VW Rocked by Emissions Scandal as Prosecutors Come Calling

24 Sep 2015 | Author: | No comments yet »

As Volkswagen Takes Heat, Car Maker’s Ads Tout Fuel Efficiency.

Volkswagen Chief Executive Martin Winterkorn resigned on Wednesday, succumbing to pressure for change at the German carmaker, which is reeling from the admission that it deceived U.S. regulators about how much its diesel cars pollute. “Volkswagen needs a fresh start – also in terms of personnel.

I am clearing the way for this fresh start with my resignation,” Winterkorn said, following a marathon meeting with the executive committee of the VW board. No replacement was announced, and VW still has no easy exit from a scandal that has suddenly dented a reputation for trustworthiness that took decades to build. The world’s biggest carmaker by sales has admitted to US regulators that it programmed its cars to detect when they were being tested and alter the running of their diesel engines to conceal their true emissions.

Mueller, a former head product strategist, is also a management board member of Porsche SE, and so close to the Piech-Porsche family that controls Volkswagen. Its acting chairman, Berthold Huber, said company directors are “resolved to embark with determination on a credible new beginning.” Huber said a successor will be discussed at a board meeting on Friday that was originally intended to approve extending Winterkorn’s contract through 2018. Winterkorn, who during his eight years in charge oversaw a doubling in Volkswagen’s sales and an almost tripling in profit, said he was shocked that misconduct on such a massive scale had been possible at the company. German Chancellor Angela Merkel had urged Volkswagen to move “as quickly as possible” to restore confidence in a company held up for generations as a paragon of German engineering prowess.

Winterkorn, VW’s boss since 2007, had come under intense pressure since the EPA’s disclosure Friday that stealth software makes VW’s 2009-2015 model cars powered by 2.0-liter diesel engines run cleaner during emissions tests than in actual driving. So far this year, Volkswagen has aired 36 different television spots, and 14 are focused on “Clean Diesel” products, according to ad tracker iSpot.tv. Senior members of Volkswagen’s board said in a statement they expected more heads to roll as an internal investigation seeks to identify who was responsible for the wrongdoing.

VW later acknowledged that similar software exists in 11 million diesel cars worldwide and was setting aside 6.5 billion euros to cover the costs of the scandal. German Economy Minister Sigmar Gabriel said Winterkorn was taking responsibility for decisions made when he was at the helm of Audi, rather than Volkswagen. Another mom, in a Volkswagen Passat, drives by with well-behaved kids in tow — the idea being that the car is so fuel-efficient she does not have to stop.

Volkswagen said on Wednesday about 11 million of its cars were fitted with Type EA 189 engines that had shown a “noticeable deviation” in emission levels between testing and road use. Winterkorn had no knowledge of the manipulation of emission values,” and praised the departing CEO’s “readiness to take responsibility in this difficult situation for Volkswagen.” Stephan Weil, the governor of Lower Saxony state, which holds a 20 percent stake in Volkswagen, said VW is filing a criminal complaint, “because we have the impression that criminally relevant actions may have played a role here.” Weil, also a VW director, promised to “clear up these events with all the possibilities we have inside the company and ensure that those involved are punished severely.” Other governments from Europe to South Korea have begun their own inquiries, and law firms have already filed class-action suits on behalf of customers.

The story has shocked the car market, with dealers in the United States reporting people holding back from buying diesel cars and “#dieselgate” trending on Twitter. “Winterkorn did a good job and does not deserve to be sacrificed. There is no immediate way of restoring VW’s reputation, but only total transparency can resolve the scandal and salvage its brand, said Jeremy Robinson-Leon, chief operating officer at Group Gordon, a New York-based corporate and crisis PR firm. “The most important thing is that VW comes out and tells the public what happened, who was involved and make sure that it doesn’t happen again,” he said. U.S. regulators raised questions about VW’s diesel emissions in March 2014, and insisted on answers for another 18 months before the company finally acknowledged installing the stealth software. While the impact remains unclear, VW is “one of Germany’s most important global champions” and an “important growth driver for the German economy.” Another unanswered question is whether Volkswagen was alone in trying to dupe emissions testers. At the stock’s lowest point, more than US$30 billion had been wiped off the company’s market value since the crisis began – more than the combined equity values of rivals Fiat Chrysler and Peugeot.

French carmakers Peugeot Citroen and Renault fared worse though, down 2.6 percent and 2.3 percent respectively. “Dealers despise being kept in the dark, and the carmakers as a whole will be a sector to swerve until there is a conclusion to this saga,” said David Madden, a market analyst at IG. Germany’s biggest bank, Deutsche Bank, has already lowered its forecast for the main German stock market index, the DAX, where carmakers account for 25 percent of its total value.

Environmentalists have long complained that carmakers game the testing regime to exaggerate the fuel-efficiency and emissions readings of their vehicles. But Deutsche Bank called the scandal an “investor’s nightmare” and cut its recommendation on Volkswagen shares to “hold” from “buy”, predicting rising costs for making diesel cars would wipe out its cost-cutting programme.

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