Transcript an expected crisis: a case study of volkswagen

AN EXPECTED CRISIS:
A CASE STUDY OF THE
VOLKSWAGEN DIESEL CRISIS
Dr. Elizabeth Oppe
Dr. Sammi Lee
West Virginia University
Reed College of Media
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
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
After EPA Announcement
 Major media outlets reported the news
 CEO VW AG resigned
 New CEO expressed concern for “existence of a threatening crisis”
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
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
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
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
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
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
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
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
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
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
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?
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
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
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
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
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
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
VW DIESEL CRISIS
 May 2014
 EPA & CARB launched investigations on VW models showing
discrepancies
 CARB tested same VW models & found same discrepancies
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
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
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
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
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)
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).
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)
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
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
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
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
VW DIESEL CRISIS
 Nov. 2, 2015
 EPA issued the second Notice of Violation, alleging defeat devices
in the 2014-2016 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
VW DIESEL CRISIS
 Nov. 19, 2015
 VW admitted the existence of the defeat device in all 3.0-liter
models the EPA had accused
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.
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
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.
GOVT. AGENCIES’ ACTIONS &
VW RESPONSES
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
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.
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
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
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
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.
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. 11. 2016: Matthias Mueller, new CEO of VW AG, appeared at
North American International Auto Show to make formal apology to
U.S. consumers.
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
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)
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.
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
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
VW 2016 COMMERCIALS
 2017 VW Passat Willie Nelson Commercial
 VW Laughing Horses Commercial
 VW 7 Best Commercials
 VW YouTube Channel
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.
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.