Crisis Meeting Crunch Time for VW in U.S. Dieselgate Fight

VW CEO Matthias Müller will confer today with American regulators in an attempt to win approval for a recall plan to compensate 600,000 U.S. car buyers affected by the Dieselgate scandal. But a quick agreement doesn't appear likely.
VW CEO Matthias Müller has a lot to explain to the U.S. Environmental Protection Agency.

Today, Matthias Müller has his most important meeting since becoming chief executive of Volkswagen last September in the middle of its global crisis.

The 62-year-old former head of VW unit Porsche is to hold crucial talks with the U.S. Environmental Protection Agency, the overseer that uncovered the carmaker’s diesel emissions scandal last year along with the California Air Resources Board.

The two agencies said the German automaker, the world's No. 2 behind Toyota, rigged almost 600,000 diesel engines in the United States, falsifying emission levels of nitrogen oxide, a highly toxic pollutant and crucial component of smog.

After the U.S. allegations surfaced, VW quickly admitted to having manipulated the diesel engines of 11 million cars worldwide by using software to trick pollution regulators around the world. The admission has plunged Europe’s largest carmaker into crisis and has wiped billions of euros off the firm’s market value.

Mr. Müller, who replaced VW boss Martin Winterkorn, is to meet with EPA chief Gina McCarthy. He needs to convince her that Volkswagen is serious in resolving scandal.

But U.S. regulators are skeptical of Volkswagen's claim that a "technical'' mistake led to the massive deception. Mr. Winterkorn and his successor Mr. Müller, as well as other top VW board members, have denied having knowledge of the software fix that turned on emissions controls only when the car was being tested.

The biggest potential risk are the damages payments. Frank Biller, Analyst, LBBW Bank

Volkswagen has suspended a handful of mid-level managers in the scandal, and is conducting an internal investigation. A German prosecutor in Braunschweig initiated but then backed away from investigating whether Mr. Winterkorn or his top lieutenants had ordered the deception.

On Tuesday, the California regulator rejected VW's proposal for compensating U.S. owners of the affected diesel cars, and criticized the company for not cooperating with its probe. The regulator also threatened a big unspecified fine unless Volkswagen supplied more information to U.S. investigators, which Volkswagen, citing Germany's strict privacy laws, has so far refused to do.

“This is important,” Frank Biller, an analyst at LBBW Bank in Stuttgart. “The process of resolving the emissions scandal is taking shape. One has to see how they can agree on a solution and how much it will cost. This meeting is one of the building blocks to come to a conclusion.”

The meeting with the U.S. regulator could determine how much money VW will pay to settle the diesel emissions scandal in the United States. The U.S. Department of Justice sued VW last week, accusing it of violating the U.S. Clean Air Act and impeding investigations “by material omissions and misleading information.”

VW in theory could face up to $48 billion in fines, although analysts expected a settlement that would be much lower.

Mr. Biller said that it was hard to estimate whether the €6.7 billion that VW has set aside so far to recall and repair cars worldwide will be sufficient.

“The solutions in Europe are considerable less expensive than expected,'' he said. "If in America some cars will cost more to be fixed, it does not mean the full figure is not enough."

Germany’s transport authority last month approved repairs to about 8 million diesel cars in Europe, where nitrogen oxide emission regulations are less strict than in the United States. The European fix will require a relatively simple software update or, in a minority of cases, a software update plus the installation of a new air filter.

 

 

In the United States, where environmental regulations are tougher and the chance for sizeable legal damages is great, the mechanics of the mass-repair job are only a minor point in resolving the scandal.

"The biggest potential risk are the damages payments,'' Mr. Biller said. "A couple of hundreds million of dollars to possible buy back a relatively small number of cars that cannot be repaired is not significant compared to possible fines and compensation payments.”

Mr. Biller said he expected VW will face "several billion dollars'' in U.S. fines.

The California Air Resources Board on Tuesday dashed hopes of quick approval to fix around 480,000 2-liter VW cars sold in the United States. The regulator called VW’s recall plans “incomplete, substantially deficient, and fall far short of meeting the legal requirements.”

The EPA agreed with the Californian regulator it could not approve VW’s plan.

The chairwoman of the Californian regulator, Mary Nichols said: "Volkswagen made a decision to cheat on emissions tests and then tried to cover it up. They continued and compounded the lie and when they were caught they tried to deny it. The result is thousands of tons of nitrogen oxide that have harmed the health of Californians.”

A Volkswagen spokeswoman in the United States said that the company is currently reviewing CARB’s decision, and stressed that the rejection affected the initial recall plan submitted in December. Since then, she added, the company has been in continuous talks with authorities.

Volkswagen faces a Thursday deadline to present the EPA with a plan to fix 480,000 2-liter-engine diesel vehicles and a February 2 deadline to hand in plans to repair around 85,000 3-liter-engine diesel cars.

Mr. Müller has stumbled in his maiden trip to the United States. He was forced to make an embarrassing public U-turn in an interview with U.S. radio broadcaster NPR. The VW chief executive, sounding defensive and irritated, initially said Volkswagen “didn’t lie” to U.S. regulators when confronted with false diesel emissions data and called the situation “a technical problem.”

 

 

After part of the interview was broadcast, VW, however asked to be interviewed by NPR for a second time. In that interview, Mr. Müller apologized for his initial remarks and said: “We had the wrong reaction when we got information year by year from the EPA and from the (California Air Resources Board). We have to apologize for that, and we'll do our utmost to do things right for the future.”

Mr. Müller's interview with NPR, broadcast nationwide, was “unfortunate,” but it might have been a misunderstanding about 2-liter and 3-liter engines, Mr. Biller said.

But Mr. Biller, the German bank analyst, said he didn't think Mr. Müller, who has spent almost all of his career at Volkswagen, would be just a transitional chief executive.

“He has not been nominated for a certain period, his contract has no fixed term,'' Mr. Biller said. "I don’t assume he will only be there temporarily. On the other hand, he is no longer the youngest, so he will probably not be chief executive in ten years' time.”

Mr. Müller plans to meet with members of Congress, Bloomberg reported. The VW executive spoke Tuesday with U.S. Senator Bob Corker, a Republican from Tennessee, where VW is expanding a plant in Chattanooga. He also met with Republican U.S. House Representative Tim Murphy, who is leading a congressional inquiry into the emissions scandal.

 

Gilbert Kreijger is an editor with Handelsblatt Global Edition in Berlin, covering companies and markets. Franziska Roscher from Handelsblatt Global Edition and Handelsblatt correspondents Astrid Dörner, Martin Murphy, Markus Fasse and Martin Tofern contributed to this article. To contact the author:  [email protected]