At VW, discounts more effective than integrity

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At VW, discounts more effective than integrity

When Volkswagen’s emissions-rigging scandal broke out in September, industry insiders thought the nation had an opportunity to punish one of the many foreign automakers known for poor after-sales service and exaggerating fuel efficiency.

At first, it looked as though Korean consumers were intent on making Volkswagen pay.

In October, Volkswagen’s sales dropped by 67.4 percent month on month, from 2,901 to 947. It was the first time in 46 months the automaker’s monthly sales fell below 1,000 units. Auto analysts, media outlets and industry insiders all called it a serious warning for the automaker, telling Volkswagen that its only way back into the good graces of Korean consumers was a sincere apology and a clear compensation plan for the owners of its problematic cars.

But what ultimately brought Korean consumers back to Volkswagen dealerships wasn’t integrity - it was discounts.

After its sales plunged in October, the automaker quickly rolled out a series of discount promotions that included an interest-free, 60-month payment plan for all vehicles and discounts of up to 17 million won ($14,500) for customers paying with cash.

Consumers ate it up. Volkswagen’s sales in November hit 4,517 units, giving it the largest share of the imported car market that month at 19.65 percent, beating out rivals BMW and Mercedes-Benz. It was the first month Volkswagen has claimed the top spot by market share in two years. Sales rose 377 percent month on month, and the automaker’s Tiguan 2.0 TDI BlueMotion SUV and Jetta 2.0 TDI BlueMotion sedans became the two best-selling imported vehicles for November, selling 1,228 and 1,000 units, respectively.

“This is a huge surprise considering that Koreans are usually some of the most sensitive consumers in the world when it comes to incidents that involve moral issues,” an executive of a local automaker said on the condition of anonymity.

“Looking at the scandal at Namyang Dairy Products two years ago, the scariest thing for a business is losing consumers due to a damaged reputation. But if local consumers react like this to just some discounts, I worry how the headquarters in Germany will treat Korean consumers in the future, including those Volkswagen owners seeking compensation in court.”

In May 2013, Namyang came under fire for abusing small retailers and distributors by forcing stores to order two to three times the amount of products they actually needed. After the scandal, local consumers and civic groups carried out a series of anti-Namyang campaigns, including a boycott. The operating profit of Namyang plunged that year, from 63.7 billion won in 2012 to an operating loss of 17.4 billion won. The company stayed in the red last year, as well as reporting an operating loss of 26 billion won.

Korea was the first country to launch an investigation into the automaker after the German government did so, with a total 3,250 Korean Volkswagen owners filing for compensation.

“The sales increase won’t impact the lawsuit case itself,” attorney Ha Jong-sun of the law firm Barun, who is managing the case for plaintiffs, told the Korea JoongAng Daily. “But consumers should know that having such huge discounts will depreciate the overall value of Volkswagen vehicles, including the used car value. Those owners participating in the lawsuit are not happy to see about such discounts since they haven’t heard anything about compensation from the Germany headquarters. We demanded the company provide same level of compensation that it gave to American consumers ... but they’ve refused to answer.”

An official from the Ministry of Environment who participated in the government’s emissions tests on Volkswagens in October said, “No matter how strict the policies carried out against violations, they can’t be stronger than punishment by consumers. They need to show that this is a market that reacts to bad management.”


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