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Volkswagen (VW) Group is among the most prominent international automotive giants, which is why its emissions scandal of 2015 resulted in a massive and costly recall campaign (Plungis & Katz, 2015). This paper analyzes the way VW manages its reverse logistics (RL) processes in the form of car recalls in a situation that can be described as a crisis.
Volkswagen: The Scandal and Recalls
VW was installing software designed to provide false results during emissions tests in its diesel cars. The vehicles do not pose a direct safety hazard, and they cannot lead to accidents, but they are not environmentally friendly, do not comply with relevant regulations, and are a product of dishonesty (Volkswagen of America, 2016). 11 million vehicles (most of them in Europe) have been affected and need to be recalled and fixed (Schwartz & Cremer, 2015).
Possibly having learned from the infamous case of Toyota crisis management, which is described, for example, by Heller and Darling (2012), VW did not attempt to deny the issue. The crisis management was launched immediately in the hope of resolving the situation within the following three years (Schwartz & Cremer, 2015, para. 1). For that, VW needs to review its policy, check its management team (CEO has already been substituted), invest in the research and development of better technologies, and return the trust of its customers, especially through the car recalls. Scandalous recalls (VW’s case or Toyota’s acceleration problem) do not happen too often, but the necessity to withdraw cars is a natural part of automotive industry operation (Heller & Darling, 2012; Schwartz & Cremer, 2015). As a result, the VW campaign is worth studying.
Volkswagen and Recalls: Best Practices
Plungis and Katz (2015) describe VW’s recall campaign in detail. It includes the processes of determining the vehicle eligibility, getting it to a shop, fixing it, and ensuring that the customer can use it again.
The specifics of recalls depend on the country. According to the Volkswagen of America (2016) website, the US consumers are invited to check their eligibility with the help of an electronic tool, provide the contact information to the company, and use the Goodwill Package benefits (two VW cards with the sum of $1000 and no-charge Roadside Assistance available for three years) as they wait for the remedy (para. 10). Given the massiveness of the recall, the company deems it feasible to set up specific shops to take care of the fixing.
From the point of view of the two final steps, the research and development activities are of importance. Modern and environmentally sustainable equipment may be incompatible with earlier models. As a result, both hardware and software repairs will be necessary depending on the vehicle. The hardware parts can and are likely to be “borrowed” from the already produced ones meant for other models, which may reduce the costs of fixing in certain cases. In some cases, a car may lack space, and VW intends “to rebuild it if need be” (Plungis & Katz, 2015, para. 27). The new CEO Matthias Mueller promises that customers will not have to pay anything for these diverse and technologically tricky fixes, but it is apparent that financing is a key element of the campaign.
This recall is going to be comprehensive and massive: 6.5 billion euros have been “set aside,” but the sum is likely to be insufficient (Plungis & Katz, 2015, para. 6). However, the company’s net liquidity allows greater expenditures, and the CEO and senior management team are ready to spend the money. The company is delaying non-essential projects, cuts annual investment, and works towards increasing the liquidity since it is determined to make up for the situation and return the customers’ trust (Schwartz & Cremer, 2015; Plungis & Katz, 2015).
The Evaluation of the Practice
As stated by Mollenkopf and Closs (2005), acting “in a socially or environmentally responsible manner can produce real value” primarily in the form of customer loyalty and brand recognition (p. 36). The presented RL plan of actions demonstrates that the company is ready to be socially and environmentally responsible, which can help VW return the trust of its customers.
It can be concluded that VW admits the importance of RL and recalls and uses the campaign to produce competitive advantage (restore the reputation). Besides, the campaign has the support of top management. Therefore, at least three of the successful RL tips proposed by Mollenkopf and Closs (2005) are applicable to VW’s campaign. In general, it can be assumed that the VW car recalls campaign appears to be worthy of the title “best practice” that is suitable for the current situation.
The case of VW emissions scandal should be avoided by any company, but the way the RL process is being organized under the pressure of the crisis is noteworthy and may be of interest for future activities of the company or the industry. Given the fact that the company started developing the RL process almost immediately after the scandal, it can be suggested that the interventions are timely. The future practice will demonstrate if the campaign is successful, but it appears to be appropriate for the situation so far.
Heller, V., & Darling, J. (2012). Anatomy of crisis management: lessons from the infamous Toyota Case. European Business Review, 24(2), 151-168.
Mollenkopf, D. A., & Closs, D. J. (2005). The hidden value in reverse logistics. Supply Chain Management Review, 9(5), 34-36,38-40,42-43.
Plungis, J, & Katz, A. (2015, October 22). VW’s emissions retrofit may be among costliest recalls ever. Bloomberg Business.
Schwartz, J, & Cremer, A. (2015, October 15). VW says can bounce back as recalls 8.5 million EU cars. Thomson Reuters.
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Volkswagen of America. (2016). FAQs.