The Audi 5000: The Aftermath of Sudden Acceleration

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The Audi 5000: The Aftermath
of Sudden Acceleration

In July 1989, Audi of America published multiple advertisements in business publications, newspapers, and journals across the United States declaring the “case closed” on the issue of sudden acceleration that had severely hampered its sales, stock values, and public relations during the preceding three years.

Company Background

Audi AG traces its history to 1909 when August Horch left his own company, A. Horch & Cie, to form a new firm called August Horch Automobilwerke GmbH. By 1914, the plant, in Ingolstadt, Germany, was manufacturing a range of models. In 1925, total production climbed to 1,116 vehicles. From 1912 through 1928, Audi was also involved in the production of military vehicles for the German army.

In 1932, because of the depression, Audi merged with Horch, Zschopauer Maschinenfabrik J. S. Rasmussen (DKW) and the car division of Wanderer Werke to form the Auto Union AG, with Daimler-Benz holding the majority of shares. Total production of the new company quickly rose to approximately 62,100 cars and 63,500 motorcycles.

Another year of transition was 1969, when Volkswagenwerk AG purchased Auto Union’s stock from Daimler-Benz and merged the firm with the Neckarsulmer Strickmaschinenfabrik (NSU). This action brought together a conglomeration of expertise in the manufacturing of bicycles, motorcycles, typewriters, automobiles, aircraft, and submarine parts. The newly formed Audi NSU Auto Union AG experienced an explosive rate of expansion throughout the 1970s.*

Throughout the history of the company, Audi cars were known for their performance, durability, and quality. Awards won by Audi cars include the U.S. Sports Car Club of America PRO Rally Manufacturers’ Championship and the championships in the Pikes Peak Hill Climb.

Entry in the United States

Auto Union GmbH had exported to the United States as early as 1940. From 1949 through 1960, Auto Union exported to the United States a total of 5,801 vehicles. Exports climbed slowly, and by the end of 1970, the newly formed Audi sold just under 7,770 cars through 138 dealers in the United States. A wholly owned subsidiary, Audi of America Inc. was established on September 1, 1985, and assumed from the American subsidiary of Volkswagen AG the functions of sales, service, advertising. merchandising, and public relations for Audi operations. By 1985, Audi of America’s sales reached 74,061, capturing over 35 percent of Volkswagen of America’s total sales in the United States. Vice President Peter Fischer of Audi of America estimated in 1985 that Audi’s “5000 series will be the ‘backbone’ of Audi’s lineup and will represent 64 percent of Audi’s U.S. sales in 1986.”

Adverse Media Coverage

In March 1986, the Center for Auto Safety submitted a petition to Audi of America, requesting the recall of all 1978 through 1986 Audi 5000 models because of repeated cases of dangerous malfunction. At the beginning of November 1986, New York’s attorney general Robert Abrams publicly asked Audi of America to stop selling Audi 5000 automobiles with automatic transmissions. Both parties claimed that hundreds of accidents had been caused by the improper acceleration of Audi 5000s. Then, on the evening of November 23, 1986, CBS broadcast a 60 Minutes episode with the Audi 5000 featured as one of its segments.

During this broadcast, Audi was accused before 65 million viewers of manufacturing and distributing the Audi 5000 series without warning the public of the possible danger of a phenomenon known as “sudden acceleration.” Sudden acceleration was hypothesized to occur when “the driver starts the engine and moves the shift lever from ‘park’ into reverse or drive. The car [at times suddenly] hurtles forward or backward at great speed, with the driver unable to stop.”

During the segment, CBS interviewed several drivers who claimed to have experienced the problem of unintended sudden acceleration. One man claimed he suffered shin splints because he pressed his foot too hard on the brake pedal. Another witness broke the car seat while fighting to brake her uncontrollable Audi. The most dramatic account of all came from Mrs. Brodosky, whose car killed her own son when it suddenly accelerated and pinned his body against the wall. These interviews quickly placed Audi on the defensive because the drivers were seen as helpless victims while operating a luxury automobile promised by Audi to be reliable and safe.

