Dieselgate Inquiry Circling the Volkswagens

As Volkswagen struggles to set the record straight about who knew what when about Dieselgate, new reports show the cover-up went further than was previously known.
Volkswagen is a fortress under siege – and acting like one too.

When German prosecutors raided the headquarters of the luxury carmaker Audi last March, they could have quietly let themselves in the back door. Instead, they waited until Audi CEO Rupert Stadler was holding a major press conference and parked one of their cars – a BMW, no less – in Mr. Stadler’s private parking spot.

They said the raid was to glean new information about Audi, a key division of the Volkswagen Group, but it also effectively sent a message to executives at the center of a multi-pronged investigation into Volkswagen’s widespread emissions cheating.

The case prosecutors are building against Audi is only one piece of a much larger puzzle. Mr. Stadler is under suspicion of having known that defeat devices were being installed into his company’s cars, but he’s not the only one. This week, prosecutors confirmed that three of Volkswagen’s nine board members are under investigation, including CEO Matthias Müller, including Hans Dieter Pötsch, the chairman of Volkswagen’s supervisory board, and Martin Winterkorn, the disgraced former CEO who stepped down after Dieselgate broke.

Together, the pursuit of Volkswagen by prosecutors from three German states has stoked a culture of disillusionment and fear in and around Europe’s largest automaker. For some, Volkswagen’s headquarters in Wolfsburg has become a fortress under siege, in which not a day goes by without a new front of attack opening up.

The attackers – in this case prosecutors, regulators and legions of scorned customers – speak of a “diesel scandal” and “fraud” that has yet to be dealt with to satisfaction. Inside the besieged headquarters, there is a lot of talk of a “diesel issue” that was blown out of proportion and became a full-on “diesel crisis.” Many company insiders are dismayed that more legal pressure is being heaped onto Volkswagen.

Instead of looking forward, he is now putting most of his energy into damage control – a Sisyphean task at Volkswagen.

Prosecutors, for their part, believe there is still much to be learned about what transpired in the years before American regulators blew the whistle on Volkswagen’s cheating. The company has been in damage control mode for nearly a year and a half as it tries to set the record straight about how far up the command chain knowledge of the deception had gone.

In fact, it’s still unclear who knew what, when they knew it and whether they informed investors about the potential consequences in a timely enough fashion. The jury is also still out on whether or not Volkswagen has sufficiently compensated its customers who bought vehicles under the false impression that they had passed emissions tests with flying colors.

Mr. Müller, who spent years as the head of VW subsidiary Porsche, was allowed to succeed Mr. Winterkorn in the hopes that he would clean house and win back the trust of customers, employees and investors that the company had so stupendously lost.

Now, however, Mr. Müller is under investigation for having possibly waited too long to inform investors about the potential financial repercussions of the wide-reaching Dieselgate scandal. Instead of “relentlessly getting to the bottom of things” and delivering the “maximum transparency” as promised, Mr. Müller is now on the defensive. Instead of looking forward, he has shifted gears and is now putting most of his energy into damage control – a Sisyphean task at Volkswagen.

In an interview with Handelsblatt, Mr. Müller expressed fear that the Dieselgate aftermath had become all-consuming for Volkswagen. “There’s always something new to exacerbate everyone’s feeling of uncertainty inside the company,” he said. “But we can’t let that get in the way of doing what we’re really here to do.”

For Mr. Müller, it’s a question of how he’ll go down in German corporate history. Will he be remembered as a reformer? Or as a crisis manager who spent much of his time locked in endless legal battles?

Quelle: dpa
Former Volkswagen CEO Martin Winterkorn (left) and successor Matthias Müller are suspected of knowing about the cheating software before the information went public.
(Source: dpa)

Just when things seem like they could go either way, some journalist gets a scoop that casts Volkswagen in an even more unfavorable light. The New York Times reported Wednesday that Mr. Müller and Mr. Winterkorn had given their express permission for engineers to install defeat devices into Volkswagen vehicles, citing internal emails and memos. Handelsblatt has also learned that in 2007 Mr. Müller and Mr. Winterkorn indeed discussed the offending software, as well as ethical questions to its use, but plans were kept vague and made in euphemisms so as to maintain plausible deniability.

A spokesperson for Volkswagen denied the charges in the Times article, saying the company was familiar with “the documents upon which the article seemed to have been based, and they don’t lead to the conclusion that Matthias Müller knew about efforts to develop and employ defeat devices.”

Volkswagen is already slated to pay as much as €20 billion ($22.2 billion) in the United States in fines and customer compensation.

