Germany pressures Volkswagen on plan to fix ‘cheating’ engines

28 Sep 2015 | Author: | No comments yet »

VW faces Swiss ban on diesel car sales.

Switzerland is considering banning the sale of diesel cars made by Volkswagen in the wake of the emissions rigging scandal that is rocking Europe’s biggest car maker.Volkswagen’s admission it cheated on emissions testing of its “clean diesel” engines has sullied the automaker’s reputation, disrupted the entire industry and put diesel engines on trial in a country that was finally starting to embrace them.(Bloomberg) — Matthias Mueller pressed the Volkswagen AG board to move ahead with a reorganization he helped devise before the carmaker was caught up in an emissions-cheating scandal, as the new leader seeks to put his stamp on the company. As a result of the diesel emissions scandal, which forced Martin Winterkorn to resign, VW faces a welter of legal sanctions and civil lawsuits, 11 million diesel vehicles that don’t meet emissions standards, as well as the looming risk that consumers will boycott its vehicles.

The ban, by the Swiss Federal Roads Office, would be on all Volkswagen group cars with diesel engines that contain software designed to cheat pollution controls and includes its VW, Audi, Skoda and Seat brands. The revelation that VW used special software to defeat the tests also answers a question that puzzled the competition for years: How could Volkswagen engineer an affordable, clean diesel engine when smart engineers at other automakers couldn’t do it? “I kept asking our engineers: ‘What’s wrong with you guys? The former Porsche boss wanted the new strategy to remain on the agenda of the Friday meeting in Wolfsburg, Germany, according to a person familiar with Mueller’s thinking, who asked not to be identified because the discussions were private. The Swiss estimate that around 180,000 Volkswagen group vehicles already on its roads could contain the software which reduces pollution levels during testing.

VW seems able to do it,’ ” Bob Lutz, former General Motors vice chairman, told the Free Press. “I said, ‘Are they magicians or something?’ The engineers said they couldn’t answer that question.” “I’m glad I’m not Volkswagen,” he said. “This destroys their whole marketing thrust in the U.S. of technical superiority; the only ones who can do diesels.” Volkswagen offered a diesel engine seemingly too good to be true — performance, good fuel economy, environmentally friendly and affordable enough to put in a small car. Indeed, the episode recalled another at VW a decade ago when a senior VW human resources executive was caught and convicted for bribing German union officials. These cars, which were built between 2009 and 2014, could be subject to a recall if they were found to contain the manipulation software, Mr Rohrbach said.

Volkswagen said Friday that more authority will be given to individual brands and regions, a departure from the centralized structures that kept key decisions in Wolfsburg and the chief executive officer’s inner circle. Sales of new vehicles of this type would be banned, but the prohibition wouldn’t extend to the cars already on the roads or vehicles with the newer EURO6 emissions standard. Muller should consider acknowledging, however, that those who acted improperly may have done so from a misguided perception from senior executives of what VW views as acceptable or expected behavior – for which VW management bears responsibility and which VW will change. The move would be the latest blow for Wolfsburg-based Volkswagen that has lost around a third of its market value since the emissions-testing crisis emerged. Even so, it has been a public relations nightmare for proponents of diesel engines, which offer more pep and better gas mileage but can be dirtier than traditional gasoline engines.

Since male, German engineers dominate VW’s upper echelons, the automaker should consider diversifying its talent pool and accelerate hiring from abroad, recruiting women and non-Germans and promoting them into positions of leadership. Friday’s meeting, which took place in a newly constructed office building within Volkswagen’s main plant, started before noon and stretched into the evening amid wrangling over who knew what and when. Jason Vines, a former Ford vice president of public affairs during the Ford Explorer/Firestone tire affair, said “culture isn’t immediately changeable, only behaviors.

According to the US authorities, roughly 482,000 cars in the country were fitted with software that covertly turns off when driving normally, and turns them on when the car is undergoing an emissions test. An important change for VW would be to give public affairs a seat at the table of management, rather than assigning it the job of cleanup.” If Mueller is to restore VW’s honor, he must convince VW’s three key stakeholders that his actions are vital for the automaker’s prosperity and perhaps, even its survival. Known as a “defeat device”, the feature results in cars emitting up to 40 times the amount of toxic nitrogen oxide emissions than the standards allow.

When the 20-member panel finally dispersed and presented VW’s new CEO, Mueller was flanked by Volkswagen’s power players: Wolfgang Porsche, the head of the family that controls a majority of the company’s voting shares; Bernd Osterloh, the chief representative of Volkswagen’s 600,000 workers; the prime minister of Lower Saxony, Stephan Weil, whose state owns 20 percent of Volkswagen; and Interim Chairman Berthold Huber. Volkswagen has issued a profit warning and disclosed a €6.5 billion ($10.35bn) charge to earnings to cover the costs of addressing the matter, although US fines could be much higher. For this difficult mission, he may need help from the German government: German chancellor Angela Merkel has an incentive to assist, for her political opponents are attacking her this week as being “in bed” with the nation’s car industry. Mr Muller has vowed to get to the bottom of the affair that has shattered trust in the company. “My most urgent task is to win back trust for the Volkswagen group,” he said. “Under my leadership, Volkswagen will do everything it can to develop and implement the most stringent compliance and governance standards in our industry.”

