Germany’s Brand

Thomas Zielke, Jake Jones, Charles Lane
Thomas Zielke ©RGIT/Jake Jones ©Daimler North America/Charles Lane ©The Washington Post

Germany has been enjoying a golden age in terms of its image in the United States. Until recently, the German brand was widely associated with reliability and durability, as well as innovation in technology and environmental protection. This applied to German products and German corporate credibility. The VW incident, however, had an effect on the brand Made in Germany. So we asked two experts from German industry: What does the German brand stand for today?

The Goethe-Institut Washington’s English-language discussion series How’s It Going, Germany? provides a platform for perspectives and insights from leaders in German business, media, culture, and politics. Moderated by well-known Washington Post editorial writer and member of the Council on Foreign Relations, Charles Lane, these informal sessions present a glimpse into viewpoints about current issues answering the question: How’s it going, Germany?
Germany has been enjoying a golden age in terms of its image in the United States. Until recently, the German brand was widely associated with reliability and durability, as well as innovation in technology and environmental protection. This applied to German products and German corporate credibility. The VW incident, however, had an effect on the brand Made in Germany. So we asked two experts from German industry: What does the German brand stand for today?
Here are some excerpts from a focused, yet entertaining conversation about the German brand with Thomas Zielke, President of the Representative of German Industry and Trade, Jake Jones, Executive Director of Daimler North America  Inc., and host Charles Lane.
Charles Lane (CL): Speaking about car companies, I want to get into the data of the Volkswagen episode because I think it is relevant to this point.

Jake Jones (JJ): [jokingly] What’s the time?

CL: Yes, we have plenty [of time]!

It illustrates the potential of the entire German brand to be vulnerable to the actions of one company that is very prominent.  We have some polling data from a survey commissioned by the German Embassy. 46% of Americans surveyed said they had lost confidence in the Volkswagen brand, whereas 30% said they had lost confidence in German automobiles in general, 36% said they had not. You can say that is like cup half-full or half-empty. 28% said they had lost confidence in the brand “Made in Germany.” 39% had not. I suppose if I were running a German auto company and concerned about the brand overall, I would think even 1% of the clients is worrisome. So, the Volkswagen matter is their business, and it is a litigation. So let’s talk about the challenge that posed.

JJ: I would be lying to you if I didn’t say that the industry has taken recent reputation hits, from which we need to recover as a whole, including German brands.  This current matter is sometimes described as a diesel issue as opposed to just a Volkswagen issue.  As a result, all of us in the diesel segment have had to respond; not necessarily to reprove the viability and importance of the technology, but at least to reassure customers and governments.

Yes, there is some concern about the implications, but it is less about the market dropping in the near-term than potential broader ramifications. Our CEO said it best. He was asked the question about whether he was surprised that this whole issue occurred.  His response was: “We live in such a regulated world with vehicles that you are not surprised when somebody meets the standards - you expect everybody to meet them. You are surprised when somebody doesn’t.”  It was a bit of shock and surprise for all of us. I personally do not believe this has a lasting impact on German brands or our industry. Yes, it is a particular problem now and we all have been very mindful about it.  However, US Secretary of Commerce Penny Pritzker recently said she thinks, “When companies make mistakes they need to step up, take responsibility, and try to rectify it, and Volkswagen is doing that.” I thought that was a very honest, fair, and important statement to come from the US government. Our industry has to deal with this matter and others but not lose focus on the future.  What does transportation look like in 2030 or 2050? Those are the challenges that are going to decide whether you are ultimately a winner or loser.

Thomas Zielke (TZ): It is certainly hard to comment on this. Neither of us is a spokesperson of VW. Of course, we have been in touch with them before. Their lawyers strongly recommended to be quiet until the problem has been solved. But of course, we know how they must feel in this difficult situation, and we know about the thinking of our organizations. It is quite clear and we have repeatedly stated that there is no business opportunity that can be based on the breach of legal or ethical rules. That is quite clear. We have stated from the beginning that this has to be solved thoroughly and quickly in order to restore the reputation of the brand and in order to restore the reputation of the brand of Made in Germany as well. It is not an official brand. It has developed itself from somewhere. Nobody is forced to use it and in some cases it is not helpful at all.

