car-company customers are arguing over who will pay the costs of the recalls and the lawsuits. As one of only three major airbag manufacturers, Takata controls about a quarter of the market. If it is forced to repay the entire expense, not only will the company be bankrupt, carmakers will lose a key supplier.

Takata’s lack of crisis management is a textbook example of what not to do. According to industry observers:

  • Shigehisa Takada never personally addressed the crisis head-on during its almost two-year span
  • He instead instructed his underlings to deal with regulators and journalists
  • The company issued no public statements for almost a year

Then there’s Volkswagen.

It agreed this week to pay up to $14.7 billion to settle diesel-emissions claims in the U.S. That tab will chew up most of the $18 billion that it had set aside to resolve the scandal over 11 million so-called “clean diesel” vehicles that had been engineered to purposely cheat on air-quality tests.

But that’s not the end of Volkswagen’s woes. The U.S. and other countries – notably Germany– are weighing criminal probes and additional fines. As U.S. Deputy Attorney General Sally Q. Yates said, “The settlements do not address any potential criminal liability, though I can assure you our criminal investigation is active and ongoing.”

So… what about Volkswagen’s crisis management?

John Voelcker, writing in the Christian Science Monitor, noted that “there’s a known crisis management playbook; VW has ignored it.

  • “Volkswagen’s PR and communications tactics during the crisis may go down as a case study in crisis communications that equals the 1989 Exxon Valdez oil spill in wrong-footedness.
  • “Denials by executives that the company did anything wrong or illegal – after its own engineers had admitted to the EPA that VW deliberately lied and deceived regulators and the public for eight years – haven’t helped.
  • “Nor has the paucity of customer and public outreach, which contrasts with that demonstrated by Johnson & Johnson during the 1982 Tylenol poisoning scare, considered a model of crisis response and communications.”

Takata, Volkswagen, Exxon Valdez, and Tylenol: Three wrong ways and one right way to deal with a crisis.

We’ve said it before, but since we know that Takata and Volkswagen never took our advice, here it is again. When dealing with a crisis:

  1. Utilize an internal or an external crisis management team
  2. Communicate often with the public and your customers
  3. Always be honest and transparent about the problem

One more tip: Drive your Takata-airbag-equipped Volkswagen Jetta diesel safely, and fill up often.

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