The 60 Minutes broadcast included professional input from an automotive engineer and a representative of the American Standards Testing Bureau, who speculated on the cause of sudden acceleration. These professional opinions were both the same: “The idle stabilizer which keeps gas flowing to the engine may be fooled into sending too much. This transient malfunction would totally bypass the accelerator system, leaving the driver helpless, and would not leave any internal engine damage.” To test this hypothesis, CBS had an engineer demonstrate how sudden acceleration could occur. The demonstrating driver shifted into drive with no foot on the brake or the accelerator pedals, and the car lurched forward.

Audi’s Response

Following the CBS broadcast, Audi AG and Volkswagen of America denied the allegations, stating that sudden acceleration results from the negligence of the drivers. Through letters to Audi dealers and owners, both Audi and Volkswagen attempted “not only to counteract the (60 Minutes) report, but really more to educate (consumers) as to the issue and assure them [they] are building safe cars.” Audi, in addition, spent over $1 million in December 1986 placing ads in The Wall Street Journal, USA Today, and over 100 newspapers in 33 major cities, highlighting the fact that other manufacturers such as Nissan, Mercedes-Benz, and Volvo had received similar complaints.

By January 1987, Audi was forced to take more decisive action and recalled 25,000 of the 5000 series to install an idle stabilizer that required the driver to place a foot on the brake pedal before shifting gears. Further, Audi publicly denounced the CBS 60 Minutes news team for news manipulation. In their opinion, CBS was unethical in not revealing to the public that the engineer interviewed on the program had to “dismantle three internal pressure relief valves, drill a hole into the transmission housing, and introduce artificial pressure from outside, pressure far greater than could ever occur in normal operation of the vehicle” in order to accelerate without pressing on the gas pedal. Audi executives believed that had this been revealed, the impact of the CBS theory would have been lessened.

The Market Response

Within a year and a half following the CBS broadcast, Audi was beset with huge financial losses and faced hundreds of court cases from its customers and dealers.

Table 1

Audi sales in the United States, 1985–1988

Percent of Sales Loss in Sales
Year Number of Sales Total Import Sales since 1985

1985 74,061 2.61 —

1986 59,797 1.84 19.3%

1987 41,322 1.31 44.2

1988 22,943 0.75 69.0
In the four-year period from 1985 to 1988, the company’s sales dropped from 74,061 to 22,943, as shown in Table 1. According to Audi AG Chairman Ferdinand Piech, the impact of falling sales resulted in a loss of $120 million in 1987 alone. In addition, Volkswagen’s stocks, which closed on July 30, 1986, at 454.0, plummeted to a low of 248.5 by the close of July 29, 1988. A loss of public faith and interest is reflected in decreasing resale values of Audi 5000s in comparison to the Volvo 740 GLE and the BMW 325i 6, as highlighted in Table 2.

Along with the financial losses, Audi of America and Volkswagen of America faced court suits for injuries suffered due to sudden acceleration and the loss of resale car value. For example, in the case of Paul Perona et al. v. Audi AG et al., the plaintiffs list the following points of redress:1

• Breach of implied warranty of merchantability under the Uniform Commercial Code

• Violation of Consumer Fraud and Deceptive Trade Business Practice Act

• Breach of express warranties under the Uniform Commercial Code

• Breach of implied covenant of good faith and fair dealing

• Willful and wanton violation of Consumer Fraud and Deceptive Trade Business Practice Act

• Breach of contract

In addition, many owners filed independent suits against Audi and Volkswagen. By 1988, court fees alone were estimated to have cost Audi over $10 million. More than $4.6 million in payments have been awarded to injured parties throughout the United States, but Audi and Volkswagen continue to face a multitude of unsettled individual lawsuits involving sudden acceleration.

Audi’s Repositioning

With increasingly declining sales and bulging inventories, Audi once again was forced to take drastic action. In the spring of 1988, the firm began to offer $4,000 rebates to previous Audi owners toward the purchase of a new Audi 5000 model. In addition, to control costs, Audi of America reduced its work force by several hundred in response to the shutdown of an Audi assembly plant in Westmoreland, Pennsylvania. Concurrently, Audi’s parent company, Volkswagen of America, executed four major shake-ups in Audi’s top management.

