Consumer at mercy of big business

  By Vijay Darda | 29-09-2015

Volkswagen tale

It has taken just one week for one of the biggest automobile brands Volkswagen to come down crashing. The symbol of trust and solid German engineering efficiency that had its origins in a 1937 project to build a people’s car with the blessings of Adolf Hitler is now under a cloud. It has been conclusively established that since 2008 VW sold 11 million vehicles fitted with the Type EA 189 diesel engines worldwide through models including Audi A3, VW Jetta, Beetle (the original VW car), Golf and Passat. All these vehicles carry sophisticated software to cheat emission tests and allow the cars to produce up to 40 times more pollution than allowed.

Now what was this deception and how did it work? The diesel cars were fitted with electronic modules that told the emissions control to work only during emissions tests, something that the computer could determine on the basis of the position of the steering wheel. Normally, the dashboard of the car lights up when the pollution levels are crossed, in this case this function was disabled.

VW ranked ninth in the Fortune Global 500 list of the world’s largest companies and in 2014, it reached production output of 10.14 million vehicles. It has also now been revealed that this practice was adopted to offer the consumer the choice of a diesel car that promised lots of power without being bad for the environment. It has also emerged that the diesel engines fitted in the VW cars are emitting high levels of nitrogen oxide, which can aggravate asthma. At the core of the scandal is the arrogance of big business and its attitude that it can get away with anything on the strength of its monetary muscle. They just pay lip service to the cause of environment and consider these regulations as some hurdle that can be somehow crossed by cheating or manipulation. In this case as well, the time line tells us the story of the failed manipulative efforts on the part of the VW to suppress the scandal.

The details of their violation and the fact that US Environment Protection Agency would go ahead with the penal action were known on September 3rd itself, but the matter went public only on September 18th, and even the effort was to play down the scale of the mess with claims that just 500,000 vehicles were involved. But now the gravity of the crisis is all too well known.

It is not just limited to one car-maker. Indeed for the entire German auto industry and for all overall economy this is perhaps a challenge bigger than the one posed by the Greece crisis. For the company VW, the damages could be more than 18 billion dollars, apart from class action and individual law suits. In comparison the amount earmarked by the company 7 billion dollars for fixing the damage is too small. Actually it works out to less than $700 for each affected car. This has to be considered in the light of the EPA’s warning that that VW will be further investigated and could face other action for breaching the Clean Air Act, including a maximum fine of up to $37,500 per vehicle, or $18bn.

However, the bigger damage is the loss of trust. Who would now trust the VW brand? Forget the sales of new vehicles, would their old cars command any value in the used car market? What would be the fate of the millions across the globe who are now saddled with VW cars? All of them would be violating the pollution control regulations or would be forced to take their cars off the roads. These are troubling questions with no easy answers.

All the in-house cleaning up being undertaken like sacking the VW CEO Martin Winterkorn and replacing him by Mathias Muller, formerly head of its Porsche division or blaming the emissions scandal on a “small group” of people and then suspending a small number of unnamed staff members would have little impact on restoring the lost trust. Trust once lost is almost impossible to regain. The kink always remains, no matter how normal the situation may become. There are lessons for everyone who has something to do with customers in this episode. Now seven years may be a long time for the VW since it launched this cheating software, and its executives may have believed that having pulled off the feat for such a long time, they need not fear the regulators. But then cliche – you cannot fool the people all the time – has come to haunt them in a devastatingly well- known way.

In the Indian context, VW has a manufacturing plant at Chakan in Maharashtra but compared to size of the other auto majors its production is pretty low. Besides, it is not yet known if the same models have been sold in India, and after the scandal erupted globally it could be expected that the models produced at Chakan would also come under the scanner. But the overall lesson for the manufacturers of high value products cannot be ignored that they have to come to internalise the reality that there is no faking good service.

All those who have purchased high end luxury cars and other products are aware of the quality/servicing issues and the irrational costs that are levied by these multi-national corporations once they have the customers at their mercy. It is always a take it or leave it issue, and the customers have no option. The consumer protection laws and the individual tort law are not yet as developed as in the West and this leads to an exploitative phenomena that cannot be checked without the intervention of the government and the establishment of a regulatory framework. The VW episode has alerted us in this direction, and while we may do everything to promote the ease of doing business, and thus attract multi-national brands, we cannot afford to leave our citizens at the mercy of big business. It is not like a 1950s ad for Volkswagen that said: “If you run out of gas, it is easy to push.” In real life, once a customer is let down, there is no easy way.

Before I conclude…

It now appears all set that our Nagpurian lawyer Shashank Manohar would be taking over the reins of the Board for Control of Cricket in India (BCCI) as the top boss for a second innings. He has already made his mark as a no-nonsense cricket administrator with a premium on integrity and uprightness. At this juncture when the administration of the game is badly mired in controversies regarding betting and match fixing, Shashank is well placed to reform the game in sync with the spirit of change that has been recommended by the Supreme Court. The best part about him, is that his actions speak louder than words.

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