VW chairman says parts of company 'tolerated breaches of rules'

By Crain News Service staff and wire reports

WOLFSBURG, Germany (Dec. 10, 2015) — Volkswagen A.G. Chairman Hans Dieter Poetsch pledged that the company will be “relentless” in seeking to establish which people were responsible for the auto maker's emissions scandal — even as he admitted that there was an attitude in some parts of the company that “tolerated breaches of rules.”

VW acknowledged for the first time Dec. 10 that the seeds of the crisis were sown a decade ago because its diesel cars could not pass strict emissions standards in the U.S., where the company has been an also-ran.

Mr. Poetsch said the cheating happened because engineers who were developing the EA 189 engine family involved in the scandal could not find a way to meet U.S. diesel emissions limits in a permissible way within their time frame and budget.

The cheat was not a one-off mistake but a “chain of mistakes,” he told a news conference at the auto maker's headquarters in Wolfsburg, organized as part of the company's updated report on the scandal

VW needs to win back trust lost through its cheating on diesel emissions tests that may affect 11 million vehicles worldwide,” Mr. Poetsch he said at the news conference. “We will be relentless in seeking to establish who was responsible.

“Everything is on the table. Nothing will be swept under the carpet.”

Mr. Poetsch said investigations found that the emissions cheating happened because of three factors. One was an attitude in some parts of the company that “tolerated breaches of rules,” adding: “This factor was most difficult for us to accept.”

Another was individual failures in one area of the company, he said. A third was flaws in some processes that are now being tightened.

Mr. Poetsch said nine executives have been suspended as a result of the scandal. He said he would not be speculating on whether additional managers would be suspended.

The VW chairman repeated the company's earlier assertion that only a relatively small group of people were involved in the diesel software cheat. He said there was no indication that supervisory or management board members were involved. “Based on what we know today, it was a very limited group which acted irresponsibly,” he said.

Investigations continue

Mr. Poetsch said the external investigation by U.S. law firm Jones Day was making good progress but would need time to reach conclusions because the results will need to stand up in court. The results will be reported to VW's annual meeting in April.

A parallel internal investigation will be concluded soon, he said. VW has set up a task force of its best experts to find out what happened.

About 450 external and internal experts involved in the investigations, Mr. Poetsch said.

Deficiencies were found in reporting and monitoring systems as a result of the investigations. “The main problem there was that responsibilities were not sufficiently clear,” Mr. Poetsch told reporters.

VW said it has agreed on steps to improve oversight of engine-software development to avoid future manipulations. “Software for engine control devices will be developed more strictly in accordance with the four-eyes principle,” the company said in its updated report.

Brand commitments

Matthias Mueller, VW's CEO, said the crisis was an opportunity for the company to introduce long-needed structural change. Since the start of this year, the VW group's executive board has brought in six new members, and top management had been changed at seven of VW's 12 brands.

He said VW was working on a new structure to give more power to its regional divisions and brands. Details would be drawn up in the first quarter of next year and it would be in place across the group by early 2017.

The company was not considering the sale of any units to simplify the group structure or raise money, and was happy with having 12 brands. “There is no reason whatsoever to get rid of these assets,” said Mr. Mueller, who oversees brands from Ducati motorcycles to Scania heavy trucks and Bugatti supercars.

“We will not allow the crisis to paralyze us. Although the current situation is serious, this company will not be broken by it,” he said.

Mr. Mueller said that tips from about 100 whistle-blowers didn't open any new fronts in the scandal.

The CEO, who took over in October, said he hopes to reach a deal with the U.S. Environmental Protection Agency within weeks and make his first official visit in January to the U.S., where Volkswagen's emissions cheating first emerged.

Mr. Mueller's comments show he's trying to move to the next phase of dealing with the scandal. He faces the complicated task of wringing savings from a company unaccustomed to austerity, with a powerful workforce defending its privileges and the controlling Porsche-Piech family reluctant to introduce sweeping changes.

U.S. visit

Mr. Mueller said the company hopes to reach a deal with U.S. environmental authorities in the next few days or weeks so the company can start to recall affected cars there. He said cooperation with those authorities is now “excellent” after earlier misunderstandings on both sides.

He said he would start with a visit to the U.S. after the Detroit auto show in January, adding that he would apologize for the situation, but said: “I don't think I will be going down on my knees there.... I will look ahead optimistically and confidently.”

Mr. Mueller said he'll protect jobs at each of Volkswagen's factories around the world. He left open the option of making adjustments within Volkswagen's sprawling portfolio of 300 model variants.

The car maker said it will have future emissions tests independently evaluated. Volkswagen faces at least 6.7 billion euros ($7.3 billion) in diesel recall costs, not including likely regulatory fines and potential damages from hundreds of lawsuits.

The car maker is also experiencing a backlash from consumers amid the sluggish progress to recall the vehicles. Sales in the U.S. last month tumbled 25 percent. While the company is nearing regulatory approval for a low-cost fix for some 8.5 million cars in Europe, its proposals are still under review in the U.S., where regulation is more stringent.

The cost of buying back affected U.S. vehicles could total as much as $9.4 billion, according to Bloomberg Intelligence. The company got some welcome relief on Dec. 9 when it all but eliminated one front in the pollution scandal.

Its suspicions of illegal discrepancies in the carbon-dioxide emissions of as many as 800,000 vehicles proved to affect far fewer vehicles than originally suspected. Mr. Mueller, previously the chief of Volkswagen's Porsche brand, was appointed to succeed former CEO Martin Winterkorn, who stepped down in the aftermath of the scandal.

Bloomberg News and Reuters contributed to this report, as did the staff of Automotive News, a Detroit-based sister publication of Tire Business.