Emissions Omission

Sources: Ex-VW CEO Knew of U.S. Probe

winterkorn ddp images nigel trebbin
German newspaper Bild reported over the weekend that a colleague of VW ex-CEO Martin Winterkorn informed him of the U.S. emissions probe in May 2014 -- 16 months before the German automaker made the investigation public.
  • Why it matters

    Why it matters

    The latest revelations suggest that former VW CEO Martin Winterkorn may have known earlier than acknowledged about a U.S. probe into emissions irregularities at Volkswagen, which could expose the company to even heftier fines.

  • Facts

    Facts

    • In May 2014 a VW employee told Mr. Winterkorn that U.S. environmental authorities were investigating VW emissions controls, sources said.
    • The amount VW will pay in U.S. fines will depend on how high up in the company hierarchy executives knew about the emissions fraud and failed to act.
    • Mr. Winterkorn resigned less than a week after the scandal became public last September, and received a parting compensation package worth €10 million.
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    Audio

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Volkswagen’s former chief executive, Martin Winterkorn, appears to have known about potential problems with VW’s diesel emissions much earlier than he previously acknowledged, Handelsblatt has learned.

A report on Sunday in German newspaper Bild am Sonntag alleged that in May 2014 – 16 months before the problems became public – a colleague at VW had informed Mr. Winterkorn that U.S. environmental authorities had launched an investigation into irregularities in the automaker’s diesel emissions.

The scandal eventually became public last September, and now threatens the future of Germany’s largest listed company. Days after it surfaced, Mr. Winterkorn resigned, denying knowledge of the fraud, on September 23. He had just negotiated a lucrative, three-year extension to his compensation package.

According to sources within the company who spoke to Handelsblatt, it appears that top management at VW knew about the existence of a U.S. probe for more than a year before it went public – but apparently did little to address the situation, which angered U.S. investigators.

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According to sources, Mr. Winterkorn knew of the existence of the U.S. investigation, but did not know about the illegal software the German automaker had installed on 11 million cars, including 600,000 in the United States, to fake compliance with pollution tests.

According to information obtained by Handelsblatt, it would appear that senior managers surrounding Mr. Winterkorn were informed of the scandal very early on in its development.

As the information came to light, VW management feigned ignorance and dug itself into a defensive position.

“One can surmise that the U.S. authorities will investigate whether Volkswagen has built a test detection component into the engine software.”

Unnamed VW Employee, Internal note to Mr. Winterkorn, in May 2014

The United States Environmental Protection Agency had to spend months in detailed analytical work to prove the fraud, before VW acknowledged the existence of the cheat software last September.

If Mr. Winterkorn and his senior executive team had taken the original tip more seriously, when they learned of the U.S. probe in May 2014, the company’s criminal activities may have been curtailed much earlier.

 

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The delay not only infuriated U.S. authorities, but may end up costing Volkswagen billions in fines.

In the United States, the amount of VW’s fines depend on how much senior management was aware of the criminal behavior. The higher the level of knowledge, the greater the fine. Mr. Winterkorn had been informed about a U.S. probe into elevated emissions levels, and VW’s hierarchy doesn’t go any higher than that.

According to the Bild am Sonntag report, a close colleague of the VW boss – who wasn’t named – warned him in a memo that U.S. authorities could investigate VW’s emissions software for a cheat mechanism in the absence of a credible explanation for the dramatically elevated levels of nitrogen oxides in its exhaust gases.

The Californian Air Resources Board, CARB, had already shown that cars from the Wolfsburg production line were massively exceeding legal emissions.

“One can surmise that the U.S. authorities will investigate whether Volkswagen has built a test detection component into the engine software,” according to the memo to Mr. Winterkorn cited by Bild am Sonntag.

Volkswagen declined to comment.

 

merkel and matthias müller, martin winterkorn and matthias wissmann, head of the german auto association, sept 17, 2015 frankfurt auto show source reuters
Martin Winterkorn, second from right, meets with German Chancellor Angela Merkel and his eventual successor, former Porsche CEO Matthias Müller (middle), on September 17, 2015, at the Frankfurt Auto Show. VW’s Dieselgate scandal had broken hours earlier. Mr. Winterkorn resigned six days later. Source: Reuters

 

That note gave the top echelons of Volkswagen an early warning of the impending calamity.

In the following months, VW managers appeared to take one wrong step after another. In discussions with the U.S. authorities, Volkswagen’s representatives adamantly rejected all accusations of malfeasance, defensively accusing the Americans of not being able to measure emissions accurately.

CARB and the United States Environmental Protection Agency were very patient in the discussions, agreeing at the end of 2014 to the recall of half a million VW cars.

But when the recall and fixes brought no measurable improvement in results, they continued their talks with VW.

Only when the burden of proof became inescapable and Wolfsburg was still refusing to confess to its fraud did the EPA go public, accusing Volkswagen of massive fraud in a statement on September 18.

 

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Mr. Winterkorn resigned five days later, denying knowledge of the software fraud. He received a €10 million golden parachute from Volkswagen’s non-executive supervisory board, which said it had accepted the former CEO’s explanation that he had no knowledge of the scandal.

Matthias Müller, the chief executive of VW unit Porsche, was appointed Mr. Winterkorn’s successor. Some of Porsche’s diesel autos were also tainted in the scandal, but Mr. Müller has repeatedly said the massive fraud was the work of a small band of rogue engineers responsible for technical development.

Although Mr. Winterkorn apparently knew early on about elevated diesel emissions, so far there’s no documentary evidence that he knew about the cheat-software, the board said.

That’s also the preliminary conclusion of the internal investigation by U.S. law firm Jones Day.

 

Lowering Investments-01 VW Volkswagen

 

The lawyers have spoken several times with Mr. Winterkorn, including over the warning note from the employee in 2014. But, if the memo 16 months before the scandal broke showed that the company’s internal warning system was working, it raises questions about why Mr. Winterkorn didn’t act sooner.

After all, information about potentially embarrassing and costly emissions violations didn’t get stuck somewhere in VW’s hierarchy, but went right to the top of the company, to his desk. And, according to a company insider, it wasn’t just Mr. Winterkorn who knew, but it was common knowledge in top management circles.

At the very latest, by the time of the first recall at the end of 2014, the entire management board at VW had been informed of the problem, which had been the subject of intense discussions, according to insiders. The matter had also been under consideration of company lawyers and the automaker’s finance department.

There was a second chance for Volkswagen to come clean in the wake of the recall. When it became clear that the remedies put in place in the recall were not going to be good enough to please CARB and the EPA, the board should have put its cards on the table, the insider told this newspaper.

The company’s defensive reaction to the crisis could now have serious consequences as the legal process continues. The amount of money that VW will ultimately pay in fines will depend on who knew what, when.

That VW’s own board seems to have known about a potentially serious problem – and delayed instead of addressing it – could end up costing Volkswagens billions of euros.

 

Martin Murphy and Christian Schnell are editors at Handelsblatt who cover Volkswagen and the automobile industry. To reach them: murphy@handelsblatt.com and schnell@handelsblatt.com

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