Volkswagen CEO Martin Winterkorn resigns amid scandal

23 Sep 2015 | Author: | No comments yet »

Berlin calls on Volkswagen to regain trust.

German Chancellor Angela Merkel has called for Volkswagen to move “as quickly as possible” to restore confidence in a company held up for generations as a paragon of German engineering excellence.Germany’s vice chancellor has cautioned against casting doubt on the quality of Volkswagen as a whole or the rest of the country’s auto industry as he visited the company’s stand at the Frankfurt auto show.

The German transport minister on Wednesday called on Volkswagen AG to help clarify its position over accusations from the US Environmental Protection Agency that the auto maker has deliberately flouted air-pollution rules on cars sold since 2008. “There is now doubt, trust has to be regained,” Alexander Dobrindt told reporters after a meeting of the lower house of parliament’s transport committee. “This is a task for VW.” On Tuesday, Volkswagen admitted to misconduct and said it would take a €6.5 billion ($US7.3 billion) charge on earnings. Volkswagen chief executive Martin Winterkorn faces a reckoning with his board on Wednesday, summoned to explain the falsification of US emissions tests in the biggest scandal in the 78-year history of the world’s largest carmaker. Sigmar Gabriel, who is also Germany’s economy minister, said Wednesday it is clear that it’s “absolutely unacceptable” to try to manipulate engines using software during tests. He said it’s important that it is cleared up quickly and “the consequences are drawn.” The prosecutors’ office in Braunschweig, near VW’s Wolfsburg headquarters, says Wednesday that it is considering opening an investigation against employees of VW who might be responsible. A source close to the company said a five-member executive committee was grilling Mr Winterkorn at the company’s headquarters in Wolfsburg, Germany, and was likely to make a recommendation on his future ahead of a full board meeting on Friday.

But the board is in a tricky situation, with the 68-year-old CEO showing no sign of resigning after a hitherto highly successful eight-year reign, in which the company doubled its sales and almost tripled its profits. “ VW needs a fresh start and in our view a new CEO,” said Evercore ISI analyst Arndt Ellinghorst. A story in the Tagesspiegel newspaper, denied by Volkswagen, said the board would replace him with Matthias Mueller, head of the automaker’s Porsche sports car business. Carsten Brzeski, chief economist at ING Germany, said the ongoing refugee crisis and now the “Volkswagen shocker” pose new risks to the German economy. Mr Winterkorn, who was due to have his contract extended at Friday’s board meeting, did not mention his future in a video message posted on the company’s website on Tuesday, in which he repeated his apology for a scandal which has wiped out tens of billions of dollars from the company’s value.

Deutsche Bank called the scandal an “investor’s nightmare” and cut its recommendation to “hold” from “buy”, predicting rising costs for making diesel cars would wipe out the company’s cost-cutting programme. It is, he notes, “one of Germany’s most important global champions” and an “important growth driver for the German economy.” Germany’s transport minister says it remains to be seen what effect the suspect software built into some 11 million Volkswagen diesel vehicles actually had. In the firm’s historic home of Wolfsburg, Martin Winterkorn, VW chief executive, said he was “endlessly sorry” the company had betrayed its customers’ trust.

He said Wednesday that Volkswagen has indicated the software was inactive, and that the commission will have to “examine carefully what changes an inactive part could cause to an engine, the vehicle.” Dobrindt wouldn’t say whether he expects heads to roll at Volkswagen. In nearby Hanover, the Lower Saxon government, which controls a fifth of voting shares, demanded to know “when this manipulation was initiated, by whom and why it was not discovered until now”. He said his job is to examine how consumers might have been affected and “it is not for us to decide on other questions.” In early afternoon trading in Frankfurt, the company’s share price was up 3.1 per cent at 114.60 euros.

That’s a marked turnaround from the start of the session when it slid a further 7 per cent to trade below 100 euros for the first time in nearly four years. Wednesday’s rise follows declines of 17 per cent and 20 per cent in the first two days of the week that saw nearly 25 billion euros (around $28 billion) wiped off the company’s market value. The head of Germany’s main industry lobby organization is calling for “transparency, openness and speed” in getting to the bottom of the Volkswagen emissions scandal. Clifford Law Offices, based in Chicago, says it is filing a complaint to the Northern District of Illinois alleging that VW engaged in deceptive and fraudulent business practices.

Meanwhile, law firm Sutts, Strosberg LLP, based in Windsor, Canada, was reported in local media to have filed a class action lawsuit seeking $1 billion in damages and $100 million in punitive damages. The European Automobile Manufacturers Association, which represents major European automakers including Volkswagen, says it “recognizes the gravity of the situation and is taking this very seriously.”

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