Volkswagen’s CEO Has Resigned, But That Doesn’t Solve Its Problems

24 Sep 2015 | Author: | No comments yet »

Did Merkel cover up Volkswagen scandal? As car maker’s boss quits, German leader accused of accepting trickery ‘with a wink’.

Shares in Volkswagen jumped yesterday after CEO Martin Winterkorn announced his resignation, days after admitting that the world’s top-selling carmaker had rigged diesel emissions to pass US tests during his tenure. The race to the courthouse has begun among class action attorneys looking to sue Volkswagen over its effort to defeat emissions requirements on its diesel engine vehicles.

Martin Winterkorn, engulfed by a diesel-emissions scandal at Volkswagen AG, amassed a $US32 million pension before stepping down on Wednesday, and may reap millions more in severance depending on how the supervisory board classifies his exit.Angela Merkel became embroiled in the Volkswagen scandal yesterday as opposition politicians in Germany said her government knew in advance about the firm fiddling its emissions results.BERLIN— Volkswagen AG VLKAY 6.53 % raced Wednesday to contain the widening scandal threatening Germany’s most important company, ousting its chief executive and pledging to prosecute those involved in a scheme to cheat U.S. auto-pollution tests. In a statement, Winterkorn took responsibility for the “irregularities” found in diesel engines but said he was “not aware of any wrongdoing on my part.” “Volkswagen needs a fresh start, also in terms of personnel,” he said. “I am clearing the way for this fresh start with my resignation,” he said.

After Winterkorn disclosed on Wednesday that he had asked the board to terminate his role, company spokesman Claus-Peter Tiemann declined to comment on how much money the departing CEO stands to get. The German Green Party said ministers knew in summer about Volkswagen rigging emissions tests but that ‘tricks and deceits’ were ‘accepted with a wink’.

But that is just a fraction of the number that could be affected if the fallout spreads to suppliers and other automakers in Germany — Europe’s largest economy — where nearly a million people are employed by the car industy alone. “All of a sudden, Volkswagen has become a bigger downside risk for the German economy than the Greek debt crisis,” ING chief economist Carsten Brzeski told Reuters. “If Volkswagen’s sales were to plunge in North America in the coming months, this would not only have an impact on the company, but on the German economy as a whole.” “That’s why this scandal is not a trifle. The scandal claimed its first major scalp yesterday as the car-maker’s chief executive Professor Martin Winterkorn resigned to allow a ‘fresh start’ – but denied any ‘wrongdoing’ or culpability.

Environmental Protection Agency that Europe’s biggest auto maker employed software on some VW and Audi NSU 4.99 % diesel-powered cars to manipulate the results of routine emissions tests. Photo: AP Winterkorn’s pension had a value of €28.6 million ($45.6 million) at the end of last year, according to the report, which doesn’t describe any conditions that would lead the company to withhold it. Shares in VW rose 7.3 per cent on the news but, since the scandal broke at the start of the week, the firm has lost around one third of its value, or £20billion. And under certain circumstances, he also can collect severance equal to two years of “remuneration.” He was Germany’s second-highest paid CEO last year, receiving a total of 16.6 million euros in compensation from the company and majority shareholder Porsche SE.

Germany’s Greens claim Chancellor Mrs Merkel’s Conservative-led government admitted knowing about Volkswagen’s emissions test cheating software in an answer to a parliamentary question in July. Wolfsburg-based Volkswagen is as much institution as corporation at home, with nearly 300,000 employees, 29 plants across the country and deep ties to the government—Lower Saxony owns 20% of VW. Oliver Krischer, the party’s deputy leader, told Germany’s N24 television channel: ‘The government told us in July that it knew about this software, which has been used in the USA, and it’s clear they knew the software was widely in use.’ He added: ‘The government worked with the auto industry not to see that emissions levels were reduced, but so that the measuring system was set up to allow the cars to meet the necessary standards on paper.’ Mr Krischer’s claim centres on a written answer given by the German transport ministry on July 28 to a question from the Greens about so-called ‘defeat devices’.

The company’s next CEO faces a daunting task of cleaning up the scandal—the scope of which remains unclear—and keeping its sales expansion on track. It also increases power and fuel economy. • That was “trickery” says the Missouri lawsuit, filed in the Circuit Court of Cole County in Jefferson City. It claims that Volkswagen falsely told consumers that its cars offered “low emissions, high fuel efficiency, and adequate power that other engine manufacturers were unable to achieve, at least at the price levels achieved by VW.” If the government requires a software fix, the result will be worse fuel mileage and power levels so low that the cars may become unsafe on the highway, the lawsuit says. The stunning results were found after simply driving the cars on five routes and finding a huge discrepancy between their testing results and real-life performance. On Tuesday, Volkswagen disclosed that as many as 11 million cars contained software alleged to have duped emissions tests and were possibly subject to a global recall.

