1. A CASE STUDY OF THE VOLKSWAGEN DIESEL CRISIS
AN EXPECTED CRISIS:
A CASE STUDY OF THE VOLKSWAGEN DIESEL CRISIS
Dr. Elizabeth Oppe
Dr. Sammi Lee
West Virginia University
Reed College of Media

2. CRISIS COMMUNICATION PERSPECTIVE
How Fortune 500 Company managed (or mismanaged) an intentional corporate misdeed
Shortcomings of existing crisis communication theories
Image Repair Theory (IRT)
Situational Crisis Communication Theory (SCCT)
Need to further develop strategic implications for major crises

3. EPA Served Notice of Violation of Clean Air Act on VW America
VW installed software in VW and Audi diesel cars that circumvents EPA emissions standards for nitrogen oxides (NOx)
Software is “Defeat Device” according to Clean Air Act of 1990
Activates certain emission controls during laboratory emission testing but not in normal driving conditions
Causing up to 40 times higher NOx output in real-world driving

4. After EPA Announcement
Major media outlets reported the news
CEO VW AG resigned
New CEO expressed concern for “existence of a threatening crisis”

5. Unique Communication Characteristics
1st Damage of crisis on company’s reputation can be difficult to gauge 2nd Crisis will be prolonged for years to come because of government probes, civil lawsuits and VW’s recall efforts 3rd Falls under the most salient type of crisis with an intentional corporate misdeed; restoring corporate reputation will be challenging and time-consuming

6. VW Case
Provides an exploratory analysis by offering insights into nature of the crisis and the appropriateness of the crisis communication strategies
Reviews two dominant theories in the field of crisis communication
Looks into case through the perspective of the two theories and evaluates crisis communication strategies employed by VW
Results of investigation discussed

7. Crisis Communication is a part of Crisis Management
Organization conveys nature of the crisis to various stakeholders to minimize threats to organization
All crisis essentially contain negative information about organization, and the public generally perceives a crisis in a negative light
Crisis communication inevitably delivers negative information while attempting to minimize its detrimental effects
Crisis communication tries to minimize the damage to the organization’s reputation, employing appropriate strategies

8. Image Restoration Theory (IRT) Benoit (1997)
Image Repair strategies after a crisis occurs: 1st component: Accused is held responsible for an action 2nd component: The event/act is considered offensive

9. IRT Benoit (1997) Five Strategies
1st Denial – Shift the blame 2nd Evasion of responsibility – provocation, defeasibility, accident, good intentions 3rd Reducing offensiveness of event – bolstering, minimizing, differentiation, transcendence, attack, or compensating 4th Corrective action 5th Mortification – confess and beg forgiveness

10. Situational Crisis Communication Theory (SCCT) Coombs 2007
Grounded on Attribution Theory
Provides mechanisms for anticipating how stakeholders will react to a crisis and suggests communication strategies according to types of crisis

11. SCCT Coombs (2007) Three Factors Shape Magnitude of Reputational Threat in Crisis Situation
1st Initial crisis responsibility – how much stakeholders think or attribute responsibility to organization 2nd Crisis history – shows whether organization has had similar crisis in the past 3rd Prior relational reputation – how organization has maintained stakeholder relationships

12. SCCT Coombs (2007)
SCCT places more importance on initial crisis responsibility, which is a function of stakeholder attributions of personal control of the crisis
Reputational threat increases as stakeholders attributions of crisis responsibility to the organization intensifies

13. SCCT Coombs (2007) Three Crisis Clusters
1st Victim cluster – organization victim of the event, e.g. natural disasters or product tampering
2nd Accidental cluster – stakeholders view crisis as unintentional or uncontrollable, e.g. technical-error product defect
3rd Intentional cluster – stakeholders view as intentional or purposeful, e.g. organizational misdeed or intentional product defect by organization
Organization knowingly placed people at risk, took inappropriate actions or violated a law/regulation
Poses the most threat to the organization’s reputation

14. Coombs (2007, 2012) Primary & Secondary Response Strategies
Primary Crisis Response:
Attack the accuser
Denial
Scapegoat
Excuse
Justification
Compensation
Apology
Secondary Response Strategies:
Reminder
Ingratiation
Victimage

15. VW Diesel Crisis Investigation
What crisis communication strategies did VW employ and how effective were they?
From a theoretical perspective, how do the two dominant crisis communication theories explain the VW diesel crisis, predict the outcome of it, and provide strategic options?

