Fordham’s Komarova: Fiat Chrysler must restore trust after fine
Faculty | Jul 30, 2015 | Gabelli School of Business
Fiat Chrysler agreed this week to a historic $105 million fine and admitted violating federal rules for automobile recalls, signaling a U.S. government crackdown on car companies’ recall efforts.
But how does this affect Fiat Chrysler’s business? The manufacturer had been riding high, which had been quickly growing its market.
We turned to Yuliya Komarova, an assistant professor of marketing at Fordham University’s Gabelli School of Business, for a look at how the fine and Fiat Chrysler’s response could affect the company’s marketing and brand.
Her take: Fiat Chrysler has some work to do in rebuilding trust.
Her responses below have been edited only for style.
1) The fine that Fiat Chrysler has to pay – up to $105 million – is historically steep. What kind of impact will the size of the penalty and the admissions of safety violations have on the brand?
The escalation of the fine to unprecedented level seems like a clear signal being sent not to just Fiat Chrysler, but to the car manufacturing industry as a whole. After all, 2014 was the worst time with respect to recalls in the history of car manufacturing (more than 56 million vehicles recalled). Brand scandals such as this one quickly gain publicity and most certainly hurt the brand’s bottom line for some time. However, doing the right thing from the start certainly helps brands recover quicker, which unfortunately, does not seem to be the case with Fiat Chrysler, whose recall-handling efforts have been mediocre at best.
2) What does Fiat Chrysler, beyond what is contained in the enforcement action, have to do to mitigate the resulting publicity?
From the consumer-perception standpoint, clear, open and honest communication is key. Many consumers love their cars and even humanize them, so efforts must be made to reconnect and to rebuild the trust that most certainly has been damaged. A sincere concern, reflected in actions, for consumer life and safety over minimizing operational costs and the bottom line must be apparent always, but particularly in the times like these.
3) Let’s switch to brand loyalty for a minute. Could this type of news cause those who wouldn’t think of buying anything but a Chrysler or a Jeep to change their minds?
It is fairly hard to tell at this point. The truly loyal customers may act in two very different ways: They may forgive their beloved brand and even justify the brand’s infractions, much like we forgive our loved ones, or they may really lose trust in the brand, in which case they may no longer be attainable for Fiat Chrysler. Most likely, there will be some of both.
4) Was the decision to admit its culpability, pay the fines and consent to monitoring a good first step to restoring trust?
Absolutely, and it would probably be better if done sooner. There are quite a few examples of companies that “came clean” and engaged in extremely costly efforts to eradicate the issues, which have performed very well long term.