Handelsblatt exclusive

Dieselgate’s Roots Stretch Back to Audi

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Investigators into Dieselgate are steering their search towards what happened at Audi.
  • Why it matters

    Why it matters

    VW’s internal probe into Dieselgate is nearing completion and may finally reveal whether the number of people involved in the scandal was really as limited as the management is insisting.

  • Facts

    Facts

    • Handelsblatt has learned that VW’s emissions-cheating software was first devised at its luxury unit Audi back in 1999 — but never used by Audi.
    • VW engineers resorted to the software years later, in 2005, while developing the infamous EA 189 diesel engine designed to cheat emissions tests.
    • The report by law firm Jones Day, hired by VW’s supervisory board to investigate the scandal, is due to be submitted to the U.S. authorities in the coming days.
  • Audio

    Audio

  • Pdf

Until now, VW’s version of events on the diesel scandal has been clear: the core brand alone was responsible. The subsidiaries, and the luxury units Audi and Porsche in particular, had nothing to do with the systematic manipulation of diesel engines.

That’s not entirely the case. It’s true that engineers at VW’s main plant in Wolfsburg initiated the fraud. Handelsblatt has learned from company and industry sources that the manipulation originated not at VW but at Audi. The offending software was devised at Audi’s plant in Ingolstadt, in southern Germany.

“Dieselgate” could have ended quietly in 1999. But the plans were revived in Wolfsburg in 2005 when VW set about developing a new diesel engine.

As far back as 1999, engine developers in Ingolstadt were thinking about how to meet increasingly tight emission limits, said company sources. The plans included the use of illegal software.

Sources said that’s also been discovered by investigators at U.S. law firm Jones Day, which is probing the fraud on behalf of VW’s supervisory board. Their final report is expected in the coming weeks.

Both VW and Audi declined to comment on this story.

According to information obtained by Handelsblatt, Audi’s engineers doubted back in 1999 that their engines would be able to meet tougher European rules limiting emissions of nitrogen oxide to 0.5 grams per kilometer from 2001. The U.S. laws on emissions weren’t tightened until 3 years later.

Audi’s experts devised a software for emissions tests that could switch off certain functions. The software was internally referred to as “acoustic mode“ and “acoustic function,” said sources close to the investigators.

But the illegal plan was never implemented at Audi. It wasn’t until years later that the software attracted new interest — in Wolfsburg, home to VW.

In 2005, when VW engineers working on the infamous EA 189 engine failed to reduce the emissions of nitrogen oxide below the legal limit, they began installing the manipulation software devised by engineers at Audi. This software recognizes when a vehicle is on the test stand and reduces emissions. VW’s developers even adopted the terms coined by Audi, “acoustic mode” and “acoustic function,” the internal investigators found out.

It’s still unclear how exactly the VW engineers found out about the earlier plans at Audi. Several Audi developers switched to VW during the period in question.

The Jones Day report is expected to reveal who was ultimately responsible for the debacle. It’s possible that VW might have to revise its version of events in the diesel scandal.

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Did the Dieselgate idea spring from Audi? Source: Handelsblatt [M]
According to information from company and industry sources, the engineers at Audi who devised the software back in 1999 had adjusted the engine control system to reduce noise levels. “That was good for the comfort of drivers,” said one company insider. The disadvantage, the insider added, was that the nitrogen oxide emissions increased as a result. To ensure that the cars stayed below the tougher emissions limits, the engineers thought of switching off the function during testing.

Informed sources said these plans were abandoned. They remained ideas — one of the reasons being that it would have been illegal to carry them out.

“Dieselgate” could have ended quietly in 1999. But the plans were revived in Wolfsburg in 2005 when VW set about developing a new diesel engine, the EA189. The head of the core VW brand at the time was Wolfgang Bernhard. To press ahead with the project, he poached an engineer from Audi and tasked him with the engine development. Mr. Bernhard left the company in 2007 and has denied all knowledge of the diesel scandal.

To understand how “Dieselgate” happened, one has to delve deep into the inner workings of the VW group. Each of its subsidiaries conducts engine research, but the core brand VW and Audi play the central role in engine development.

In 1999 and the following years, Audi led the way in innovations within the VW group. Audi was the first in the group to switch to the so-called common-rail-system which improves the combustion process and reduces soot emissions. But emissions of nitrogen oxide can increase.

The VW brand followed Audi’s lead and developed the EA 189. The engineers in Wolfsburg dipped into Audi’s toolbox while developing the engine and also took over a software developed by auto components supplier Bosch.

