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How Germany lost $191m in brand value after the Volkswagen scandal

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Ethical problems can cause irreparable damage to a brand but such failures can also harm the reputation of an entire country. CQI Fellow and Vice President of the Brazilian Quality Academy Basilio Dagnino shares his views in our latest guest blog.

Big news stories such as the scandal surrounding the masking of fuel emissions at Volkswagen have significantly impacted the reputation of Germany as a brand, according to a report by Brand Finance. The consultancy firm estimates the loss of ‘German brand value’ after the Volkswagen scandal as $191m.

Germany maintained its third-place ranking in the Brand Finance list, ‘Top 20 Most Valuable Nation Brands’, (the first two places are occupied by the US and China), but the value of the country as a brand fell from $4,357bn to $4,166bn.

The brand consultants believe that a previous scandal involving Siemens proves this is not an isolated case, but a greater problem for Germany.

Although public opinion of the country has grown due to the willingness of the German people to receive refugees (Syrian and others) fleeing from conflict zones, the scandal, which stains the country’s reputation, is still widely publicised.

The effect of this problem on the image of a country known for efficiency and reliability of its industry, as well as diligent workers and honest and law-abiding citizens, is certainly a surprise to non-specialists. But other negative effects need to be addressed too.

Volkswagen estimated that it would take until the end of 2016 to fix the 11 million vehicles impacted by the scandal. The company has admitted it regrets trying to develop its own technology, rejecting the system invented by Mercedes and Bosch, which provided for the injection of urea in the discharge of gas to keep the pollutant emissions within acceptable levels.

Economically the cost of operation is colossal – $7.3bn is needed to address the financial consequences of the problem. Now, the European Investment Bank is investigating whether part of the 4.6bn lent to Volkswagen for development of low emission engines was used in the fateful project. The governance of the company was also greatly impacted by the resignation or dismissal of senior executives, including Chief Executive Officer Martin Winterkorn.

The revelation that the software which detected the test case to mask the results of emission testing was first developed in 2008 (seven years ago) has led to a further loss of faith. Even celebrities have joined the outcry, including actor and defender of ecological causes, Leonardo DiCaprio, who announced he will produce film about the scandal.

Quality used to mean complying with the product specifications or customer requirements, but now the meaning of the profession is continuously expanding to include a greater emphasis on stakeholders and improvement. Governance, risk management, compliance with local laws and regulations (the most stringent are in the US rather than in Europe in this case) also need to be considered. Ethics plays a crucial role in this and sustainability is becoming a synonym of quality.

Basilio Dagnino, FCQI CQP, Vice President, Brazilian Quality Academy (ABQ)