Found this while surfing the net

[Joe Rae <audi-quattro@usa.net>]

found this at a law school web page 
kinda nice reading

The Audi Sales Deceleration 



When 6-year-old Joshua Bradosky opened the garage door for his mother's Audi 5000S in February 1986, the car suddenly accelerated forward, dragging Joshua through the family garage and fatally crushing him against the back wall. Joshua was alleged to be a victim of sudden acceleration syndrome (SAS), or the unintended surging forward or backward of a car when shifting the transmission from the park position to drive or reverse. Although sudden acceleration was reported to occur in many other reputable autos (e.g., Mercedes Benz), Audi bore the claim of the "killer car." Through the end of 1988, the Audi 5000 series had been involved in 1,400 accidents and 320 injuries, and five to seven deaths were attributed to SAS. Although the SAS charges against Audi were eventually proven to be groundless, negative publicity severely damaged the company. 



HISTORY 



Audi is and has been a reputable auto manufacturer, with Volkswagen of America as its corporate parent. Many attributes typically associated with German automobiles are also evident Audi cars. Audi is well known for its advanced design, reliability, and luxury features. Audi asks a premium price for its autos and targets families who are willing to pay for the precision and performance expected from Audi's products. 



The company can be traced back to 1900 when August Horch manufactured the twin-cylinder engine. Horch, a blacksmith by trade, engineered a "nonjerking" engine that outperformed any known single-cylinder model of the time. His later achievements included the production of the first eight-cylinder automobile. 



The invention of frontwheel drive was introduced in 1931 by DKW, a founding company of Audi. In 1932 a group of automotive engineering companies, DKW, Horch, Audi, and Wanderer formed Auto Union AG. The company chose a logo of four linked rings, each symbolizing the Auto Union' heritage. 



The Auto Union continued producing innovative automobiles earning several honors, such as "car of the year" in 1964. In 1969 Audi NSU Union AG was formed. This union was formed primarily to maintain a competitive advantage in Germany and expand worldwide. 



In 1976 Audi began manufacturing the 5000 model. The concept of the five-cylinder engine made the car a unique alternative offering both power and economy. In 1983 Audi introduced aerodynamic styling in its 5000 model. This design won numerous car-of-the year awards in both America and Europe. 





THE SUDDEN ACCELERATION PROBLEM 



>From 1976 to 1982 the Audi 5000 experienced 13 complaints of sudden acceleration. The National Highway Traffic and Safety Administration (NHTSA) had already begun investigation of auto makers such as Mercedes, Datsun, Volvo, and others and had found no conclusive evidence of any mechanical defect. The NHTSA also investigated Audi at this time and approved a voluntary recall for possible floormat interference with the accelerator. 



In September 1983 Audi began another voluntary recall, to install a spacer on top of the brake pedal. This spacer would help reduce confusion between the brake pedal and the accelerator. In the Audi 5000 these pedals were an equal distance from the floor board, whereas in most American cars the brake pedal is farther from the floor board, causing drivers to lift their foot off the accelerator and pull their leg up to be able to place their foot on the brake pedal. 



On February 23, 1986, The New York Times featured an article concerning unintended acceleration in GM, Ford, Toyota, and other vehicles, including Audi [1]. This article caused Alice Weinstein to get in touch with the New York Public Interest Groups. She alleged that two accidents occurring in her Audi 5000 were caused by SAS. This in turn led to an investigation by the New York attorney general [2]. 



On March 19, 1986, a petition by the Center for Auto Safety and the New York attorney general asked the National Highway and Safety Administration to investigate and recall all 1978-1986 Audi 5000 models equipped with automatic transmissions [3]. This petition was the beginning of an investigation that turned out to be a public relations nightmare for Audi. 