In 1999, Audi’s people were still able to stick to the emissions limits by legal means but VW’s engineers hit their own limits while developing the EA 189.

By that time the U.S. had tightened its environmental laws, imposing a limit of 0.04 grams on nitrogen emissions per kilometer.

Evidently, VW was only able to get below that limit by resorting to fraud. In up to 11 million vehicles of the brands VW, Audi, Skoda and Seat, the engines were adjusted in a way that allowed them to meet the requirements under test conditions.

But in normal driving conditions, the poisonous emissions increased sharply. The fraud was uncovered last September by the U.S. Environmental Protection Agency (EPA) and the California Air Resources Board (CARB).

Ever since then, the big question has been who started the fraud and who ordered it. Matthias Müller, installed as VW chief executive to replace Martin Winterkorn who resigned days after the scandal came to light, quickly declared that only a few dozen engine developers were involved. So far, it’s a mystery who in the management of VW was involved.

The report by Jones Day is due to be submitted to the U.S. authorities in the coming days. It’s unclear when customers of VW investors will be informed. The internal investigators conducted hundreds of interviews with engineers and managers and trawled through thousands of emails and documents.

In that mountain of data, they came across something strange at Audi, said sources close to Jones Day. Documents contained the terms “acoustic mode” and “acoustic function” which referred to the settings with which the noise of the diesel engine was reduced. That sent alarm bells ringing at Jones Day because those were the terms with which developers at sister brand VW internally referred to the illegal switch-off function that enabled cars to recognize if they were being driven on the test stand. The nitrogen oxide emissions were then throttled to below their legal limit.

The words “acoustic mode” and “acoustic function” appeared in relation to a 6-cylinder engine that was built into Audi cars in 2004 and 2008, informed sources said. Jones Day passed this information on to the state prosecutor’s office in the northern city of Braunschweig which is investigating VW.

Last December, the investigators asked the Federal Motor Transport Authority to take a close look at the V6 TDI engine. But the authority left it up to Audi to test its own vehicles. Audi’s tests showed up nothing conspicuous, said informed sources. The authority did not conduct its own tests, according to information obtained by Handelsblatt. It declined repeated quests for comment.

The Jones Day investigators scoured Audi’s ranks for people who may have been involved in Dieselgate. They didn’t find anything incriminating, the sources said.

Audi may have been the source of what turned into the fraudulent software, but it’s off the hook in judicial terms because it didn’t use it.

Audi may have been the source of what turned into the fraudulent software, but it’s off the hook in judicial terms because it didn’t use it. But Audi is being investigated for a diesel engine used between 2009 and 2015 where engineers used software to interfere with the exhaust treatment in a way that U.S. environmental authorities initially regarded as fraud. The authorities have yet to reach their final decision on that matter though.

Meanwhile, VW must on Thursday present a U.S. court with a comprehensive plan for fixing the roughly 580,000 vehicles caught up in the cheating scandal in the U.S.

It’s been a complex process because VW has been negotiating with two different groups to reach out-of-court settlements: with the Department of Justice, the EPA, CARB and the Federal Trade Commission (FTC) on the one hand and with the almost 600,000 affected VW drivers on the other.

According to information obtained by Handelsblatt, the most likely outcome is a partial success, but no definitive decision has been taken yet. In recent weeks, VW has devoted most of its efforts to negotiating a solution with the Department of Justice and the other authorities, said insiders.

VW may reach a deal with the authorities Thursday on the size of the penalties and explain in detail how the affected cars are to be repaired.

That would amount to the major part of the penalties due and could be enough for VW to present its annual 2015 by the end of April as required.

As the internal investigations haven’t been completed yet, the Department of Justice may insist on a caveat: VW would initially pay a certain sum in penalties, but if it becomes clear in the coming months that far more people were involved in the fraud than assumed, the penalties may be increased.

A settlement with the car owners could be postponed again. It’s up to U.S. District Judge Charles Breyer to decide how much more time to give the parties.

But he made clear in the last hearing in March that he wants to conclude the case as soon as possible. The talks with the consortium of lawyers representing drivers are focusing on financial compensation.

VW in December hired prominent U.S. lawyer Ken Feinberg to set up a compensation fund. Mr. Breyer demanded that the fund should become part of the overall solution.

One insider said it was still unclear what shape the compensation will take.

 

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Handelsblatt’s Martin Murphy writes about the auto industry. To contact the author: murphy@handelsblatt.com

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