Table 2

New versus used car prices, 1985–1988

1985 1986 1987 1988

New Prices

Audi 5000 $18,160 $19,575 $20,460 $22,850

BMW 325i 6 21,105 20,455 22,850 25,150

Volvo 740 GLE 18,585 18,980 20,610 21,850

Used Car Wholesale Prices in 1989

Audi 5000 $5,400 $7,650 $11,175 $14,550

BMW 325i 6 11,300 10,300 16,600 24,500

Volvo 740 GLE 10,325 11,000 13,100 15,850

Source: Official Used Car Guide (McLean, VA: National Auto Dealers Association, 1989).

Note: Figures effective for four-door sedans with automatic transmission.

Audi continued to run full one- and two-page advertisements directly addressing the issue of sudden acceleration. According to Automotive News, “ads captioned, ‘It’s Time We Talked’ . . . suggest that Audi erred at first when it decided to let the facts speak for themselves.”2 In February 1989, Audi kicked off the advertising year with the theme “The Alternate Route.” Promotions during the year highlighted Audi’s longer warranties and four-wheel-drive system as standard features in its newest lines. The new marketing approach was budgeted by Audi of America at approximately $60 million, almost twice the amount of previous years’ promotional budgets.

In 1989, Audi discontinued the 5000 models and introduced a new 100/200 line to divorce itself from the issues that plagued the 5000 series. The new line represents “a major step in Audi’s recovery program, as it refines, upgrades, and improves on the original 5000 series.” With a better-built car and longer servicing warranties, Audi hopes its faithful clientele—as well as its own management—will encounter fewer complications and amend their relationship. To entice previous 5000 owners to accept their new offer, Audi provided a resale guarantee, limited to the first through fourth years of ownership, that would pay the customer the entire difference in retail trade-in values between the Audi 5000 and the comparable 260 E Mercedes-Benz, Volvo 740, and BMW 525.

Case Closed

A March 1989 National Highway Traffic Safety Administration study concluded that sudden acceleration may occur on a number of automobiles for a variety of reasons: “close lateral pedal placements, similarity of pedal force displacement, pedal travel and vertical offset, and vehicle acceleration capability that allows an error to occur before a driver has time to take corrective action.” The study also explicitly stated that changes to the pedal design and placement in future models would only reduce the number of occurrences and not eliminate them altogether.

In the following years, Audi continued to conduct major promotional campaigns. Even though major emphasis rested on the technology advantages of Audi, rebates still played a major role. In addition, a new three-year, no-worry policy was offered to Audi buyers: The purchase price included all scheduled maintenance down to the windshield wipers. Maintaining an Audi therefore only costs you the oil and gas needed to drive. Table 3 shows how sales developed over these years.

Table 3

Audi sales in the United States, 1989–1992

Year Number of Sales Percentage of Imports Loss in Sales since 1998

1989 21,283 .77 7.2%

1990 21,106 .86 8.0%

1991 12,283 .58 46.5%

1992 14,756 .74 35.7%

Source: “1993 Market Databook,” Automotive News, May 26, 1993, 28.

Table 4

Used car prices in 1993 (average trade-in, U.S. $)

1989 1990 1991 1992 1993

Audi 100 7,125 10,225 13,200 17,900 20,700

BMW 325i 10,475 13,225 16,550 20,775 24,050

Volvo 740 GLE 10,350 12,425 15,925 17,950 18,500**

Source: Official Used Car Guide (McLean, VA: National Auto Dealers Association, 1994).

*940 model

In spite of the major drop in sales, used car prices showed a gradual strengthening for the Audi. Table 4 shows these prices in comparison to similar models of BMW and Volvo.

*Source: This case was written by Michael R. Czinkota and Bao-Nga Tran based on public sources such as Automotive News and Automotive Litigation Reporter, the videotape “Unintended Acceleration: The Myth and the Reality,” Audi of America, Troy, Michigan, 1989; History of Progress 1988, Audi AG, Ingolstadt, West Germany, 1988; interviews with executives of Audi of America and Volkswagen of America.

1 American Litigation Reporter, April 7, 1987, 8, 449–457.

2 David Versical, “Audi Reports U.S. Loss, Beefs Up Ad Campaign,” Automotive News, April 4, 1988, 3.

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