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Volkswagen Scandal Woes Worsen

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Volkswagen Scandal Woes Worsen
U.S. prospects do too as company veers into big trouble.
by Jim Burt      (2005-09-05) 

Volkswagen AG's internal corruption scandal has grown and now is thought to involve at least 60 employees of Europe's largest automaker. According to published reports in European business press, chairman Bernd Pischetsrieder told German magazine Stern that VW's own investigation, including examining 100,000 pages of an eventual one million document inquiry is "deeply troubling." German justice officials are also investigating incidents of bribery and embezzlement in several countries.

One Volkswagen executive called the investigation a "quagmire," and pointed to a culture of "entitlement" and "low standards of personal behavior" fostered among VW's executives, especially in Europe, Africa, and the Middle East during the tenure of Ferdinand Piech, who was chairman for a decade before handing off to Pischetsrieder in 2003. Piech, who is currently the supervisory board chairman, hasn't been implicated. But his imperial style of management, some insiders say, bred the sort of bad behavior being uncovered now.

Pischetsrieder, in the Stern interview, said he predicted at least two more years of trouble for its U.S. operations, job cuts in Europe, as well as losses in China, where it once held a commanding 50 percent of the market.

In the U.S. sales have slipped from 389,000 sales in 2003 to an expected 279,000 this year despite introducing an all-new Jetta, its volume leader. VW is plagued by its interminable product cycles and lack of crossover SUVs in more affordable price brackets than the Touareg. But it has other problems that are soon to be on the radar of VW brand chief Wolfgang Bernhard.

Volkswagen achieved a remarkable comeback in the 1990s from its near-death experience in 1993 when German management seriously considered pulling up stakes in the U.S. It developed the New Beetle and engineered an advertising renaissance that generated huge amounts of goodwill and respect for the brand. VW, however, has gone to sleep in its marketing and advertising.

Two key marketing executives responsible for VW's marketing renaissance, Steve Wilhite (now global chief marketing officer for Nissan) and Liz Vanzura (now advertising director at Hummer) left VW, and the advertising hasn't been the same despite the same ad agency, Arnold Worldwide of Boston, handling the chores. VW'sU.S. chief Len Hunt, who took over last year after running Audi, has a great reputation for consumer marketing, and his enthusiasm runs high, but the ad campaign launch of the Jetta has been flat and unimaginative. VW last fall hired Kerri Martin, former marketing communications manager at BMW's Mini division, to the post of director of market development at Volkswagen of America. But her impact has yet to be felt on the brand.

Look for Arnold Communications to be increasingly on the hotseat. MINI's agency, Crispin Porter + Bogusky of Miami, was kept from competing for BMW's $150 million account. BMW owns MINI, which spends only around $30 million in the U.S. on advertising. Martin could, if she chose to and could get the Miami agency to agree, engineer a switch of VW's sizable account to CP+B without reviewing other agencies. CP+B is viewed right now as one of the most creative and hottest ad agencies in the U.S.


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