His mission statement was echoed by Osterloh, 59, who said the company needs a new corporate culture that’s more inclusive and avoids a climate in which problems are hidden. Dan Sperling, founder of the Institute of Transportation Studies at the University of California Davis and a member of the California Air Resources Board, said he thinks Volkswagen’s cheating marks a tipping point for diesel acceptance.

On Thursday, Michigan Attorney General Bill Schuette and at least 28 other attorneys general initiated a multistate investigation and said they’ll be sending subpoenas to Volkswagen. The National Highway Traffic Safety Administration said it’s on high alert for hints of industry-wide issues. “We’re questioning everything now,” NHTSA Administrator Mark Rosekind said during a visit to metro Detroit on Tuesday. “Every time we have an individual automaker or supplier where we find an issue, your first question has to be how extensive is it through the whole industry? The Bentley and Bugatti marques will be grouped with Porsche, while Audi continues to manage the Lamborghini supercar division and Ducati motorcycles. Joe Hinrichs, Ford’s president of the Americas, said Thursday the automaker follows the rules and conducts and certifies all tests. “We don’t use defeat devices, and we clearly understand from an integrity standpoint to make sure our vehicles perform on the road like they do in the lab.” Ford uses diesel engines in its Super Duty pickups and commercial vans. “We don’t use defeat devices,” said GM spokesman Pat Morrissey. In 2008, Volkswagen separated itself from the pack with its clean-diesel technology that tuned the engine in a way that reduced emissions and then trapped and destroyed the nitrogen oxide pollutants that were left.

It was deemed a breakthrough for meeting emission standards without having to install an expensive and bulky treatment system used by others in the industry. Winterkorn, 68, who had been due to get his contract extended on Friday before the widening scandal, had built a global champion that included subsidiaries ranging from Scania heavy trucks to Ducati motorbikes to Porsche sports cars. At the same time, key decisions were made at the Wolfsburg headquarters, and Winterkorn was known to get involved in the details, from design to engineering to operations. Rather, some at GM speculated environmental agencies were giving VW a grace period to sell non-compliant cars with the understanding they would soon meet the new regulations. While his path to the top of Volkswagen isn’t unlike Winterkorn’s — both men are company veterans and worked for years at the Audi unit — they have markedly different styles.

Winterkorn was more patriarchal and could come off as gruff, with a growling voice and an imposing frame adding gravitas, while Mueller has a cooler and more cosmopolitan air and has said his management style is more inclusive. He said he and product chief Mark Reuss were both “getting sick and tired of the refrain: ‘What is the matter with you guys that Volkswagen can do it and you can’t. Stern-faced and unwilling to answer questions from journalists, Mueller still managed to offer a positive view of the week: the reform of decision-making and accountability could enable Volkswagen “to emerge from this crisis stronger than before,” he said. To contact the reporters on this story: Chris Reiter in Berlin at creiter2@bloomberg.net; Christoph Rauwald in Frankfurt at crauwald@bloomberg.net To contact the editors responsible for this story: Benedikt Kammel at bkammel@bloomberg.net Steve Geimann

Ratings agencies Fitch, Standard & Poor’s and Moody’s have all announced outlook downgrades and possible ratings cuts as they place the automaker on credit watch. Lutz said if Volkswagen has to retroactively install equipment to scrub the exhaust with urea, it is facing tens of billions of dollars for the fix alone, in which case the $7.3 billion “is a drop in the bucket.” But Lutz, who has worked for multiple automakers around the world, said authorities know they cannot bankrupt VW and are more likely to grandfather the existing technology and levy big fines until the automaker can reach compliance.

She assumes the resale value has fallen, and she no longer trusts the company. “It calls into question what else they have lied about.” Volkswagen cannot afford to lose loyal customers. The automaker has had trouble understanding the American consumer and offer vehicles that resonate with buyers who prefer cupholders to manual transmissions. VW is just now launching an SUV product blitz that will be rolled out over the next few years. “I think publicity from the diesel deception will leave a bad taste with consumers toward Volkswagen for a long time,” Stoddard said, “and definitely have an adverse effect on U.S. sales of its cars and trucks.” General Motors agreed to pay $900 million to the Justice Department following an 18-month probe into why it took so long to recall vehicles with defective ignition switches that have been linked to at least 124 deaths. In 2000-’02 Ford and Firestone paid $3 billion after a massive recall of Ford vehicles with Firestone tires that were involved in rollovers that were linked to 270 deaths. Fiat Chrysler in July agreed to a $105-million civil settlement with NHTSA over improperly handling nearly two dozen recalls covering 11 million vehicles.

Last year, Hyundai and Kia paid $360 million, including a fine, after a two-year EPA investigation that found 1.2 million vehicles were not getting the mileage ratings stated on their stickers.

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