Volkswagen breaks the cardinal rule of trust - Trade Only Today

Volkswagen breaks the cardinal rule of trust

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The Volkswagen scandal unfolding daily around the world is, at the very least, a wakeup call to businesses that breaking trust with customers can spell disaster. As expected, lawyers in Florida (and likely other places) have already filed suits on behalf of a customer and are gearing up for the lucrative class-action litigation that could put VW under or, at the least, be enormously costly.

What’s amazing is that people at VW could want to do business with such deception and, I presume, somehow believe it was acceptable. Taking a risk that could break trust with customers has disaster written all over it. In this case, it’s the trust with a reported 11 million customers worldwide (500,000 in the U.S.) and it has already resulted in management resignations, fines that will likely exceed $18 billion and a predictably devastating loss of future sales, company market value, etc.

VW simply didn’t understand the meaning trust, says Alan Winston, who advises some of the world’s biggest companies on environmental strategy and the co-author of the best-seller “Green to Gold”and his latest book “The Big Pivot.” VW was risking its reputation to make everyone believe its cars were cleaner, Winston says, but when you stake your reputation on being clean and green, you better make sure that you actually are.

This VW debacle is still unfolding. But cheating and cutting corners to increase business isn’t a prescription for success. For VW, it began around 2008 when Volkswagen CEO Martin Winterkorn, who resigned last week, said VW’s plan was to triple U.S. sales and beat out Toyota as the world’s largest automaker. He was in Tennessee at VW’s new American plant. Among other things, VW put its hope on diesel cars that promised high mileage and low emissions rather than pursuing hybrid-electric vehicles like Toyota’s Prius.

This likely will be among the biggest corporate scandals in history. But to compete well in the U.S. market, VW diesels had to deliver better mileage and performance while meeting America’s more stringent emission standards than those in Europe. VW’s diesels produced more smog-forming pollutants and couldn’t meet the standards. Rigging the cars with software programmed to cheat on emissions tests allowed VW to avoid more cumbersome and expensive pollution-control systems.

We’re in a world of increasing transparency. Trust in business these days comes from transparency. While it’s surprising that VW tried to pass off its cars as “clean diesel,” it’s even more surprising that the company’s leadership thought the plan wouldn’t come to light. According to Winston, we’re more connected than ever. We’re gathering endless amounts of data, not to mention the number of cameras recording our behavior seems to be multiplying exponentially.

The bottom line is that customers buy from businesses they trust to be dealing with them fairly and honestly. Break that trust by not doing what’s promised or by providing products that do not meet the promised claims and it could very well mean the end of the business.

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