16. Methodology Qualitative Case Analysis
In-depth look at specific events, organizations and people(Xu & Li, 2013; Yin, 2009) that reveals insights about a crisis communication phenomenon.
For detailed and holistic understanding of the case, the study triangulated the data through multiple methods of data gathering

17. Data Collection and Analysis
1st - Gathered data from personal face-to-face interviews with the Center for Alternative Fuels, Engines, and Emissions (CAFEE) researchers who tested the VW diesel models
Primary research source that described the event with details before the EPA’s official announcement of VW’s violations

18. Data Collection and Analysis
2nd - Collected the official documents by government and non-profit agencies, i.e., EPA, CARB (California Air Review Board), ICCT (International Council on Clean Transportation)
Official documents provided clues on how the case evolved over time

19. Data Collection and Analysis
3rd - Analyzed VW’s reactions through the press releases and websites
Important artifacts when gathering evidence on how VW managed its crisis communication

20. Data Collection and Analysis
4th - Collected the contents from the mainstream media and then reconstructed the progress of the crisis
News and report articles served as the secondary research source that provided insights on how the mainstream media reacted to VW’s crisis communication efforts
Accuracy of the news and report articles used in the analysis was confirmed across multiple sources to produce accurate results for certainty in data collection and analysis

21. VW DIESEL CRISIS
Case is chronological and descriptive - based on triangulation method and data analysis process
March 2014
Researchers at CAFEE presented their emission testing results on 3 diesel vehicle models at a conference
Discrepancies of harmful gas emissions between lab testing and road testing
Two VW diesel cars (Jetta and Passat) emitted as much as 40 times higher mono-nitrogen oxides (NOx) when tested on the road than when tested in the lab

22. VW DIESEL CRISIS
May 2014
EPA & CARB launched investigations on VW models showing discrepancies
CARB tested same VW models & found same discrepancies

23. VW DIESEL CRISIS December 2, 2014
EPA, CARB & VW held a meeting to discuss the discrepancies
VW engineers blamed the substantial increase in NOx emissions on various technical issues and different in-use conditions
VW proposed a voluntary recall if affected vehicles
EPA & CARB agreed with the recall proposal & notified VW there would be confirmatory testing on the diesel models

24. VW DIESEL CRISIS
June 2015
VW Engineers from the company’s Germany headquarters contacted CAFEE researchers, asking for details of testing procedures to replicate the testing themselves
VW conducted its own emissions testing at the VW testing facilities in Oxnard, CA

25. VW DIESEL CRISIS
July 2015
CARB conducted the confirmatory testing after the VW recall to fix the “technical problems”
Found same level of harmful emissions from the VW diesel vehicles
Results shared with EPA and VW
VW still did not respond to these testing results

26. VW DIESEL CRISIS August 5, 2015
Oliver Schmidt, VW’s US Engineering & Environmental Office, attended a conference in Michigan and told regulators and reporters that VW stood by its conclusion that the problem was technical

27. VW DIESEL CRISIS September 3, 2015
VW reluctantly admitted the existence of a defeat device to bypass, defeat or render inoperative elements of the emission control system when the car is on the road (CARB, 2015)
VW admitted the presence of the defeat device only after the EPA & CARB threatened to withhold certification for VW’s 2016 diesel models (EPA, 2015)

28. VW DIESEL CRISIS September 18, 2015
EPA served a Notice of Violation of Clear Air Act on VW
In U.S. nearly 500,000 VW and Audi diesel vehicles were estimated to have the defeat device installed
VW released a 123-word statement, simply mentioning the EPA’s investigation without an apology or explanation of the nature of the accusations (VWDIESELINFO, 2015).