Volkswagen has promised to hire an experienced American lawyer to act as a "monitor" inside the company and let the US Justice Department decide who should get the job. Larry Thompson has been tapped, a 71-year-old jurist who oversaw the government's prosecution of executives at Enron, the energy company famously brought down for accounting fraud.

Now, Mr. Thompson will act as a rules enforcer at Volkswagen, making sure no low-ranking engineers or high-ranking executives sign off on any more legally dubious endeavors that could get the company into more trouble. Volkswagen has promised that Mr. Thompson will have a staff as large as 50 people.

Quelle: Bloomberg
Larry Thompson is one of the US' most famous legal minds after prosecuting Enron.

Back at home, prosecutors in Germany have doubled down with their own investigations into Dieselgate after being accused of dragging their feet. They now appear to be giving it all they’ve got – perhaps to counter the impression that they were initially too soft on auto executives who represent a bastion of German business.

So far, prosecutors from the cities of Braunschweig (near Volkswagen's headquarters in Wolfsburg), Munich (near Audi's headquarters in Ingolstadt) and Stuttgart (where the VW holding company Porsche SE is headquartered and carmaker Porsche is based) have joined the fray. All of them have experience in the field of white collar crime.

Authorities in Stuttgart, for instance, are looking into whether Mr. Müller, Mr. Pötsch and Mr. Winterkorn, in their capacity as board members at VW and Porsche SE, waited too long to inform investors about the diesel scandal. Once news of it broke, Porsche SE's shares plummeted as much as VW's.

In Munich, Dominik Kieninger is the public prosecutor on the Audi case. He was the one that called for the raid on Audi's headquarters to be carried out on the same day as the carmaker's annual press conference. He also had agents search the offices of the law firm Jones Day, which had been hired by VW to conduct an internal investigation. Now the ball is in Mr. Kieninger's court. Or rather, as long as Germany's highest court doesn't intercede, which it could still do since VW submitted a constitutional complaint against the raids.

Mr. Kieninger's office has plenty of experience dealing with corporate giants accused of a variety of offenses. They have pursued cases against Siemens, Ferrostaal and MAN, to name a few.

The state prosecutor's office in Braunschweig says it is investigating charges of evidence suppression and obstruction of justice.

The abundance of lawsuits against VW has nearly overwhelmed the company's in-house legal staff. But ever since the emissions scandal broke, VW hasn't hired any new lawyers to bolster its ranks. The roughly 220 employees in VW's own legal division are simply expected to put in their share of overtime. Many of the lawsuits filed by shareholders and customers are being handled by outside law firms.

But just because Volkswagen isn't expanding its legal workforce to help damage controldoesn't mean there haven't been any changes. Shortly after news of VW's emissions cheating became public, the company's long-time chief counsel, Michael Ganninger, quit his job. The exact circumstances of his departure are still unclear, but someone at VW is being investigated for overstepping their legal mandate by informing people at the company about impending investigations. Whether that person is Mr. Ganninger is still unclear.

It didn't take long for Volkswagen to find a replacement for Mr. Ganninger. The board chose Manfred Döss, a Porsche family loyalist. Thanks to an important double roll, Mr. Döss is one of the most influential men at Volkswagen. Not only is he head of the legal department but he is also a board member of the VW holding company Porsche SE, where he maintains close ties to some of the company’s highest-ranking members.

In the past three months, 11 new positions have opened up within the legal department, but none of them have been involved in helping the company navigate the legal aftermath of Dieselgate. Instead, VW needs the newly hired lawyers to work on product liability amid increased digitalization and developments in the field of autonomous driving.

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The investigations plaguing Volkswagen are only made worse with timing. As the transportation industry undergoes one of its most fundamental changes since the invention of the internal combustion engine, Volkswagen is still earning most of its money through a soon-to-be outdated business model of selling heavy cars with gas-guzzling engines.

Hybrid and electric cars are already replacing traditional combustion engines and soon lightweight construction and novel battery technology will drive consumer markets. Intelligent car-sharing systems have made independent car ownership unnecessary, at least for urban dwellers. And the prospects of cars that drive themselves will only deepen the trend of convincing more people to spend less time driving.

In many of these areas, Volkswagen is lagging sorely behind new industry competitors like Tesla and  also established companies like Daimler and BMW. Volkswagen's managers need every bit of time and energy it can muster if it wants to be a future influencerof the industry. But at the moment, they're rather distracted.


Stefan Menzel writes about the auto industry focusing on Volkswagen. Martin Murphy covers the steel, car and defense industries for Handelsblatt. Volker Votsmeier is an editor with Handelsblatt's investigative reporting team. To contact the authors: [email protected][email protected][email protected].