Volkswagen’s founding by Adolf Hitler back in 1937 has shaped the carmaker in many ways. One of those is the fact that VW remains partially government-owned. The state of Lower Saxony, where VW has its headquarters in the city of Wolfsburg, owns slightly more than 20 percent of the company. That allows it to block key decisions – and also gives it a role in making sure nothing is screwed up.
Given the Dieselgate scandal of the past two years, something clearly went wrong with the latter. Lower Saxony has two out of 20 seats on VW’s supervisory board, which has the power to hire and fire executives, approves important strategy changes and plays a role in overseeing the company’s actions. By custom, Lower Saxony’s premier, Stephan Weil, has one of those seats, making him a powerful figure behind the scenes, in addition to the Porsche and Piëch families.
Mr. Weil, a 58-year old Social Democrat who at one time was seen as a possible chancellor candidate, has certainly seen his reputation suffer with the scandal. In an interview, Mr. Weil admitted that carmakers exploited – and politicians tolerated – a legal “grey area” when it comes to emissions guidelines for far too long. But he also insisted there was no conflict of interest – neither for himself, nor his state.
“As far as I can tell, it’s a fine line between a permissible conversation about technical standardization and collusion that distorts competition.”
There’s no doubt that Mr. Weil has an interest in VW doing well. His job, after all, is to protect the interests of his state and the 250,000 direct and indirect jobs that the world’s largest carmaker provides to the region. He also collects dividends for his state. In that sense, the scandal hasn’t helped: dividends rose to €283 million ($332.5 million) in 2014 and then almost evaporated to €6.4 million in 2015. In September of that year, VW admitted it had been manipulating the engines of around 11 million diesel cars for almost a decade to pass emissions tests.
Dieselgate has cost the carmaker €21.6 billion so far to cover repairs, settle lawsuits and pay fines. It has also led to an in-depth investigation of Germany’s car industry, which is feeling cornered. Mercedes-maker Daimler and car parts maker Bosch are under investigation for possible diesel emissions tinkering as well. The major carmakers plan to recall 5 million diesel cars to stave off city bans on diesel vehicles. As if all that weren’t enough, Germany’s cartel authority is investigating whether Audi, BMW, Daimler, Porsche and Volkswagen illegally colluded on everything from emissions to which suppliers they used.
With federal elections coming up on September 24, Chancellor Angela Merkel and her main contender, Martin Schulz from the Social Democrats, have lashed out at carmakers for eroding confidence in one of Germany’s key industries, which employs 800,000 people and indirectly impacts hundreds of thousands more.
Mr. Weil, a former lawyer and judge, insists the carmakers themselves bear most of responsibility. “VW and other automakers made full use of legal grey areas and even abused them, and caused great harm to people, the environment and in the end to the firms themselves. Executives as top decisionmakers obviously are responsible for this.” At the same time, he admits that lawmakers were to blame as well. “Politicians have to confront the fact that all too often they allowed environmental protection to be circumvented.”
When asked whether lawmakers knowingly left grey areas for the industry to operate in, Mr. Weil said: “I don’t know. But the fact is, the lion’s share of the responsibility lies with the auto industry. The public interest will have priority from now on, especially the protection of health and the environment.”
But Mr. Weil also took the carmaker under his wing. The state premier said VW had “continuously improved” its internal control mechanisms since Dieselgate’s emergence. He also questioned whether Volkswagen and other carmakers had really colluded. “What’s important is the word “possible” [cartel]. As far as I can tell, it’s a fine line between a permissible conversation about technical standards and collusion that distorts competition. We have to wait for how the antitrust authorities will view it.”
Mr. Weil, who has been on VW’s supervisory board since February 2013, has to strike a balance when it comes to criticizing VW and its workers, who are also his constituents. The state premier is currently running for re-election after a defection earlier this month cost his government its paper-thin majority and forced him to schedule early elections. Recent polling suggests his coalition government of Social Democrats and the Greens will lose its majority on October 15.
But Mr. Weil’s close relationship has also hurt his reputation. Earlier this month he came under fire for allowing VW to check his annual state policy speech at the end of 2015 – shortly after VW had admitted to cheating and was negotiating a fine with US authorities. In the interview, Mr. Weil admits to submitting his speech to VW for review but says it wasn’t to make the company look better: “A submission of texts for review with regard to legal and technical concerns was unavoidable during the negotiations between Volkswagen and US authorities over legal consequences from the Dieselgate scandal. Anything else would have been irresponsible,” he said. He added that he merely checked legal and other facts with the firm and points – rightly – to the fact that his predecessors did the same.
Still, some have called for VW to be fully privatized and a separation of ties with Lower Saxony. Mr. Weil rejected this: “No, I don’t see a conflict of interest. The company has to be successful, and VW needs to be clean in every way for that to be the case. The company’s interest has to be embedded within the public interest. This is congruent with Lower Saxony’s interest.”
In other words, Mr. Weil will be keeping his place on VW’s supervisory board.
Martin Murphy covers the steel, car and defense industries for Handelsblatt. Franziska Roscher and Gilbert Kreijger adapted this article for Handelsblatt Global. To contact the authors: firstname.lastname@example.org, email@example.com and firstname.lastname@example.org