29. VW DIESEL CRISIS
VW announced that it set aside 6.5 billion euros (roughly $7.3 billion) to cover the anticipated costs of resolving its emissions problems (Mouawad, 2015)
Based on EPA’s notice, civil penalties could reach $48 billion in the U.S. alone, although the amount can be significantly reduced (Edwards & Prodham, 2016)

30. VW DIESEL CRISIS September 20, 2015
Martin Winterkorn, chairman of WV AG, released a personal statement that he was “deeply sorry” about breaking the trust of the consumers, could not be considered formal apology from VW AG

31. VW DIESEL CRISIS September 23, 2015
Martin Winterkorn resigned “in the interest of the company” insisting he was unaware of any wrongdoing on his part

32. VW DIESEL CRISIS September 27, 2015
Michael Horn, CEO of VW America, released on official apology statement for the U.S. customers expressing his commitment to fix the problems and restore consumer trust

33. VW DIESEL CRISIS October 8, 2015
Mr. Horn testified in a U.S. Congressional Hearing saying the illegal software was the work of “a couple of software engineers,” while denying the management’s awareness

34. VW DIESEL CRISIS
Nov. 2, 2015
EPA issued the second Notice of Violation, alleging defeat devices in the VW, Audi, and Porsche vehicles with the 3.0-liter diesel engine
VW quickly released a 33-word statement acknowledging the accusations and on the same day denied EPA’s allegations

35. VW DIESEL CRISIS
Nov. 19, 2015
VW admitted the existence of the defeat device in all 3.0-liter models the EPA had accused

36. VW DIESEL CRISIS January 11, 2016
Matthias Mueller, new CEO of VW AG, made the first formal apology to U.S. consumers at the North American International Auto Show in Detroit, but insisted that the VW management was unaware of the defeat device
One day later, the EPA rejected VW’s proposal repair plan for the affected VW diesel vehicles due to the “gaps and lack of sufficient detail.” CARB Chair Mary D. Nichols harshly accused VW of a cover-up and continuing lie.

37. VW DIESEL CRISIS
March 29, 2015
U.S. Federal Trade Commission filed a lawsuit against VW for falsely advertised more than half-million diesel vehicles as environmentally friendly when VW knew they were emitting excess pollution

38. VW DIESEL CRISIS
June 28, 2016
VW agreed to a settlement worth more than $15 billion with federal regulatory agencies, the State of California and lawyers representing consumers. The deal includes fixing or buying back nearly 500,000 diesel cars equipped with the illegal software in the U.S.

39. GOVT. AGENCIES’ ACTIONS & VW RESPONSES

40. VW DIESEL CRISIS SUMMARY OF FINDINGS
Three phases:
(1) The Pre-Crisis Phase – signs of upcoming crisis
(2) The Crisis Phase – crisis broke to public when EPA issued first notice of violation (i.e., after Sept. 18, 2015)
(3) Post-Crisis Phase – given prolonged nature of the crisis, this study does not include the analysis of the post-crisis communications

41. PRE-CRISIS PHASE
VW diesel crisis was not sudden or unexpected, and there were some evident warning signs before the EPA Notice of Violation
Three crisis signs:
(1) CAFEE researchers were in contact with the engineers from VW AG and VW American after the emission testing more than one year before the EPA’s official announcement of defeat device.
(2) May 2014, when the EPA and CARB launched an investigation based on CAFEE’s emission testing results.
(3)July 2015, CARB finished the confirmatory testing and concluded that emissions irregularities still existed.

42. PRE-CRISIS PHASE
August 2015, VW America official denied any defeat device and stood by the position that the problem was technical.
VW continued to deny existence of defeat device until the EPA and CARB finally threatened to withhold the certificate of conformity for the 2016 VW and Audie diesel models.
Sept. 3, 2015, VW finally admitted the existence of a defeat device to bypass the vehicles’ emissions control system. VW had more than two weeks until the official announcement of violation, which could have been enough time to prepare the crisis management strategies

43. PRE-CRISIS PHASE Most distinctive strategies for VW: No-response
VW did not properly respond to CAFEE research team’s inquiry about emissions irregularities, nor the EPA and CARB inquiries
Denial strategies
VW kept denying the existence of a defeat device even after it tested the diesel emissions on the disputed models
VW lost valuable opportunities to reduce the penalty by negotiating with the government agencies & minimize damage to reputation

