Matthias Müller

A Friend at the Top

vw titel image 28 sept source
Montage: U. Deck / DPA and VW illustration by Jean Pascal Zahl
  • Why it matters

    Why it matters

    Volkswagen faces the worst crisis in its 78-year history and needs reform-minded leadership to restore trust in its tarnished brand.

  • Facts

    Facts

    • Volkswagen used Bosch software to cheat on emissions tests. Bosch warned Volkswagen in 2007 against using its software illegally.
    • New Volkswagen CEO Matthias Müller said on Friday that the investigation into the emissions scandal would go back to 2005.
    • Volkswagen has hired U.S. law firm Jones Day to conduct the investigation into the emissions scandal.
  • Audio

    Audio

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He knew nothing about the emissions scandal. Volkswagen’s supervisory board claims it made sure of that before appointing Matthias Müller chief executive. He does appear to have an alibi.

For the past five years, Mr. Müller served as head of Volkswagen’s Porsche brand, which hasn’t been touched by the scandal. U.S. authorities allege Volkswagen began cheating on emissions tests in 2009, years before Mr. Müller joined the board of directors in March 2015.

The origins of the scandal may date back even further. Volkswagen used software developed by Bosch to cheat U.S. diesel emissions tests. The parts supplier warned the automaker in 2007 against using its software illegally, Handelsblatt has confirmed through sources at Volkswagen.

At the end of his public introduction as chief executive on Friday, Mr. Müller mentioned almost in passing that the investigation would dig “back to the year of 2005.” In a joint letter with works council chief Bernd Osterloh, Mr. Müller vowed to “relentlessly” pursue the truth.

“We will do everything to win back the trust of our customers, partners, investors and the whole public little by little in the coming years,” the new chief executive said.

“Car buyers should be able to count on the manufacturers sticking to what they promise in the sales brochures.”

Barbara Hendricks, Federal Environment Minister

U.S. law firm Jones Day has been hired by Volkswagen to conduct an external investigation, which will take at least fourth months to complete. The supervisory board plans to meet sometime this week to decide which documents should be made available.

“In order for there to be a comprehensive investigation, there can’t be any restrictions,” a source on the supervisory board, who asked to remain anonymous, told Handelsblatt.

The board will also confirm sometime this week which car models are affected and then begin contacting the owners and making the appropriate modifications.

An external investigation is just the beginning. The supervisory board has tasked Mr. Müller with changing Volkswagen’s corporate culture, with one insider saying it’s his “most urgent assignment.”

But it remains to be seen whether a company man, who began as a toolmaking apprentice at Volkswagen’s Audi brand 40 years ago, and thrived within its now-suspect corporate culture, has the will and the means to make what can only be painful reforms for many of his colleagues.

There was an alternative candidate with no history at Volkswagen. Recruited from BMW, Herbert Diess took over Volkswagen’s core brand of autos in July.

But his reputation as a tough-minded cost cutter likely cost him the top job. The works council and state of Lower Saxony, which controls the supervisory board, were concerned about layoffs. They backed Mr. Müller instead.

While Mr. Müller’s hands may be clean of the emissions scandal, his career at Volkswagen has closely tracked the rise and fall of Martin Winterkorn, who resigned as chief executive last Wednesday.

Mr. Winterkorn made Mr. Müller chief coordinator at Audi in 2003, then put him in charge of Porsche in 2010, and finally gave him a seat on Volkswagen’s board as chief strategist.

 

Michael Horn dpa
Michael Horn, VW's most senior executive in the U.S., says the automaker remains committed to the U.S. market. Source: dpa
No one envies Volkswagen’s U.S. chief Michael Horn his job at the moment. Source: DPA

 

Volkswagen’s supervisory board is hoping that Mr. Winterkorn will not ask for a severance package. A golden parachute for Germany’s best-paid manager would be controversial when Volkswagen workers are worried about layoffs.

Mr. Müller is also close to the research and development chiefs at Audi and Porsche, Ulrich Hackenberg and Wolfgang Hatz. The two men previously held high level development positions at Volkswagen’s core brand. There have been reports that they too will be forced off the board of directors.

But board room resignations won’t be enough to save the brand. Even without the emissions scandal, Volkswagen’s sales still would have dropped by another 3 percent in the United States.

The automaker has long been criticized for not understanding the American market. While U.S. consumers value choice, Volkswagen offers only a few models and doesn’t update them often enough.

The world’s top-selling automaker has watched its market share drop to just 2.2 percent in the world’s second-largest automobile market. The diesel emissions scandal adds insult to injury.

“Since 2012, the VW dealership network has suffered from bad performance,” said Alan Brown, chairman of Volkswagen’s National Dealer Advisory Council. “Now we have to struggle with this – it comes at a difficult time.”

Volkswagen has offered compensation to the 650 dealerships in the United States for diesel vehicles that aren’t compliant with emissions regulations. In September, dealerships will receive a $300 bonus for every new car sold and $600 for every Passat.

But these small bonuses hardly compensate for the damage done. The dealerships could file a class-action lawsuit against Volkswagen for damages.

“I wouldn’t be surprised to see one filed real soon,” Eric Chase, a partner at Bressler, Amery and Ross in New Jersey, told Automotive News.

 

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Volkswagen’s crisis has now spread to Europe. In Germany, 2.8 million diesel vehicles have software installed to cheat emissions tests, according to Federal Transport Minister Alexander Dobrindt.

His ministry has called for Volkswagen to present a plan for repairing the affected automobiles.

In Switzerland, an estimated 180,000 diesel vehicles are affected. Bern plans to ban the sale of certain VW, Audi, Skoda and Seat models until further notice.

Political pressure is growing on the continent.

In an interview with Handelsblatt, the German environment minister, Barbara Hendricks, said the European Union is working on a new regime of tests that will check diesel emissions in the real world and not just in the lab, where Volkswagen tricked regulators.

Germany has pushed for real-world tests in recent years.

“Car buyers should be able to count on the manufacturers sticking to what they promise in the sales brochures,” Ms. Hendricks said.

 

Markus Fasse is a Handelsblatt editor specialized in the aviation and automobile industry. Christian Schnell is an editor with Handelsblatt, covering the stock market and German auto industry. Martin Murphy specializes in the automotive, defense and steel industries. Thomas Jahn leads Handelsblatt’s New York bureau. Martin-Werner Buchenau reports from Stuttgart as Handelsblatt’s Baden-Württemberg correspondent. To contact the authors: buchenau@handelsblatt.com; jahn@handelsblatt.com; murphy@handelsblatt.com; schnell@handelsblatt.com; fasse@handelsblatt.com

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