Has ‘made in Germany’ badge been harmed by the Volkswagen scandal? – The Guardian

Posted: Monday, November 02, 2015

Volkswagen has set aside an initial €6.5bn to deal with the cost of the emissions scandal, though the final sum when potential compensation and fines are included is likely to be far greater. However, reputational damage, both to the Wolfsburg-based carmaker and the country’s “made in Germany” badge of manufacturing excellence, is harder to quantify.

Growth in German factory activity fell to a three-month low in October, according to Markit’s purchasing managers’ index (PMI), down to 52.1 from 52.3 the previous month. The data, published on Monday, suggests Europe’s largest economy has weathered the Volkswagen scandal – so far.

The German chancellor also remains confident. “I do not believe that ‘made in Germany’ got a scratch by what happened at Volkswagen,” Angela Merkel said on Saturday.

Others are more sceptical. Among them is the UK-based research firm Brand Finance. Until the VW scandal broke in September, its analysts expected “a fairly positive year for Germany’s international reputation and the prospects of its nation brand”.

But after the recent “hammer blow”, they changed their minds. Brand Finance’s analysts now value the country’s reputation at $4,166bn, down 4% from last year. “This scandal threatens to undo decades of accumulated goodwill,” it says in its annual report.

Germany prides itself on its manufacturing heritage, typified by the likes of Gottlieb Daimler, a pioneer of the internal combustion engine in the late 19th century. The dedication to technical details has been one of the country’s strongest assets ever since.

Global headhunting firm Heidrick & Struggles found that more than one in four (27%) chief executives in Germany had a background in engineering. In other countries the proportion is much lower. In the UK it is only one in eight (13%).

Heidrick & Struggles does not expect this will change soon. “German management style is very much focused on details”, said partner Christine Stimpel. “Engineers are educated that way.”

Nevertheless, German engineering prowess has faced stiffer competition in recent years in sectors it has traditionally led, such as automotive. When it comes to hybrid and electric cars, Asian companies and new rivals such as Tesla, Google and Apple are driving innovation.

A model of Google’s self-driving car

A model of Google’s self-driving car. Photograph: Google

“The Germans are good in pushing things further, not in developing something completely new,” says Ferdinand Dudenhöffer, head of the centre of automotive research at the University of Duisburg-Essen.

The new Berlin Brandenburg international airport is another example of doubts being raised about German ingenieurskunst, the so-called art of engineering.

The hub was billed as the most modern in Europe. But instead of opening in 2011, the site on the outskirts of the German capital has remained under construction for almost a decade, mainly because of problems with the fire safety system.

Berlin's Brandenburg International Airport: under construction for almost a decade

Berlin’s Brandenburg international airport: under construction for almost a decade. Photograph: Fabrizio Bensch/Reuters

By the end of September, even construction workers were no longer allowed to enter parts of the building amid worries the roof could not carry the weight of smoke extractor fans . Some politicians are asking if it might be better to demolish the terminal and build a new one.

The Elbphilharmonie in Hamburg has suffered similar difficulties. While its architecture is impressive, it took a long time to get there. Due to planning errors the opening had to be postponed several times; likewise, costs ballooned – instead of the originally planned €186m, they are now estimated to reach €865m. The airport and the Elbphilharmonie are due to open in 2017.

Work in progress: the Elbphilharmonie in Hamburg

Work in progress: the Elbphilharmonie in Hamburg. Photograph: Christopher Thomond for the Guardian

The German Engineers’ Association, VDI, blames politicians for pursuing prestige projects and taking management roles as a major factor in the delays. “The engineers have warned them, but they weren’t heard,” said Ralph Appel, its director.

Politicians traditionally have a big influence on Volkswagen’s management decisions as well, with Lower Saxony owning a fifth of the shares and the state chancellor, Stephan Weil, on the supervisory board.

Industry analyst Ferdinand Dudenhöffer warns against drawing general conclusions about the state of German manufacturing based on what has happened at Volkswagen. “The scandal is not about the quality of German engineering,” he said. “It’s about bad management.”


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