VW Chief Forced To Bug Out

Volkswagen_LogoWhen the U.S. Environmental Protection Agency accused Volkswagen of deception regarding the emissions generated by its diesel cars, CEO Martin Winterkorn’s response could have raised questions as to how someone at the top could permit those far from it to ruin his company’s hard-earned reputation as a responsible member of the auto-making community.

That such questions certainly were raised was indicated a week after the scandal’s start – necessitating the recall of more than 11 million vehicles, world-wide – when Winterkorn, at long last, admitted the buck does, indeed, stop at his desk, and he vacated it and his role at the company.

This may prove to be one of the greatest scandals ever to affect the auto industry, and that’s saying something. And given the level of fines (not to mention the unimaginably-vast manufacturer’s costs to fix the problem), it could go beyond putting a long-term dent in this company’s financial picture: It could spell its death knell.

An indication of how seriously the US government, not to mention Germany’s and others, are taking this matter was revealed on Friday (Sept. 25), when the EPA announced that it plans to road test “all new vehicle models and vehicles already on the road  to examine emissions claims following the exposure of Volkswagen’s regulation-cheating scandal,” USA Today reported.

The agency issued an advisory to car manufactures on Friday stating that it “may test or require testing on any vehicle at a designated location, using driving cycles and conditions that may reasonably be expected to be encountered in normal operation and use, for the purposes of investigating a potential defeat [sic] device.” (The ‘defeat device’ is, in fact, software, that causes the car to report lower-than-actual emissions.)

It is highly unlikely that American taxpayers will have to absorb a penny of the cost for any such extra testing.

And it could cost a bundle: There are more than 480,000 diesel Volkswagens on the road in the US, and an untold number of others – in dealers’ showroom and on used car lots – also are subject to the EPA’s special scrutiny.

On top of that, the agency also could fine Volkswagen $37,000 for each of the 482,000 on-the-road diesel VW’s with the “defeat” software installed. That amounts to more than $17.8 billion – on top of which the company no doubt will face class-action lawsuits from owners whose cars, truth be told, could perform worse, after the fix, than they currently do – with resulting way higher toxic emissions, and it’s even possible, The New Yorker’s James Surowiecki has reported, that the company could have to compensate owners for the full value of their cars.

The Guardian reported Friday that France’s Energy Minister, Ségolène Royal, has declared that his government will be “extremely thorough, extremely severe” in dealing with what amounts to a serious breach of trust by the world’s largest automaker by sales.

And both Britain and Germany had by Sept. 25 announced plans to inspect affected vehicles.

Go back a few years. Winterkorn has been in charge at Volkswagen – born in 1937 in Hitler’s Germany as  Gesellschaft zur Vorbereitung des Deutschen Volkswagens mbH, quickly renamed, the same year, simply as Volkswagenwerk, meaning ‘the people’s car’ – since 2007. He has a reputation as being a hands-on manager, involving himself in whatever details he feels his role necessitates to push the company’s costs down and its profits higher.

Apparently, though, his brain was in ‘park’ while a scheme was hatched to have ‘secret’ software generate false reports on emissions.

How could this happen? How could a company with so sterling a reputation that it was able, based on global sales for the first half of this year, to overtake Toyota to become the world’s largest car company, set itself up to fall so far so fast? (And far it has fallen, perhaps most noticeably in terms of stock value: During the week of September 21, the company’s share price was down, at one point, more than 50% from when the scandal broke; By week’s end, the price had rebounded somewhat, leaving investors down ‘only’ 28.52% if they’d had the stock a year – during most of which time it rose. Until Sept. 18, when the EPA’s accusation was issued, the stock was trading at around $30 per share.

(By Sept. 25, after its sharp decline then a recovery that could be called ‘decent’, under the circumstances, it closed at $27.7.)

Meanwhile, Auto Nation, the US’s largest car retailer (with 293 franchises), declared it has ceased selling any car that has an ‘active’ recall notice against it. That means, USA Today said, that not only will recall-targeted cars not be sold off any of Auto Nation’s lots, neither will any be sold at wholesale prices to auctions or resellers.

It’s early days, and there is no (public) indication yet as to who made the decision to create or install the ‘defeat’ software in diesel cars, or how high up the management chain that individual or group of people was.

What is known is that, as of midweek, “after a marathon board meeting” at the company’s Wolfsburg, Germany headquarters, Matthias Mueller was promoted from head of the Porsche sports car division to the position of C.E.O. – where he is in the hot seat, charged with figuring out, so heads can roll, who did what, when, and how to keep the company moving forward in the wake of what the company’s chairman, former finance chief Dieter Poetsch (who recently replaced a forced-out Ferdinand Karl Piech, a grandson of Ferdinand Porsche), has called “a moral and political disaster.”

Some, as the New York Times reported on Sept. 24, would point to intramural struggles in the board room – likely leading to less-close oversight operating-level activities – as being a significant factor in the development of a program that, rather than being driven by environmental concerns, as it was supposed to have been, was profit-driven.

How such a program, or scheme, escaped the attention of Winterkorn or his team, is one of the ultimate questions.

The true ultimate question is, will Volkswagen be able to survive the scandal?

Watch this space.


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