Emissions Scandal

Report: VW faces more questions in US

Former Volkswagen AG Chief Executive Officer Martin Winterkorn Appears Before German Parliamentary Committe
Looking for answers from former VW chief executive Martin Winterkorn. Source: Bloomberg

A new report suggests that a US court case may once again raise questions over just how much its former chief executive Martin Winterkorn knew about the existence of cheat software that falsified data on diesel engines. The information means that the scandal-ridden carmaker is not yet able to put so-called Dieselgate in its rear view mirror.

The new information relates to the testimony of Oliver Schmidt, a former Volkswagen manager jailed in the US for his role in the scandal. Still on Volkswagen payroll, Mr. Schmidt is the highest-profile VW manager to be put behind bars. And his testimony could deal a deadly blow to more senior VW executives. Mr. Winterkorn resigned as chief executive after Dieselgate scandal broke in September 2015, but he has always insisted he had not been aware that engineers were installing the cheat software on engines.

Volkswagen has always insisted it only learned about the manipulation of emissions data when a testing lab in California noticed a discrepancy in its results, to which the carmaker said it reacted to as quickly as possible to put things right. But German newspaper Bild am Sonntag reported this weekend that Mr. Schmidt is telling US prosecutors that he informed the company about it at least one month before that.

If this is true, it will strengthen the hand of public prosecutors pursuing VW executives on fraud and market manipulation charges. It would also be very useful for tens of thousands of VW investors and customers, currently seeking redress in European courts.

Reports directly contradict VW’s main defense argument: that the scandal only became clear to the company in September 2015.

Mr. Schmidt was arrested in the United States in January by the FBI, after he had flown into the country to celebrate his birthday. His latest depositions are said to claim he warned top VW managers in late August 2015 that prosecution was imminent and the scandal could cost the company $18.5 billion.

He was right: US environmental authorities denounced VW violations in early September of that year, the first move in a scandal which so far cost the company €22.6 billion, or around $25.75 billion.

Other reports said to come from US court documents claim that senior managers were told of the existence of cheat software or defeat devices in 11 million cars, at a meeting on July 27, 2015. The reports say that Mr. Winterkorn and Herbert Diess, current CEO of the core VW brand, were at the meeting. Mr. Diess, at that point newly arrived from BMW, is said to have said that BMW had no such cheat devices.

This report directly contradicts Volkswagen’s main defense: that the nature and dimensions of the scandal only became clear to the company in September 2015. Volkswagen refused to comment on this weekend’s new reports. “We will make no comment on any substantive issues of ongoing court cases,” said a spokesperson.

But the reports will encourage several thousand Volkswagen investors who are suing the company before a court in the German city of Braunschweig, in the closest German law has to a class action suit. They are seeking compensation for several billion euros because of losses they say were caused by the scandal and the company’s handling of it. The new accusations seem certain to be of interest to their legal representatives.

In addition to civil cases from investors and customers, a series of criminal investigations, in both the United States and Germany, are targeting senior Volkswagen managers over several targets including market manipulation, suggesting the company deliberately withheld news of the scandal from investors in order to protect its share price.

Mr. Winterkorn faces ongoing investigations on this charge, as well as on accusations of fraud associated with the manipulation of emissions data. German prosecutors are also investigating Mr. Diess, current chairman Hans Dieter Pötsch and current CEO Matthias Müller. In the United States, six senior executives of Volkswagen USA face federal prosecutions and possible jail terms, including Mr. Schmidt.

Mr. Winterkorn’s lawyers would not comment on the latest reports. The former Volkswagen CEO has denied allegations that he sought to delay the emergence of news about the scandal. Earlier this year, in testimony before a German parliamentary inquiry, he refused to give details on when he first learned about the scandal and what that information included.

So far, the company has stood by its senior executives, suggesting the manipulation was solely the work of individual software engineers. But if senior management is successfully implicated in the affair, it could prove expensive for the company, if this were to help the investors’ lawsuits.

The real smoking gun in the case would be evidence that Mr. Winterkorn directly ordered the installation and use of manipulative software. But even in this weekend’s reports, there is no indication of that kind of proof.

The company has stood by its senior executives, suggesting the manipulation was solely the work of individual software engineers

Just what was discussed at the crucial meeting of July 27, 2015, remains unclear. Volkswagen itself commissioned US law firm Jones Day to carry out an internal investigation into the case, including that meeting. The American firm questioned dozens of VW managers involved, but their testimony was contradictory on many points.

The impact of Dieselgate is very far from over, either for Volkswagen or its senior executives: both criminal and civil courts have the potential to deal quite a few more body blows.

This is all the more true for the unfortunate Mr. Schmidt. With a plea deal now impossible, he can only hope that open and honest testimony in court may prompt the judge to be lenient.

 

Stefan Menzel writes about the auto industry focusing on Volkswagen. Volker Votsmeier is an editor with Handelsblatt’s investigative reporting team. To contact the authors: menzel@handelsblatt.com, votsmeier@handelsblatt.com

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