But having said that, it is quite clear that this technological problem came up in the US because of high environmental standards that you enjoy here and because of procedures that make it clearly impossible to cross lines. You will be held accountable for that. You can use this argument to illustrate that US standards are not as low as some people claim right now in the context of the ongoing TTIP negotiations – an issue where people in Germany are in particular very critical. You could consider this argument if you were not in an industry federation.

The car market in the US is around 12.5 million cars each year, in China 21 million cars, Germany around 3 million cars. In the US, the market share of diesel is around 3% of the passenger cars, [whereas] in Germany it is 47%. So you can imagine how outraged people over there must be about this brand that everyone thought was the best example of a solid company building solid stuff. It has now disappointed consumers in this way. The question to be asked is: Where is the damage? There is an environmental damage, there is deteriorating reputation and there is expectation management to be done. It turns out that in the relationship between environmental conditions and technical requirements, it becomes more and more difficult to fulfill the environmental standards and match them with respect to what the consumer actually expects. Many consumers today expect a low-consuming, fast and dynamic car with zero emissions. That’s of course not possible to achieve. From the technical point of view, an electrical car could solve this problem at some point. In the US, we have around 400,000 electrical cars running out of the 12.5 million I mentioned. In China we have around 200,000 electrical cars; in Germany it is 55,000.  So, right now the problem cannot be solved through electrical cars. And the question remains in terms of sustainability: What is the source of electrical power, and what kind of batteries do you use? We have to have a discussion about the expectation level, the technical requirements and the legal umbrella. Of course, the consumer is fully right to have high expectations, but everything comes with a price. If a company tries to meet its own expectation level by illegal means, this result cannot be a solution.

CL: Has either of you noted anything in the sales figures or conversations within industry or customer base or any evidence of a wider impact?

JJ: Do you know such conversations among companies would be an anti-trust violation?

CL: So, go ahead.

JJ: The US market has been going great. You have seen some softening in some other markets of the world for various reasons such as in Russia, Brazil and Argentina. We have seen increased investigations by government entities all around the world. The overall markets themselves have been very good to us. I don’t know whether this changes in the future. There are many factors that could influence markets, [but there is] no clear indication this has been one.

CL: I would have thought that was really painful for Germany. It managed to get two things Germany is very proud of: a) being green, b) being a Rechtsstaat and a place with a lot of integrity. This was cheating secretly that allowed more pollution. Has this showed up in the public reaction? It is almost a compliment to Germany that people are so disappointed in you because it shows what a high standard was expected.

TZ: The third thing we are very proud of is that we are world champions in soccer. But you are right. For a Rechtsstaat, which is based on law and constitution, this matter should be taken very seriously. But it also shows that the legal system works. The company will be held accountable for what they did wrong. The same is true for the US. Here we have a different system of penalties. Here we face class actions that we don’t have in Germany, but of course also in Germany you will be punished if you don’t follow the law. A company will have to bear the consequences, but in the U.S. it certainly will become more expensive. However, this matter proves that the system is working, meaning the legal institutions and the control mechanisms are working. They will lead to a higher motivation to do it right in the future. This is my hope.

As to becoming green: This is again about the question of what a car should be like today. It points to the future. There are people who will say that we actually don’t need cars at all any more, but this depends on the situation we are in. [Over the last few decades], cars have become less-fuel consuming and more fuel efficient than, for example, in the 70’s or 80’s. So there is progress, you get more speed and efficiency and so on. But of course it also depends on your real lifestyle. Who is really behaving that greenly [by] not maintaining a car, not driving a car, but using only public transportation? One can take it from there and ask what kind of public transportation infrastructure such as like a streetcar or metro system? And where does the electric power supply come from? If it comes from coal, you might be better off with a low-consuming and fuel efficient car – or by riding a bus. It all depends on what kind of system and infrastructure environment you are in and it depends on your individual living conditions. Looking ahead, companies should foster the innovation process and come up with new products which fulfill the requirements. Then we will be better off.

CL: I would be remiss if I did not note. It seems all my German friends were very green. The first thing they do when they come to the United States, with its two dollar gasoline, is buy an SUV. I regularly tweak them all about that. What I should start doing is taking pictures of those SUVs and putting them on Facebook back in Germany so that everyone can see.

TZ: I admit, I have one myself.