44. CRISIS PHASE
In the EPA Notice of Violation on Sept. 18, 2015, it was clear that the stakeholders would perceive the violation as a major crisis for VW.
In the notice, the EPA clearly stated that VW purposefully “manufactured and installed defeat devices” in its vehicles, alleging an intentional violation of the law

45. CRISIS PHASE
Several problems with VW crisis management and communication strategies:
1.VW’s initial response was poorly prepared and based on inaccurate assessment of the magnitude of the crisis
VW released a 123-word statement merely acknowledging the EPA’s investigations
2.VW adopted inappropriate and ineffective crisis communication strategies, which were simple denial and evading responsibility during the crisis phase
3.VW’s crisis communication messages to stakeholders are confusing and inconsistent
4.VW’s communication lacked efforts to protect stakeholder interests.

46. CRISIS PHASE
Sept. 27, 2015: Michael Horn made first official apology by releasing a videotape statement expressing his commitment to fix problems and restore consumer trust.
Oct. 8, 2015: Mr. Horn testified before member of Congress denying VW management’s awareness and insisting that the illegal software was the work of “a couple of software engineers”
Jan : Matthias Mueller, new CEO of VW AG, appeared at North American International Auto Show to make formal apology to U.S. consumers.

47. DISCUSSION Systematic failure of crisis management and communication
VW lost valuable opportunities to minimize reputational damage during pre-crisis and crisis phases
Misassessed the crisis situation
Employed inappropriate crisis communication strategies

48. DISCUSSION Importance of Initial Response
Wrong Strategies and Wrong Implementation
Distance between Ideals and Reality
Shortcomings of Crisis Communication Theories
Proactive crisis communication strategies such as stealing thunder (e.g., proactive release of crisis information before the media gets a hold of the crisis, Arpan & Pompper, 2003)

49. DISCUSSION Shortcomings of Crisis Communication Theories:
Two theories fall short of providing insight when warning signs are clearly visible before a crisis breads out: both theories propose strategic solutions after a crisis breaks out.
Both theories are based on an assumption that when a crisis breaks out, management realizes that it’s a crisis, assesses the situation objectively, and makes rational strategic decisions. VW failed to assess the crisis from the start.
Both theories focus on repairing or protecting the organization’s reputation. Reactive and defensive solutions such as denial or evasions of responsibility are ineffective.

50. LIMITATIONS OF STUDY
1.Current study is exploratory, as the crisis is expected to linger for an extended period of time.
VW took first step of corrective action by reaching a settlement in Federal Court to fix problem in April 2016
Criminal and civil lawsuits have been or will be filed in multiple countries
2. Current study investigated case from multiple angles, it lacks the organization’s perspective: the current investigation did not have access to VW to hear the officials’ perspective due to pending investigations and lawsuits

51. The biggest auto-scandal settlement in U. S. history was just approved
The biggest auto-scandal settlement in U.S. history was just approved. VW buybacks start soon
LA Times Volkswagen Settlement Oct. 2016
Volkswagen Emissions Settlement Program
Volkswagen Introduces New SUV

52. VW 2016 COMMERCIALS 2017 VW Passat Willie Nelson Commercial
VW Laughing Horses Commercial
VW 7 Best Commercials
VW YouTube Channel

53. CONCLUSIONS
Based on investigations, we found no clear evidence that an appropriate crisis communication protocol was in place or implemented with a consensus among responsible management personnel.
Findings of this exploratory study suggest VW’s overall failure to develop and manage effective crisis communication strategies during the two critical crisis phases.
VW lost valuable opportunities to minimize the damage to its organizational reputation before and after the crisis broke out.

54. CONCLUSIONS
VW missed the initial response timing after EPA’s first notice of violation, despite the fact it had enough time to prepare for the inevitable crisis.
VW used denial and evasion strategies, which are not effective where the organization is perceived to have intentionally caused the crisis.
Both IRT and SCCT have practical guidelines for organizations to effectively manage crisis communications, the limitations addressed in this study warrant reassessment and further advancement of these existing theories.