Board Meets

VW CEO to Plot Way Forward

matthias_mueller_volkswagen_Julian Stratenschulte_dpa
Matthias Müller, VW's chief executive officer, faces a grilling by his supervisors on Wednesday.
  • Why it matters

    Why it matters

    VW needs to convince customers and investors how it can repair manipulated diesel engines and pay for the billions in costs associated with it.

  • Facts

    Facts

    • Volkswagen has admitted to manipulating 11 million diesel cars, which made the cars less polluting during test drives.
    • Volkswagen has rigged emissions testing on another 800,000 cars that concerned carbon dioxide testing, possibly including gasoline engines.
    • The company has so far set aside €6.7 billion in provisions to deal with the scandal and expects the CO2 problem to cost another €2 billion, or $2.2 billion.
  • Audio

    Audio

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Matthias Müller, the 62-year-old chief executive of Volkswagen Group, has been in crisis mode ever since taking the reins from Martin Winterkorn in September. Just days after the German carmaker acknowledged it had manipulated diesel emissions in about 11 million cars worldwide, the former Porsche boss took over from Mr. Winterkorn, who was forced to resign.

Mr. Müller is meeting on Wednesday with VW’s non-executive supervisory board to discuss the future of Europe’s largest carmaker. On Thursday, he will hold a press conference and reveal how he plans to deal with “Dieselgate” and reorganize the group.

The supervisory board, led by chairman Hans Dieter Pötsch, his former chief financial officer, is closely scrutinizing Mr. Müller’s steps.

The chief executive’s position has been significantly weakened by accusations that VW mismanaged the aftermath of the crisis. The biggest examples include revelations last month that some cars with larger diesel engines also contain illegal software – a U-turn from an earlier denial by VW – and suspicions that even some gasoline-powered cars may be affected.

Under German law, the supervisory board, made up of representatives from major shareholders and labor groups, has the power to hire and fire executive board members and sign off on key strategic decisions.

Mr. Müller will be able to take some good news with him to the board. The carmaker on Wednesday said an internal review found none of its cars had been “unlawfully” manipulated to reduce the value of their carbon-dioxide emissions, though a small number of cars did record “slight deviations” between testing and driving.

 

Last month, the carmaker said it may have manipulated the C02 values of up to 800,000 cars, including some gasoline-engine cars. The revelations came on top of the initial Dieselgate scandal that broke in September, where VW admitted it had rigged some 11 million diesel-engine cars worldwide to reduce noxious-gas emissions.

In a statement, VW said an extensive internal review did not confirm its initial suspicions about C02 values: “The suspicion that the fuel consumption figures of current production vehicles had been unlawfully changed was not confirmed,” VW said.

While there may have been no “unlawful change,” the carmaker did admit that nine model variants of VW’s core brand did show smaller deviations. These cars would be remeasured, under the supervision of authorities, by Christmas.

VW did not say exactly how many cars had to be remeasured, but it said that no technical fix – which would be grounds for a recall – would be required for the models in question. It did say that about 36,000 cars of the nine models under scrutiny were produced annually.

VW had initially said it set aside €2 billion to deal with the potential C02 emissions scandal, in addition to €6.7 billion reserved to fix the diesel engines, which had software installed to reduce emissions of noxious gases. On Wednesday it said the €2 billion figure “has not been confirmed,” though the carmaker did say some “minor economic damage” could still be expected from the remeasurements needed.

VW’s shares rose by 4 percent in Frankfurt trading Wednesday.

 

But Mr. Müller also suffered setbacks this week. On Tuesday, a U.S. judicial panel decided to collectively hear more than 500 lawsuits against the carmaker in San Francisco, California, which has among the toughest environment regulations in the United States.

VW had originally pleaded for combining the lawsuits, which demand damages for a drop in value of VW cars or VW shares, in Detroit, where it hoped for a court that might be more favorable towards the auto industry. But the panel ruled that California was the best place to centralize all the lawsuits, because most cases were filed there and California’s Air Resources Board helped in revealing the diesel emissions rigging.

wolfgang porsche_Julian_Stratenschulte_dpa
Wolfgang Porsche is German-Austrian and part of the Porsche family dynasty. He is a shareholder and chairman of the Supervisory Board of Porsche. Source: DPA/Julian Stratenschulte

 

Amidst all the negative headlines, VW has also reported a few other positive notes. Audi, VW’s luxury car maker, on Tuesday said it expects a simple technical fix should be enough to make the engines of its luxury diesel cars comply with environment regulations. In addition to VW models, some Audi, Porsche and Skoda cars also contained manipulated engines.

Porsche also has yet to record a major impact from the scandal. The sports carmaker owned by VW sold more than 200,000 cars within a year for the first time in its history. In the first eleven months of this year, the Stuttgart-based firm delivered 209,894 sport cars to customers, up 24 percent compared to the same period in 2014. China and Europe recorded the biggest growth rates, with 34 and 30 percent respectively, Porsche said.

By contrast, the core brand VW has seen a much bigger drop in sales in the aftermath of the scandal, reporting sales declines of a quarter in November in the United States and 20 percent in Britain.

Porsche has been a big contributor to VW’s profits, although its sales numbers only account for a small part of an estimated total of 10 million Volkswagen Group cars sold this year. It will probably not be enough to offset the expenses VW will have to make to repair the cars, pay fines and settle the hundreds of lawsuits.

VW is estimated to need dozens of billions of euros to pay all these expenses, and more cost cuts are expected. The group could cut back on trade fair spending or stop sponsoring the German Soccer Trophy tournament. VW has already decided to cut investments by €1 billion next year.

Pressure will also mount on the new head of the core VW brand, Herbert Diess. The former BMW executive started in his job on July 1 and needs to make the core brand more profitable. Volkswagen sales, from the Up to the Golf, and the Passat to the Phaeton, earn only 2.5 percent profit margin before taxation, compared with 6.3 percent for the whole group and 9.6 percent at Toyota, the world’s largest carmaker.

VW is also expected to announce more details on how repair the cars which have rigged diesel engines. It has announced measures to fix cars in Europe, but it is still unclear how VW will repair about 500,000 cars in the United States.

Volkswagen could also announce more changes in its top management. High-ranking managers, including development chiefs at VW and Audi, have already left the firm and some positions are still vacant.

Finally, VW could shed more light on who is responsible for the diesel emission scandal and who knew about it. Attorneys from Jones Day are leading an internal investigation and public prosecutors in the United States and Germany are probing VW and Audi.

 

This article first appeared on WirtschaftsWoche’s website, a sister business publication of Handelsblatt. Gilbert Kreijger, an editor with Handelsblatt Global Edition, contributed to this article. To contact the author: sebastian.schaal@wiwo.de

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