Dieselgate Lawsuits

VW Defends CEO Matthias Müller

Volkswagen's Matthias Müller is in the spotlight. Source: dpa
Volkswagen's Matthias Müller is in the spotlight again.
  • Why it matters

    Why it matters

    • The civil lawsuits brought by three U.S. states against VW this week highlight the unpredictability of the legal risks faced by the automaker as it struggles to extricate itself from Dieselgate.
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  • Facts

    Facts

    • Three U.S. states, New York, Massachusetts and Maryland, have brought lawsuits against Volkswagen, accusing executives of covering up diesel emissions cheating software.
    • VW could face hundreds of millions of fines as a result.
    • VW Chief Executive Matthias Müller was mentioned for the first time in connection with the scandal in one of the lawsuits.
    •  
  • Audio

    Audio

  • Pdf

VW Chief Executive Michael Müller was appointed last September to lead the automaker out of the Dieselgate crisis. But now he himself risks being embroiled in the mess after a U.S. state lawsuit named him for the first time in connection with the scandal.

The suit brought by the state of New York said that in 2006, Mr. Müller, then head of project management at VW’s premium auto subsidiary Audi, was informed that urea tanks in Audi cars, which help remove nitrogen oxide from the diesel exhaust, weren’t big enough to meet U.S. clean air standards.

The suit doesn’t allege that Mr. Müller knew about the fraud or authorized it. But the mention of his name highlights that prosecutors in the U.S. have VW’s management in their sights, and that they don’t buy the car maker’s assertion that only a small group of people below management board level were responsible.

Handelsblatt has learned that VW’s management is worried about the new litigation and was surprised by how vigorously New York Attorney General Eric Schneiderman is going after Mr. Müller.

It’s particularly galling for VW that the documents cited by the state attorneys general have come from U.S. law firm Jones Day, which was commissioned by VW’s management to conduct a thorough investigation into the scandal.

The New York Attorney General believes there is clear evidence that senior managers at VW knew very early on what illegal methods were being used to suddenly enable VW cars to meet U.S. standards.

Jones Day is obliged to pass its findings on to the U.S. Department of Justice. VW’s own management by contrast doesn’t have access to all of them. That means sudden surprises like Mr. Schneiderman’s lawsuit could keep on coming.

New York and the states of Massachusetts and Maryland on Tuesday filed separate but nearly identical civil lawsuits, accusing senior VW executives, among them former Chief Executive Martin Winterkorn, of covering up evidence that the automaker had cheated on U.S. diesel emissions tests for years.

New York Attorney General Mr. Schneiderman is convinced that Audi was largely responsible for creating the the illegal “defeat device” software. Bigger urea tanks could have been used to meet the strict environmental standards, the lawsuits allege. Instead, VW took the decision to use the illegal software.

This isn’t the first time the suspicion has surfaced that Audi, and not VW itself, played a central role in developing the software. Handelsblatt reported this three months ago.

As far back as 1999, engine developers at Audi’s headquarters in Ingolstadt, southern Germany, were thinking about how to meet increasingly tight emission limits, company sources told Handelsblatt in April. The plans included the use of illegal software. According to information obtained by this newspaper, 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.

So Audi’s experts devised a software for emissions tests that could switch off certain functions. The software recognizes when a vehicle is on the test stand and reduces emissions. It 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 were 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.

Mr. Schneiderman believes there is clear evidence that senior managers at VW knew very early on what illegal methods were being used to suddenly enable VW cars to meet U.S. standards. His lawsuit names further former senior Audi managers as suspects, including engine chief Wolfgang Hatz and development chief Ulrich Hackenberg.

The state lawsuits could lead to state fines of hundreds of millions of dollars or more, in addition to the partial settlement VW reached with the U.S. Justice Department and the Environmental Protection Agency. That could cost it about $15 billion.

Mr. Schneiderman indicated that other states could join the lawsuits, which would drive up potential fines for VW even higher.

VW vehemently denied the allegation against Mr. Müller. “We regard the accusations as unfounded,” said a VW spokesman on Wednesday.

Mr. Schneiderman’s evidence against Mr. Müller is circumstantial. His documents do not prove that the VW chief executive knew about the use of “defeat devices.” All they prove is that Mr. Müller knew that the cars did not meet the clean-air standards.

However, New York, Massachusetts and Maryland are undermining VW’s theory that only a small number of engineers acting on their own were responsible for the scandal — which would take the former and current management boards out of the firing line.

Mr. Schneiderman begs to differ. His lawsuit said it was the “stubborn and unrepentant … culture at Volkswagen … that gave rise to the systematic cheating and deception.”

The defense attorney of one accused engineer said: “The U.S. complaints confirm our findings. Several management board members were informed and at leased neglected to stop the fraud.” He said he couldn’t understand why the state prosecutors’ office in the city of Braunschweig hasn’t been investigating management board members. The prosecutors are currently probing 17 suspects on suspicion of fraud.

The costs of the scandal are meanwhile piling up. VW had set aside €16.2 billion for the crisis in its 2015 accounts. On Wednesday, it added provisions totaling €2.2 billion for the first half of 2016 “mainly related to further legal risks predominantly arising in North America.”

And that may not be the end of it. VW faces a mountain of litigation, the outcome of which won’t become clear for a long time. Jones Day won’t present its final report on its investigation until the end of the year.

 

Astrid Dörner is part of Handelsblatt’s team of correspondents covering finance and U.S. corporations in New York. Stefan Menzel is the managing editor of Handelsblatt’s website and follows the car industry. Volker Votsmeier is an investigative reporter. To contact the authors: adoerner@handelsblatt.commenzel@handelsblatt.com and votsmeier@handelsblatt.com

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