If you hadn’t already shorted your VW stocks after the diesel scandal last year, now would be the best time to do so: VW just lost the only person who was doing everything right in the aftermath of the scandal. In his position as VW of America president, Michael Horn was popular among the plagued dealers for his straight talk, apologetic to the public and influential enough at the German headquarters to push for the right products. But last week VW issued a statement that Horn, is departing “by mutual agreement” to pursue other interests, effective immediately. Such a sudden departure by someone who has worked for the company for more than 25 years, this statements sounds like a euphemism for “he didn’t do what the company wanted him to do, so we fired him”. Update: according to Reuters, VW offered Horn “other positions within the company”, which he declined. In other words, VW of Siberia is still looking for a new Product Manager Eos and Golf cabriolet. Horn’s departure is very bad news for a company that desperately needs a person who was doing exactly those the things he was known for during the current slowdown in US sales at the Volkswagen brand and inability to reach a deal with US regulators or a technical solution to fix the illegal emissions software in about 600.000 VW Group cars.
Horn did a great job in keeping US Volkswagen dealers happy after the stop-sale order of diesel cars and the public fall-out from the diesel cheating scandal. He didn’t sugarcoat bad news but told them straight up what was going on and what the company was doing about it. Well, at least the things he was aware of and informed about by higher management. And Volkswagen’s US dealers have more to complain about than the emissions scandal. Over the past 10 years, they’ve invested $ 1 billion in new or upgraded facilities as the brand had promised them a plan to sell 800.000 cars in the US by 2018. Instead, VW brand sales have dropped below 350.000 in 2015. After being overpromised and underdelivered so much, Horn’s candor was a breath of fresh air for most dealers. In fact, they liked his style so much that they rallied for him to stay on after his head was already on the chopping block in September of last year. Now that he’s gone for real, VW’s National Dealer Advisory Council fears the “continued mismanagement” of the diesel scandal from Germany and are “deeply concerned” about the leadership change.
Secondly, Horn had become the face for VW’s attempt to return to favor with customers in the US after his public and sincere apology for his company’s actions in developing software that would cheat the tough US emissions tests for diesel vehicles and then knowingly lied about it to regulators and the public. To avert the PR crisis that follows such a scandal, the best strategy is to come clear with all past mistakes, admit responsibility, apologize and do everything you can to make things right, the way Toyota did when they faced its unintended acceleration lawsuits. But even after a not very sincere looking apology from the now ousted CEO Martin Winterkorn, dirt is still surfacing with the discovery of an e-mail which proves Mr. Winterkorn was aware of the illegal software as early as 2014, and recent claims from a former employee that evidence has been destroyed after the software was discovered. And more than six months after the scandal broke, there’s still no solution in sight. Many fear the scandal hasn’t hit the company hard enough to bring about the necessary cultural changes to prevent scandals like this from happening again. With Horn gone, the company has lost the face that apologized to customers and whom people most identified with VW’s turnaround to become a better company.
And thirdly, Horn understood the US market and had the right connections in Germany to finally get them to work on the right products for the market: crossovers and SUVs. In the short term, that means bringing the Golf Alltrack to North America as a Subaru-rival, although Germany still hasn’t confirmed US volumes for the model that’s supposed to hit showrooms this fall. In the long term, Horn pushed for a larger Tiguan and a crucial 7-seater midsized crossover which are planned for the next few years, or about 10 years late. Horn also convinced his German bosses that VW’s traditional 7-year life cycle was too long for the US, and bring it more in line with the 5 years of the competition. It’s absolutely vital for a worldwide brand to have people with knowledge of the local markets in place, a mistake that has hurt VW in China as well lately. Leaving product decisions to managers in Germany who are out of touch with the local preferences and differences in customer behavior can lead to huge strategic failures and costly product misfits that VW should have learned from by now The ambitious coals of 800.000 annual Volkswagen sales in the US will never happen if they don’t bring the right products to the market, and Horn was the right person to get those products.
The departure of such a key figure at this most inconvenient time will only create unrest and uncertainty while stability and clear path to a solution are needed, as Volkswagen is facing a March 24 deadline to find a fix acceptable to the authorities. By ousting perhaps the only person within VW management who wasn’t afraid to be open about what’s happened and what’s being done to make things right, Volkswagen risks alienating its US dealers, who are their gateway to the customers. And an unhappy dealer is less likely to make his customer happy and to be motivated to sell the brand’s cars. VW also risks losing any goodwill Horn had built in the aftermath of the diesel scandal, which means the public perception of the company will continue to suffer from bad decisions made in the past instead of making things right as soon as possible and starting to build the brand again. And if they really think the US market (and the Chinese for that matter) can be conquered from behind a desk in Germany by someone who doesn’t know the local market, they’re going to find out the hard way. The race for biggest automaker in the world has now become a two-horse race between GM and Toyota.