Jailhouse blues

Audi CEO to testify to German prosecutors on Dieselgate

I’ve got a song to sing. Source: Reuters

Audi CEO Rupert Stadler is ready to sing for Munich prosecutors. The question is what story his song will tell.

Uneasy investors, worried that Mr. Stadler’s testimony would further implicate VW top management in the emissions-cheating scandal, sold off stock of parent Volkswagen on Tuesday, trimming 2 percent off the price. A spokesman for the prosecutor’s office confirmed that Mr. Stadler was “ready to talk” sometime this week.

The Audi executive, who also sits on the VW executive board, was arrested at his home Monday and denied bail for fear he would interfere with the investigation. With the help of a tapped phone, prosecutors said they overheard Mr. Stadler trying to influence witnesses.

German prosecutors can hold prisoners for at least six months without bail and without trial, and even longer if prosecutors can make the case in court. The former director of engine development at Audi, Wolfgang Hatz, has been in “investigative custody” for nine months, even after offering to pay bail of €3 million ($3.5 million), because he refused to give testimony. It may be his example that prompted Mr. Stadler to agree to testify without hesitation.

So long and good luck, Stadler

Audi immediately placed Mr. Stadler on furlough and appointed marketing chief Bram Schot as interim CEO. Despite the fact that Mr. Schot, a Dutch native who joined VW in 2011 and Audi’s executive board last September, is virtually unknown in financial circles, he has a chance of making his interim role a permanent one. But only if he moves quickly and limits damage to the premium brand.

The Audi board is already looking for a permanent successor, but it’s proving a challenge. Porsche’s Oliver Blume was ruled out long ago, Opel’s Karl Thomas Neumann doesn’t have many supporters within the VW Group, and BMW CEO Klaus Frühlich doesn’t want to relocate to Ingolstadt, where Audi is based. The one internal candidate that is regularly mentioned as a replacement hopeful is Luca de Meo, who heads the Seat group in Spain.

Arrested after a raid

Mr. Stadler’s arrest came a week after prosecutors raided his home and disclosed he was a target of their ongoing investigation, joining 19 other current and former Audi executives already in the hot seat.

The 55-year-old has repeatedly denied any knowledge of the cheating prior to its discovery in 2015, when US scientists first noted a discrepancy between the noxious emissions of VW’s diesel vehicles when they were tested and their actual road performance. The latter showed much higher readings of toxic nitrogen dioxide.

Audi was quickly implicated as the primary developer of the group’s diesel engines, but by now the scandal has spread. Other German automakers, including Mercedes-Benz producer Daimler and BMW, are under investigation.

The arrest of the prominent chief executive is by far the most aggressive step taken by German prosecutors. In the US, authorities have fined VW a total of $25 billion and indicted former CEO Martin Winterkorn on charges of fraud, making German law enforcement officials look lax.

Tough prosecutors

Last week, prosecutors in Braunschweig, who have jurisdiction over VW’s corporate headquarters in Wolfsburg, fined the automaker €1 billion in connection with Dieselgate. Some analysts suspect Munich prosecutors may levy equally heavy fines on Audi.

Dominik Kieniger, the senior prosecutor who heads the Audi probe, has proven a tough and unrelenting investigator. Another Audi engineer, Giovanni Pamio, who unlike his colleague Mr. Hatz, was set free after a shorter time in custody when he agreed to testify. Mr. Pamio’s testimony over VW group’s diesel practices runs 16 pages, according to insider sources.

Mr. Kieniger even went so far as to raid the offices of Audi’s outside counsel, Jones Day, to search for an internal report on the scandal that had disappeared – a seizure of evidence that is being litigated before Germany’s highest court. “Kieninger’s interrogations are very comprehensive,” said one lawyer. “He won’t let up; wants to know everything exactly.”

Several Handelsblatt reporters contributed to this article. Darrell Delamaide is a writer and editor for Handelsblatt Global in Washington, DC. To contact the author: d.delamaide@extern.handelsblatt.com

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