Handelsblatt Exclusive VW Memos Cast Harsh Light on Ex-CEO

A 115-page VW legal document seen by Handelsblatt suggests that former Volkswagen CEO Martin Winterkorn and other top managers may have failed to quickly address diesel emissions problems at the German automaker.

The Volkswagen legal document is 115 pages long.

Its purpose is to defend Europe's largest automaker in German court against lawsuits brought by several shareholders in Germany. In its conclusion, lawyers at Göhmann law firm in Braunschweig said VW's top managers did not violate any laws, according to the document, which Handelsblatt has seen.

But between the lines, the legal defense reads like an accusation: It lists a series of occasions between spring of 2014 and September 2015 when then-Chief Executive Martin Winterkorn was informed by subordinates of the "diesel topic'' -- a reference to the scandal that now threatens the firm.

Mr. Winterkorn is mentioned by name 16 times in the document. Last week, VW released a four-page summary to the public. Days after the scandal broke last September, Mr. Winterkorn resigned, denying knowledge of the software manipulation that falsified emissions tests on up to 11 million vehicles.

But regardless of questions of culpability -- which prosecutors in Braunschweig and the United States are pursuing -- a big question has been raised by Volkswagen's own depiction of the events leading up to the scandal.

Should Mr. Winterkorn have acted sooner?

The shareholders suing Volkswagen in Germany argue that the automaker informed the public too late about the scandal, and is therefore legally responsible for their investment losses. VW shares plunged by up to 40 percent in the wake of the scandal.

The legal defense presented by Volkswagen in the Braunschweig civil case, devised to defend the automaker from compensatory damage claims, nevertheless casts a curious light on the actions of Mr. Winterkorn.

The legal document also names only once Herbert Diess, the head of VW-brand vehicles, but that is not surprising. The former BMW executive took over as VW-brand chief at Volkswagen last July.

The documents presented in court provided no evidence that would incriminate two top VW executives in the emissions-rigging: Matthias Müller, the Porsche CEO who succeeded Mr. Winterkorn last September as VW chief executive, and Hans Dieter Pötsch, VW's chief financial officer who became chairman of the automaker's non-executive supervisory board last October.

Though the defense statement was created to quash the allegations of unhappy shareholders in court, it also gave some insight into the genesis of the disaster.

In the document, VW’s lawyers said Mr. Winterkorn received a memo with indications of irregularities in diesel vehicles as early as May 2014 as U.S. and California environmental authorities began their investigations.

The note was delivered as part of a so-called “Wikopost” – short for “Winterkorn Post” — a compilation of letters, memoranda and reports intended for the CEO.

By July 27, 2015, it should have been clear that something was terribly wrong that demanded the attention of VW’s leaders. On that day Mr. Winterkorn and Mr. Diess met with some technicians to talk about the shortcomings of models.

The exact contents of their “informal” conversation on this day between Mr. Winterkorn, Mr. Diess and technicians can no longer be reconstructed in detail, the defense lawyers wrote in the statement.

“At this meeting, individual VW employees shared, possibly for the first time, that underlying the diesel issue was a software manipulation that influenced the exhaust gas behavior in the test environment,” according to the document.

Mr. Winterkorn asked the staff to “further clarify the facts,” according to the document. But in a “Wikopost” he received on May 23, 2014, a subordinate informed him that the U.S. environmental authorities had begun to look into inconsistencies in the diesel emissions of VW models.

Another set of memos from subordinates delivered to Mr. Winterkorn in November brought the next hint of trouble, and there were more in the following months.

A note delivered to him on November 14, 2014, discussed how some VW diesel models were exceeding emission limits in the United States, and how the problem could be solved with a recall. An employee in the note estimated the recall’s cost to be “about €20 million” ($22 million).

But according to sources who declined to be identified, Handelsblatt has learned that at least 20 other top VW managers had received the same note.

A few weeks after the note went out, according to sources within the company, the recall was discussed by VW’s finance section and other affected parts of the automaker such as purchasing section.

At the time, the VW finance section was led by Mr. Pötsch.

According to some experts, the price tag to VW of its unfolding global scandal could now top €30 billion. Investors and VW don’t anticipate at this point that Volkswagen’s existence will come into question, but the costs will be enormous.

 

 

Ultimately, VW did order a recall but it was not successful. Nitrogen oxide emissions could only be decreased by 60 percent, according to internal documents, which was still out of compliance with U.S. emissions limits.

The U.S. environmental authorities gradually lost patience with the automaker. VW began calling on its lawyers for assistance in the matter.

By mid-May 2015, an employee in the VW legal department received a reference to “the possible use of a so-called defeat device,” according to the defense document.

A defeat device is defined by the U.S. environmental authorities as a device or software that illegally reduces exhaust emissions during testing.

Despite this suspicion, VW legal experts apparently did nothing. The meetings that July with Mr. Winterkorn and Mr. Diess also did not probe enough.

VW, in the document, admits that "according to the current status of the investigation, clues were accumulating at Volkswagen from the end of May 2015 that make it increasingly likely that the software could have been used in breach of U.S. law."

 

Quelle: dpa
A legal brief submitted by VW in German court asserts that there is no evidence linking Hans Dieter Pötsch, the former VW chief financial officer and current supervisory board chairman, and Matthias Müller, who became VW CEO days after the scandal broke, to the emissions-rigging scandal.
(Source: dpa)

 

The lawyers gave a simple explanation for why VW did not respond in a timely fashion: "Because of VW Wolfsburg summer vacations between August 3-23, 2015, numerous employees of administrative departments and managers, (were) not available."

Based on Handelsblatt information, Mr. Winterkorn and up to two dozen VW managers and other unnamed "directors'' were informed of the diesel problem as it developed, the document concludes.

The VW board dealt repeatedly with the emissions issue, specifically on September 8, 2015, two weeks before the automaker in an ad hoc release to the shareholders informed them of its diesel deception on Sept. 22, 2015.

The crucial question is whether the diesel disaster could have been prevented through better management. If so, VW's own supervisory board under German law must consider bringing damage suits against current and former managers, perhaps Mr. Winterkorn.

These possibilities are now actively being discussed at VW, Handelsblatt has learned. The 115-page document the newspaper has seen raises the suspicion that Mr. Winterkorn could have acted sooner. But suspicion is not proof.

It is possible that Volkswagen's own internal investigation by U.S. law firm Jones Day will reach the same conclusion.

More clarity could come in April when Jones Day presents a preliminary report. The firm looked at the statement prepared by Göhmann for weaknesses and findings from Jones Day were included, according to insiders.

The experts at Jones Day are analyzing thousands of documents and meeting with stakeholders to explore the next steps for "Dieselgate." Whether VW decides to follow Dieselgate's trail back to its own top managers remains an open question.

 

Handelsblatt’s Martin Murphy covers the auto industry; Volker Votsmeier is an editor with Handelsblatt’s investigative reporting team. To contact the authors: [email protected],  [email protected]