Board Update

VW Says "Chain of Errors" Led to Dieselgate

  • 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 said an external probe into “Dieselgate” wouldn’t be ready until well into 2016 and that it would provide a report at its annual shareholders meeting on April 21.
    • VW Supervisory Board Chairman Hans Dieter Pötsch said only a small number of people were responsible for the scandal and that VW would “relentlessly” clarify who was responsible.
    • VW also said oorders this year were up 3.5 percent, despite the scandal.
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Poetsch mueller dpa
VW Chairman Hans-Dieter Pötsch and Chief Executive Matthias Müller are under pressure to deliver answers. Source : Julian Stratenschulte/DPA

 

VW Supervisory Board Chairman Hans Dieter Pötsch said on Thursday that an investigation into who was responsible for the diesel emissions manipulation wouldn’t be completed until next year but that the probe so far had shown that a “chain of errors” had led to the biggest scandal in the automaker’s history.

“Individual mistakes by employees, weaknesses in our processes and too much tolerance for rule breaches” had been identified as the main reasons for the installation of software to cheat emissions tests in 11 million diesel vehicles, Mr. Pötsch told a press conference from VW’s headquarters in Wolfsburg.

He said it was too soon to identify people responsible for the crisis and said it would take “well into next year” for the external investigation led by U.S. law firm Jones Day to complete its probe.

“We will relentlessly clarify who is responsible for the acts committed. You can rely on us that we will call these people to accountability,” Mr. Pötsch said. “We will leave no stone unturned. Nothing will be swept under the carpet.”

“Although the current situation is serious, it will not break the company.”

Matthias Müller, VW Chief Executive

A total of 450 people are working on two independent probes, an internal one consisting of VW experts and an external one led by U.S. law firm Jones Day. The large number of people working on the case reflected VW’s commitment to getting to the bottom of what went wrong, said Mr. Pötsch.

He said the external investigators needed more time because of the large amount of data they had to screen and because their findings had to hold up in court. Volkswagen plans to provide an update on the investigation at its annual general meeting on April 21, 2016.

VW Chief Executive Matthias Müller underscored the company’s determination to move ahead. “We are doing everything to overcome the current situation, but we will not allow the crisis to paralyze us,” he said. “On the contrary, we will use it as a catalyst to make the changes Volkswagen needs. Although the current situation is serious, it will not break the company.”

VW preference shares, which were trading around €135.50 before the press conference on Thursday had started, fell to €134.05 by noon local time. The shares had risen as much as 7 percent Wednesday after a second scandal troubling the carmaker evaporated when it announced that far fewer cars than feared were affected by false claims on fuel efficiency and carbon dioxide emissions.

“You can rely on us that we will call these people to accountability.”

Hans Dieter Pötsch, VW Supervisory Board Chairman

Volkswagen had compounded its woes in early November by announcing that as many as 800,000 diesel and petrol cars may have been emitting more CO2 than stated, and that it had set aside €2 billion to sort out the problem. On Wednesday, it revised down that that figure to 36,000 vehicles and said it had found no evidence of unlawful alterations of CO2 emissions data.

Analysts said VW’s news conference, the first by its new chief executive Matthias Müller since Dieselgate broke, produced no surprises.

“It was a progress update without any sensational news,” said Frank Schwope, an analyst at NordLB bank who has a sell recommendation on VW stock with a target of €110. “The good news this week was that the CO2 scandal appears to have vanished into thin air.”

Mr. Schwope said he hadn’t expected VW to name any wrongdoers Thursday even if it had already identified them. “It would lack style to name and shame them publicly at a news conference,” he said.

Mr. Pötsch said only a small group of employees were responsible, and that there was no sign that board members were involved.

He said customers, investors and the public in general had lost confidence in VW.

“Winning back this trust is now our most important task and our biggest challenge; therefore, we have to act with resolve to uncover and correct the errors of the past and its consequences to  make sure something similar cannot happen again,” he said. “At the same time, we have to protect our operational businesses and defend our strong market position. This will not be an easy task under the current circumstances, but we are confident we can do this with our team.”

Volkswagen said it had improved the supervision of engine-software development to avoid future manipulation. The company added that it hoped to reach agreement with U.S. environmental authorities in the coming weeks so that it could start recalling affected cars there.

Despite the scandal, VW orders so far this year were up by 3.5 percent, the company said. It plans to introduce a new corporate structure across the group by 2017, and said it didn’t plan to sell any subsidiaries to raise money or streamline the group.

“"The good news this week was that the CO2 scandal appears to have vanished into thin air." ”

Frank Schwope, Auto analyst, NordLB

But in further potential bad news for VW, the Wall Street Journal reported that VW withheld information from U.S. regulators long before “Dieselgate.” Citing internal documents, the newspaper reported that in 2004, the automaker did not report problems with an exhaust-gas sensor despite warnings by U.S. employees. The problems affect gasoline engines with turbochargers built from 2001 to 2004.

Although only 3,900 cars are affected, the environmental agency can impose a fine of up to $37,500 per vehicle, which could amount to a grand total of more than $140 million. If confirmed, the matter would further dent VW’s already battered image.

According to the Wall Street Journal, the exhaust gas sensor in question wasn’t intended to cheat emissions tests. Its function was to prevent the exhaust from overheating, changing the fuel-air mixture designed to minimize emissions.

If confirmed, it would show that “Dieselgate” was not an isolated case, and its behavior could result in significantly more severe penalties under both civil and criminal law.

“That would be a huge issue,” said  Mary Nichols, head of the California environmental agency. “I would be very disturbed about that and would think it was cause for a much bigger investigation.”

According to California regulations, automakers must report problems with vehicle parts that affect exhaust values once a quarter. American VW employees listed the problems with the so-called exhaust-gas temperature sensor in a first draft. But VW’s head office in Wolfsburg disagreed. According to the Wall Street Journal, Audi manager Bernhard Grossmann wrote “delete the EGT” in an email to Norbert Krause, head of VW’s U.S. environmental office until 2009. “The EGT is out,” Mr. Krause wrote back two days later.

When questioned by the Wall Street Journal, Mr. Krause said he did not recall the incident.  “This all happened 11 years ago and that’s a long time. I have nothing to say about this,” Mr. Grossman said.

Meanwhile, Mr. Müller said he would visit the Detroit auto show in January in his first trip to the U.S. since being appointed as chief executiv. He said he would apologize for the scandal but added: “I don’t think I will be going down on my knees there … I will look ahead optimistically and confidently.”

 

Gilbert Kreijger is an editor with Handelsblatt Global Edition. To contact the author: kreijger@handelsblatt.com

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