Winterkorn, Volkswagen’s boss since 2007, had come under intense pressure since the disclosure that stealth software makes VW’s 2009-2015 model cars powered by 2.0-litre diesel engines run cleaner during emissions tests than in actual driving. Juergen Resch, head of Deutsche Umwelthilfe (German Environment Aid), said: ‘The federal ministry of transport has not once checked the information provided by the manufacturer in recent years.’ He said: ‘Again and again we conduct testing. The company now faces fines that could run into the tens of billions of dollars in the US while other countries are launching investigations of their own. He added: ‘Our inquiry will investigate whether the vehicles in question were built and tested within the existing German and European legislation.’ The Green Party stood by its claims. His resignation came a day after he issued a video message asking staff and the public “for your trust on our way forward.” The EPA said Volkswagen could face fines of up to €16bn.

Weil said the company itself would file a criminal complaint, “because we have the impression that criminally relevant actions may have played a role here”. The prosecutors’ office in Braunschweig, near Volkswagen’s Wolfsburg headquarters, said earlier that they are collecting information and considering opening an investigation against employees of Volkswagen who might be responsible. The Executive Committee recognizes not only the economic damage caused, but also the loss of trust among many customers worldwide.” On Friday, federal and state regulators said the German automaker used software in 482,000 of its diesel vehicles since the 2009 model year to cheat on U.S. emissions tests.

Nitrogen oxide gasses can cause breathing problems and lung infections in humans and in 2012 the World Health Organisation classified diesel fumes as cancer-causing. Volkswagen confirmed — under pressure from the EPA and California regulators — that it installed software to manipulate test results in diesel versions of five U.S. models over seven years: the Jetta (2009-15), Beetle (2009-15), Audi A3 (2009-15), Golf (2009-15) and Passat (2012-15). Like other leaders, Blair was swayed by the motor industry’s argument that switching from petrol to diesel would lead to huge drops in greenhouse gas emissions. Senior Fellow at the International Council on Clean Transportation John German, who discovered the extraordinary result said they ran the program to show “US diesels are clean”. Instead, it led to one of the biggest scandals in car manufacturing history which has left the future of the company in doubt and will likely force them to have to recall nearly 500,000 cars including the Jetta, Golf, Beetle and Audi A3 models dating back to 2009.

The company’s culture is famously clubby and success depends on being well-connected in Wolfsburg and striking a balance between boosting profit margins and maintaining strong ties to labor. Müller gets along well with the Porsche and Piech families who control the company, said people familiar with the matter, and he has deep roots in Volkswagen. He is also well respected in financial circles. “We believe shareholders would welcome such a move,” said Arndt Ellinghorst, automotive analyst at Evercore ISI.

The crisis is spreading as regulators and justice officials in Europe and Asia launch investigations, and angry investors and customers file lawsuits seeking damages. Volkswagen is Germany’s largest corporation, generating revenue of almost €203 billion ($227 billion) last year in a country where every seventh job is linked to the nation’s export-oriented auto industry. According to Professor Frank Kelly, a member of the Government’s Committee on the Medical Effects of Air Pollutants, fumes from diesel exhausts could be to blame for around 7,000 premature UK deaths a year. Also in attendance were three representatives of the company’s workforce and IG Metall trade union, including Bernd Osterloh, the powerful head of its works council.

The company hasn’t offered a rationale, though outside experts speculate it was to ensure strong engine performance and boost fuel economy amid tough U.S. emissions standards. But diesel contains high levels of tiny particulates – 100 times smaller than the thickness of a human hair – which get deep into the lungs and bloodstream, triggering asthma, inflammation, heart attacks and strokes. It also asked prosecutors in Braunschweig, the county where VW is located, to investigate. “I’m pleased that Volkswagen is taking such an aggressive stance on admitting the problem and attacking it,” Gina McCarthy, EPA administrator, told The Wall Street Journal on Tuesday.

In 2013, German and Luxembourg researchers showed that by 2010 petrol cars had become so efficient that diesels were emitting just 1.5 per cent less greenhouse gas than petrol engines. European regulators want to bring in real world tests for emissions by 2018 that look at emissions from cars on the road, rather than in a laboratory.

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