A very serious scandal

2000px-Volkswagen_logo_2012.svgThere were a little over 13,000 homicides in the US in 2013, including non-negligent manslaughter. Estimates have put the early deaths from nitrous oxide poisoning at up to 58,000. This column is suspicious of claims that such and such may be “up to” X. It means people are fairly certain the number is not higher than that but are unsure how much lower it might be. Nitrous oxides (Nox) may not be causing four times the number of deaths that homicide does, but their emission into the atmosphere is no trivial thing.

So the fact that Volkswagen – the world’s largest manufacturer of motor cars – fitted its cars with “defeat devices” to rig emissions tests is a very significant scandal. Yes, it’s true that emission standards for Nox are much stricter in the US than in the EU, partly because American manufacturers don’t make many diesel vehicles, so companies and unions lobbied for strict standards to make imported cars more expensive. But the law is the law. And capitalism depends on truth telling. If manufacturers make claims about emissions, they should be true.

Similarly, when British supermarkets were found to be selling beef and fish products that contained horse meat some people dismissed the matter. Horse is a premium meat in countries where it is regularly consumed: more expensive than beef. But the product should conform to what it says on the label. 

The VW scandal is very significant and will go on for years because it was deliberate malfeasance. BP did not intend to spill oil in the Gulf of Mexico. The company may have been negligent, but its strategy was to bring the oil ashore and sell it. The strategy of banks was to lend money to people who would pay it back. Those strategies went wrong. But this was the strategy going right. VW decided at a senior level to defraud US regulators and consumers around the world. This may well be the worst corporate scandal ever. 

So what is the solution? If the auto was a normal industry and if this was an American or British company, VW would face a takeover bid. But hostile takeovers are almost impossible in Germany. The company has a workers’ board and there is a substantial shareholding held by the state of Lower Saxony. Car manufacturing is seen as a national virility symbol and the auto unions are politically connected. This can be said of the US, too. It is hard to imagine one of Detroit’s big three being taken over without all sorts of political interference. There are also genuine competition issues with the takeover of so large a business by one of its competitors.

But takeovers are important, and barriers to them should be kept to a minimum. The German policy on hostile takeovers is most unwise. Actually, hostile takeovers are more to be encouraged than friendly mergers. The cozy merger between two giants may be a competition worry. Hostile takeovers are usually undertaken to sweep away arrogant, corrupt or mediocre management. VW could do with that. 

In any system – private, government, or non-profit – excellent organizations will thrive and dreadful ones will fail. Takeovers are the genius by which capitalism alone deals with the mediocre. In a few years, maybe Google will buy a carmaker. A shame it won’t be VW.

qlQuentin Langley is a Senior Lecturer in Marketing at the University of Bedfordshire Business School as well as a freelance columnist published in the UK and all parts of the US. He blogs on social media and crisis communications at brandjacknews.com

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