toxic past?

How Dieselgate could topple VW’s new boss Herbert Diess

main 0201835022 Bloomberg – VW Volkswagen Herbert Diess CEO Jan 2016 then head of VW brand car auto vehicle Dieselgate emissions Consumer Electronics Show
Addressing VW's long, dark night of the soul. Source: Bloomberg

Herbert Diess has worked for two of the world’s leading automakers — BMW and VW — but it was building a model airplane with his sons that opened his eyes to the possibilities of electric cars. Their challenge was to find a battery powerful enough to keep the plane in the air for any length of time, yet light enough to let it take off.

The solution they discovered was a lithium-ion battery. “I thought to myself,” Mr. Diess recalls, “if these batteries are so light and strong that they can power (model) airplanes, then they can certainly power a car.”

That was a decade ago, when Mr. Diess was a BMW executive. There, as head of development, he was credited with establishing the BMW i electric car brand. In July 2015, he moved to VW to lead the company’s passenger brand. Then last week, out of the blue, he became CEO. His to-do list at the world’s biggest carmaker: Put the diesel emissions scandal behind the group, lift profitability and race into the electric age.

Mr. Diess’ predecessor, Matthias Müller, was forced to resign after VW’s controlling shareholders, the Porsche und Piëch families and the state of Lower Saxony, lost patience with his handling of Dieselgate. Mr. Müller’s public gaffes include the time he called the manipulation a “technical problem,” and at times he gave people the cold shoulder, or appeared frustrated about managing a carmaker in crisis.

Mr. Diess is not home-free as investigators continue their probe into diesel emissions cheating and fraud.

By comparison, the 59-year-old engineer Diess oozes charm, at ease when he’s on the factory floor, or in the boardroom, or before a camera. After a landmark ruling allowing diesel car bans in German cities, he didn’t shy away from appearing on a prime-time talk show, arguing calmly and persistently against bans and hardware refits of old diesel cars. He emphasized that nitrogen oxide emissions, mainly produced by diesel cars, were still too high and caused respiratory diseases, and that VW was trying to reduce toxic gases.

With his track record of cutting costs and launching electric cars at BMW, Mr. Diess is viewed by VW shareholders as the ideal boss to turn the Wolfsburg-based company into a mass producer of electric cars. The group, which also produces Audi, Porsche and Lamborghini cars as well as MAN and Scania trucks, has targeted sales of 3 million electric models by 2025 and investments of more than €20 billion in electric cars by the end of 2022.

Nor should Mr. Diess be worried about being linked to VW’s emissions cheating, which affects 11 million cars globally and has cost the company €25 billion so far, because the diesel rigging dates back to 2006. Shareholders can breath a sigh of relief, though there is still reason for them to be concerned: In July 2015, shortly after his arrival at VW, Mr. Diess attended a management meeting where the emissions fiasco may have been discussed. At issue is whether  executives at this meeting should have acted sooner to disclose the emissions fraud to with investors.

Prosecutors have been looking into the matter since June 2016. Should courts find VW guilty of market manipulation, the company could become liable for billions in damages from shareholder lawsuits. Volkswagen has denied any wrongdoing, claiming its executives informed investors in a timely manner in September 2015, shortly after US regulators revealed the scam.

Mr. Diess may have another problem, too. Prosecutors are also looking into emissions cheating at BMW, where he worked from 1996 until the end of 2014. The luxury carmaker managed to steer clear of the emissions scandal that hit VW and others until German prosecutors last month raided three of its offices, including its Munich headquarters. BMW is suspected of having rigged 11,400 diesel vehicles. The company has responded to the charges by claiming the cars received an “incorrect software update” and had not been deliberately doctored. It said it is correcting the mistake.

The problem for Mr. Diess is that the cars received the software update in 2014, when he was BMW’s head of development. As investigators dig deeper, he may have some tough question to answer. If they link him to emissions cheating, he could face clawbacks of his compensation, not to mention incalculable damage to his reputation and authority. The probe is in its early stages, however, and he is not a subject of the investigation. Mr. Diess said neither prosecutors nor BMW have contacted him, nor did he have he have knowledge of the events in 2014.

If Mr. Diess, an Austrian like many of the Porsche and Piëch family members, were to face official charges for the events at BMW or VW, his position as CEO would be at risk. And if he were to be sentenced for any wrongdoing, he would definitely lose his job, according to sources close to VW’s supervisory board.

Ironically, the diesel scandal that put Mr. Diess in the driver’s seat of VW could also end up ejecting him.

A version of this story originally appeared in Handelsblatt’s sister publication, WirtschaftsWoche, written by Melanie Bergermann, Annina Reimann, Sebastian Schaal and Martin Seiwert. To contact the authors: martin.seiwert@wiwo.de, annina.reimann@wiwo.de, Sebastian.schaal@wiwo.de, melanie.bergermann@wiwo.de

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