Insider Named to Head Volkswagen Shows Germany Inc. Insularity

28 Sep 2015 | Author: | No comments yet »

Angst in Wolfsburg: What will happen in Volkswagen’s home city?.

The German automaker admitted last week that it used special software to fool U.S. emissions tests for its diesel vehicles. FRANKFURT— Volkswagen AG VLKAY -5.45 % faces higher financing costs and a strain on its ability to offer loans to boost sales amid an unfolding emissions scandal, which is rippling through all aspects of the auto maker’s business.BERLIN/ROME: Volkswagen’s own staff and one of its suppliers warned years ago about software designed to thwart emissions tests, two German newspapers reported, as the automaker tries to uncover how long its executives knew about the cheating.Built in 1938, on Adolf Hitler’s orders to build a “peoples’ car,” Wolfsburg today is home to 124,000 residents, half of whom work for Volkswagen. “The whole region is used to being lifted by this company,” Michael Wilkens, head of the local chamber of industry and commerce told Reuters. Volkswagen disclosed last week as many as 11 million diesel cars contained software that U.S. authorities say allowed the company to dodge emissions standards.

The world’s biggest automaker is adding up the cost to its business and reputation of the biggest scandal in its 78-year history, having acknowledged installing software in diesel engines designed to hide their emissions of toxic gasses. Thanks to VW, the city 120 miles west of Berlin boasts an unemployment rate lower than the national average, and, in 2013, it was named Germany’s richest city. “The residents are angry, sad and disappointed,” Carsten Steinbach, a Wolfsburg native told The Local Germany. “There is also fear, because it’s our bread and butter.” Not only is the automaker a major employer, but the entire city acts as an ode to VW.

German weekly Bild am Sonntag reported that VW’s internal investigation has found a 2007 letter from parts supplier Bosch warning Volkswagen not to use the software during regular operation. Separately, the Frankfurter Allgemeine Sonntagszeitung reported that a Volkswagen technician raised concerns about illegal practices in connection with emissions levels in 2011. The AutoMuseum Volkswagen also celebrates all things VW, offering guided tours on the evolution of the iconic Beetle. “The town owes everything to VW, they have their hands in every project here but that will surely change.

On Sunday, Germany’s motor authority said it would give VW until Oct. 7 to come up with a technological solution to the situation, which concerns engine-management software that made bench-test emissions appear lower than they were on the road. The company’s internal investigation is likely to focus on how far up the chain of command were executives who were responsible for the cheating, and how long were they aware of it. Life won’t be the same again,” Frank Schellenberg, who relies on VW’s tourism industry to fund his profession as a local cab driver, told Reuters. A spokesman for Volkswagen declined to comment on the reports, saying that as a matter of principle the company wouldn’t comment on what he called “rumours and speculation.” “Volkswagen is working with all its strength to conduct a thorough and merciless investigation of this matter,” Andreas Lampersbach said in an email.

VW would hold those responsible for rigging the emissions test to account and discuss technical solutions for the problem with authorities, he said, citing a statement by the company’s supervisory board. “Afterward we will provide a timetable to modify the vehicles of affected customers. The mayor of Paris recently announced his plans to ban diesel engines in the city by 2020, and other European countries are rethinking diesel tax breaks. This will take several weeks.” Italian media reported on Sunday that Volkswagen’s Italian unit has sent a letter to all of its dealers to stop selling cars that have the affected diesel engine. Volkswagen’s giant U.S. and European financing operations often act as lenders for car buyers and dealers for any of the brands in the company’s stable, from the namesake VW to Bentley, Lamborghini, Audi, Porsche and others.

Europe’s response to VW’s diesel scandal could cause a chain-reaction in the auto industry because Europe is responsible for 75 percent of diesel car sales worldwide. According to the news agency ANSA, the letter said it was “a precautionary measure.” The daily Corriere della Sera said the move would affect 40,000 vehicles and deal a blow to car dealers, a sector that has been losing money for 10 years and finally seemed to be emerging from the crisis. The paper did not cite a source for its report. “There are serious investigations underway and the focus is now also on technical solutions” for customers and dealers, a Volkswagen spokesman said. “As soon as we have reliable facts we will be able to give answers.” Bild said Martin Winterkorn, who quit as Volkswagen chief executive officer last week, was demanding his salary for the rest of his contract through the end of next year but the board did not want to pay it.

Some experts distrusted VW’s promotion of ‘clean diesel’ from the beginning, because diesel engines have an inherent trade-off. “You have power, you have energy, you have emissions: You get to choose two of them,” Don Hillebrand, former president of the Society of Automotive Engineers, told LiveScience. Volkswagen Financial Services AG, as it is formally known, is now evaluating whether it has to book charges on the collateral value of cars affected by a recall, a spokesman said. “We’re in talks with Volkswagen to evaluate the potential impact” and aim to produce results next week, he said. With more than 11,000 employees and assets of around €114 billion ($127.6 billion), the Financial Services unit contributed €781 million or nearly 14% to the group’s overall net profit of €5.66 billion in the first half, according to an analyst presentation.

The European Central Bank late last week temporarily excluded asset- backed securities originated by Volkswagen AG from its bond buying program to review recent developments, according to a person familiar with the matter. The transport ministry said the KBA had written to VW demanding it “commit to concrete steps and a timetable” to ensure its cars in Germany meet requirements. While asset-backed securities are only a fraction of the ECB’s €60 billion ($67 billion) a month bond-buying program, the move underscores the vulnerability the emissions crisis has created for Volkswagen’s financing operations. We will inform the KBA about what we are doing and the talks are occurring on the highest level.” “We need a guarantee that cars of German manufacturers are in line with the norms, without manipulation,” Chancellor Angela Merkel’s chief of staff Peter Altmaier told Der Tagesspiegel in an interview published on Sunday. “If a global player from Germany violates environment protection rules that blatantly, this casts a shadow on the environment pledges of German companies,” she told Handelsblatt newspaper in an interview to be published on Monday.

The announcement has shaved off roughly 30% of Volkswagen’s market capitalization, and on Friday led to the ouster of Chief Executive Martin Winterkorn. But the suggestion that this was achieved by cheating on tests could affect the viability of the entire diesel sector and the fate of companies that have bet on it.

Müller closed ranks with labor representatives, vowing to ensure that such misconduct “never happens again.” For their part, Volkswagen drivers are concerned about the resale value of their cars, but analysts expect it will take time to assess the full effect.

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