This post is about reputation and its persistence………..especially if it’s a bad reputation. Companies have brands, and so do people. If you don’t think so, stop for a minute and consider the “Bill Cosby” brand. Five years ago, what kind of thoughts came about with that name? Oh, stuff like The Cosby Show, Jello-O Pudding Pops, Fat Albert, comedy, positive family role models, and so forth. How about now? Well, you can figure that out for yourself.
Likewise with the likes of Chipotle Mexican Grill Inc (N:CMG), which used to be the absolute darling of Wall Street until a very, very tiny little problem called e. coli showed up.
Last year, I made a similar point in a Slope Plus post about Volkswagen (DE:VOWG_p), in which I suggested shorting it since its reputation was, in my view, irretrievably harmed by the programming scandal. The stock has certainly been weaker since my post.
In that post, instead of Bill Cosby, I used a different analog:
When I was a little kid, there was the big Tylenol/cyanide public relations nightmare, and in that case, not only was the company in no way responsible, but they did a brilliant job addressing the issue. In spite of this, even decades later, there is still a vague Tylenol=cyanide notion floating out in the mindset of those old enough to remember it (and, incidentally, is the reason why everything under the sun has a safety seal these days, be it medicine, food, or anything else).
I believe the harm Volkswagen has done to its reputation is not going to be reversed with the gift cards they sent out as an apology to owners of their diesel cars. A buyer of a moving vehicle must have absolute trust in the quality and integrity of what they are driving, and frankly, I don’t think Volkswagen is ever going to recover fully from this.
Food for thought (which, in the case of Chipotle, you might refrain from actual consuming).