Friday, October 2, 2015
We’re well into the second week of the VW emissions scandal fallout and as we scan the latest news headlines it appears that reputation risk-related matters remain front and center.
Multiple auto manufacturer reputations are on the line especially with the news that the Environmental Protection Agency (EPA) has now broadened its investigation to look into at least 27 diesel vehicle models made by BMW, Chrysler, General Motors, Land Rover and Mercedes-Benz.
From ignition switch defects, to exploding air bags, to unintended acceleration and now diesel emissions test cheating the beleaguered auto industry continues to face record recalls and massive reputation damage, not to mention the associated financial impact on stock prices and corporate profits.
After all, more than 25 percent of a company’s market value is directly attributable to its reputation, according to the World Economic Forum.
A global survey of 300 executives by Deloitte notes that a company’s reputation should be managed like a priceless asset and protected as if it’s a matter of life and death.
Some 41 percent of companies that experienced a negative reputation event reported loss of brand value and revenue, Deloitte found.
In the case of VW, the struggle to regain consumer trust in its product and to rebuild its tattered reputation is likely to be protracted and costly.
Criminal investigations, civil fines and penalties and a mounting pile of lawsuits add to the rising volume of liability costs the company will face. Some analysts even estimate the total cost to VW could reach $87 billion.
Consider the following:
–Some €29 billion wiped off VW’s market capitalization in a matter of days after its deception was uncovered, a cost which far outweighs the savings VW made by cutting corners on its diesel vehicles in the U.S., as the New York Times DealBook reports here.
–A refit of 11 million diesel VW and Audi vehicles that have the illegal software, a fix which some analysts have estimated could cost more than $6.5 billion, according to this Reuters report.
–U.S. lawsuits filed against VW are seeking billions of dollars in damage, the Wall Street Journal reports. More than 34 lawsuits filed by U.S. vehicle owners, shareholders and dealerships have been noted so far, and that number is set to grow.
The resignation and replacement of VW’s CEO Martin Winterkorn (now the subject of his own criminal investigation) and widespread criticism of VW’s supervisory board leads us to the potential directors & officers’ exposure facing VW.
The Insurance Information Institute (I.I.I.) explains why a business should consider purchasing D&O insurance here.