Alice Weinstein continued her allegations and founded the Audi Victims Network. The network consisted of approximately 40 members who had all claimed to be victims of unintended acceleration in their 5000s. On May 28, 1986, representatives from Audi met with the network. The result of this meeting and increased media attention on the SAS problem was a third voluntary recall by Audi to further increase the vertical distance between the brake pedal and accelerator. Audi, whose name means "to listen," wanted to communicate that the company was doing all it could to solve the problem [4]. Unfortunately for Audi, network members interpreted this recall as placing the blame for alleged incidents solely on the driver and, as a result, were determined that Audi should take full responsibility. 





In response to the public relations crisis, in June 1986 Audi began the "automatic shift lock" recall. This locking mechanism ensured that the brake pedal would be depressed when shifting out of park and into a gear. Audi spent $25 mil 

lion installing the shift lock device on recalled cars. But the turmoil continued as consumer awareness increased. 



"60 MINUTES@ AND SAS 



On November 23, 1986, "60 Minutes" broadcast a segment reporting on the unintended acceleration problem in Audi 5000 automobiles. Audi had agreed to assist "60 Minutes" in the broadcast, because Audi was genuinely interested in the problem. But the broadcast left viewers with the false impression that Audi was unconcerned, as CBS gave Audi no equal time for rebuttal or explanations. 



The heart-rending segment featured distraught victims such as Mrs. Bradosky, who had seemingly been tagged by Audi as an inexperienced driver. Mrs. Bradosky said, "I got back into the car and put my foot on the brake to put it in drive and the car surged forward and I saw that I was going to hit him. So I put my foot on the brake, but it didn't stop the car." "60 Minutes" failed to report that after the accident the police report stated that Mrs. Bradosky's foot slipped off the brake and onto the accelerator. Also, the brake system was found to be in working condition after the accident. 



The broadcast also featured an expert who caused a car to accelerate by simulating a transmission failure. What "60 Minutes" failed to report was that the experiment was conducted with a modified vehicle. In reality, the expert's experiment was not valid, and his theories were factually incorrect. 



The broadcast spawned complaints from Audi owners of all model years. By the end of 1987 the number of complaints had skyrocketed from the number prior to the airing of the segment, as shown in Exhibit 1. Audi's sales, which had been about 75,000 in 1985, began a downward trend. In 1986 total sales were 60,000 vehicles. By 1988 sales had fallen to just 22,943 [5]. Sales reached their nadir in 1990, when they fell below 20,000 units. Exhibit 2 shows sales information for 1980-1988. 




Exhibit 1
 



Accelerating Complaints 

(Complaints about Sudden Acceleration 

Reported to the National Highway 

Traffic Safety AdministrationC 

Numbers are Approximate
 




First 6 months 
Second 6 months
 


1985 

390 

375
 


1986 

600 

400 
 


1987 

800 

1,800 
 


source: National Highway Traffic Safety Administration. 



Exhibit 2
 



Audi=s Troubled Sales 

(U.S. SalesCNumbers 

Are Approximate)
 


Year 
1980 

1981 

1982 

1983 

1984 

1985 

1986 

1987 

1988
 


Sales 

40,000 

50,000 

45,000 

47,000 

70,000 

74,061 

60,000 

40,000 

22,943
 


source: Ward=s Automotive Reports and The Wall Street Journal, February 2, 1989, p. B1. 






AUDI'S RESPONSE 



Audi made four recalls: one prior to 1983 to check for possible floormat interference, one in September 1983 to install the first spacer, one in May 1986 for the second spacer, and the fourth in June 1986 to install the automatic shift lock. Audi also did extensive testing to determine if there was indeed some mechanical or technical error causing the SAS problem in the Audi 5000 models. The testing found no fault in the engineering and performance of the cars. Therefore, Audi concluded that driver error must have caused the accidents. 



After the "60 Minutes" program in late 1986, Audi kept fairly quiet concerning the issue. Audi did not try to refute the television broadcast. It pulled back its national advertising to reformulate its strategy and let time lapse after the alleged problem of SAS. It began offering a $5,000 rebate to owners of 1987 Audi 5000s in 1987. Owners of the models were having to sell or trade their cars for thousands of dollars less than their true worth. (Interestingly consumers who understood the real story behind the SAS problem were finding terrific buys on quality vehicles.) Audi also produced a videotape explaining sudden acceleration to consumers who were interested. 



With sales still declining dramatically in the spring of 1988, Audi began an aggressive $80 million, one-year effort to rebuild its image and sales [6]. The print ads were entitled "It's Time We Talked." The ad admitted that the lack of vocal response by Audi was perceived as a sign of weakness and an admission of guilt. It went on to state that Audi was waiting for the facts to speak for themselves. Ads appearing in the summer of 1988 featured titles such as "Audi Today: Designed for Safety." These ads gave toll-free numbers to assist consumers with any problems they encountered. 





AUDI'S FUTURE 



In January 1988 Richard L. Mugg became the chief executive officer of Audi. Mr. Mugg said that he was counting on the introduction of two new models in the 1989 model year, as well as some customer coddling, to restore the Audi image. The two new models were the Audi 100 and 200. They replaced the Audi 5000 and 5000CS [7]. These cars have been tagged Amake-or-break" cars for Audi. Some experts felt that these cars may never reach their peak, due to the fact that exchange-rate-induced price increases were trimming sales of most European-made cars in the American market. In addition, Japanese automakers were beginning to crowd the sporty, luxury car market segment. Honda had the successful introduction of the Acura line, while Toyota and Nissan were preparing to introduce two new models in 1989. 





CONCLUSION 



The Audi 5000 models have been implicated in 1,400 accidents. These accidents have resulted in approximately 320 injuries and from five to seven fatalities [8]. Although SAS occurs in many other reputable autos, Audi has been tagged the "killer car." The reputation of Audi as a distinguished company known for its engineering expertise has been damaged by allegations resulting from these SAS incidents. After 1986 Audi's sales plummeted, and its North America operations were plunged into Ared ink@ because of the same SAS allegations. In 1985 Audi sold a record 74,061 cars in the United States. In 1988 sales fell to 22,943. Audi hoped that the unveiling of its two new models in 1989 might dispel the negative connotations of the Audi 5000. In addition, the company was becoming heavily involved in sports car races and racking up numerous wins. 



In March 1989 Audi at last received some good news when the results of a study performed by the National Highway Traffic Safety Administration were released. The study supported conclusions of research performed in Japan and Canada. Driver fault, not mechanical problems, caused sudden acceleration. While not ending the controversy, the findings may help limit the damage of numerous liability claims. In fact, the company began to consider filing a lawsuit against A60 minutes@ [9]. 





Thanks go to Amy C. James for developing this case. 



QUESTIONS 



1. What implications for managerial strategy at Audi can be drawn from an understanding of the communications model? 



2. For a manager at Audi, what factors would be important to increase customer postacquisition satisfaction? 

3. What do concepts from the study of exchange processes say about Audi's SAS problems? 



4. What could Audi have done in early 1986 to stem the negative publicity? 



5. What factors motivated consumers to respond so negatively to Audi? Why didn't other auto companies experiencing SAS have such negative publicity? 



6. Construct a managerial applications table and discuss its implications for Audi 





REFERENCES 



1. J. Tomerlin, "Solved: The Riddle of Unintended Acceleration," Road and Track, February 1988, pp. 52-59. 



2. Ibid. 



3. Geoff Sundstrom, "NHTSA Steps Up Probe of Audi Sudden Acceleration," Automotive News, August 18, 1986, p. 4. 



4. Tomerlin, "Solved." 



5. Bradley Stertz, "U.S. Study Blames Drivers for Sudden Acceleration," The Wall Street Journal, February 2, 1989, p. B1. 



6. Leslie Spencer, "Salem 1692, Revised," Forbes, November 12, 1990. 



7. Jim Treece and John Templeman, "Can Audi Start Winning Races in the Showroom, Too?" Business Week, May 2, 1989, p. 47. 



8. "Is Half a Recall Better Than None?" Consumer Reports, April 1987, p. 193. 



9. Raymond Serafin, "Audi Mulls Suit vs. >60 Minutes,=@ Advertising Age, April 3, 1989, p. 6. 






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