Handelsblatt Explains How VW rose so high and fell so low

Conceived by Hitler in the 1930s, Volkswagen became the symbol of Made in Germany and the world’s largest car maker. Then it crashed into Dieselgate.
Hitler, Porsche (without hat) and their "people's car."

Fahrvergnügen, like Volkswagen, is one of those long and phonetically implausible German words that beckons Americans with a vague promise of exotic thrills and masterful engineering. That’s why Volkswagen (VW) invented the word Fahrvergnügen for its American ad campaign in the 1990s. It means “driving pleasure,” but to many Americans it represented “what makes a car a Volkswagen.” In fact it symbolized even more than that. VW, as a brand and institution, stood for the label “Made in Germany,” with its confident promise of total reliability.

The higher you fly, the harder you fall. Starting in 2015, prosecutors in America and elsewhere have been bringing to light a stunning pattern of corporate crime and moral failure at VW. For years the firm cheated during emissions tests to make its diesel cars appear clean when in fact they emitted toxic fumes. “Dieselgate” is now the biggest case of fraud in automotive history. It has cost VW €21.6 billion so far, triggered hundreds of lawsuits and wiped out a fifth of VW’s preference stock value. Prosecutors have indicted six current or former VW employees, one of whom has been in a Detroit jail since January. Current CEO Matthias Müller, Chairman Hans Dieter Pötsch and brand evangelist Herbert Diess are being investigated for possible stock-market manipulation.

It is as though VW, from its Fahrvergnügen hubris to its subsequent Dieselgate fall, has become the subject of a Greek tragedy. Look further back, and VW is indeed even more tragic than that: From its creation through its early triumphs and disasters, the company often reflects the story of Germany as a whole.

VW, as a brand and institution, stood for the label “Made in Germany”, with its confident promise of total reliability.

It began as a yearning in the mind of Adolf Hitler. A fan of cars and technology, the Führer wanted an automobile for ordinary Germans comparable to Henry Ford’s Model T in America – a “people’s car,” or Volkswagen in German. For its production, Hitler, whose preferred nickname was “Wolf,” chose a site that became today’s city of Wolfsburg, which is still VW’s headquarters. And for its design, the Führer chose an award-winning engineer named Ferdinand Porsche, who had already founded an eponymous car company in 1931. After the war, Porsche would do a stint in prison for his Nazi affiliation. But to the world, he soon became known as the man who designed the Beetle.

Mass production of the Beetle did not commence until after the war, when Wolfsburg was located in the British sector of occupation. The company's iconic arch-shaped vehicle soon became an international blockbuster, and America its major export destination. By 1972 more than 15 million cars had been sold, making the Beetle the world’s best-selling vehicle – even beating the Model T. Hitler would have been proud. VW’s Transporter van also became a hit. Used as a lorry, minibus or camper, the van became known as the hippie bus in the late 1960s. Like Germany, the former Nazi firm VW had completely transformed its image within the span of a single generation.

Peace, love and VW.

The British, meanwhile, had in 1949 returned the company back to the German government, which listed the firm on the stock market in 1961, and later gave its remaining stake to the regional government of Lower Saxony. By now VW embodied West Germany’s so-called “economic miracle”. Also, in the 1960s, VW expanded into more brands, buying Audi from Daimler, the maker of Mercedes. By 1985, with a new bestseller, the VW Golf, VW became Europe’s largest carmaker. It expanded globally, too: In 1984 it was the first foreign car maker to enter the Chinese market.

Throughout this time, VW stayed entangled with the Porsche family (even though Porsche, famous for its sports cars, was independent). A grandson of the Beetle’s designer, Ferdinand Piëch, was an equally talented engineer and developed the Porsche 917, which won a string of victories at Le Mans in the 1970s. But in the 1970s he left Porsche and switched to Audi, where he rose to lead the entire VW Group – first as CEO in 1993, and from 2002 to 2015 as non-executive chairman.

Under Mr. Piëch’s leadership, VW bought seven more brands, including Skoda, truck maker MAN, motorcycle brand Ducati and Bentley limousines. And in 2012, at long last, the Porsche brand also became part of the VW Group. The Porsche and Piëch clans retain control through family foundations. The government of Lower Saxony, home to around 100,000 VW workers, also keeps its 20 percent of VW, and a seat on the supervisory board for its state premier. Other major shareholders include Qatar. Small shareholders have little say.

For Mr. Piëch, a perfectionist obsessed with horsepower and technology, being Europe’s largest was not enough. In 2007 he picked a new chief executive, Martin Winterkorn, to turn VW into the world's largest carmaker. The key to this strategy was once again America. VW’s plan was to lure American customers by selling diesel-powered cars, which have a higher mileage than gasoline vehicles. Diesel had always been popular in Europe but marginal in the US, where it had a filthy reputation. To meet American air-quality laws German engineers designed a new motor, which VW presented as “Clean Diesel” in 2007.

But in 2015 the world learned that “clean diesel” was a big, dirty lie. US environmental regulators revealed that its cleanliness wasn’t based on brilliant German engineering, but on fraud and conspiracy: Eleven million people worldwide were driving diesel cars, which polluted the air they breathed with nitrogen oxide by up to 40 times more than legally allowed in the US. How had VW duped regulators and consumers? The company had placed software into VWs, Audis and Porsche SUVs that could tell whether a car was being driven on the open road or tested during an emissions check. When the wheels were spinning but the car was not moving, the car suppressed its toxic exhaust. When the car was on the road again, it reverted to spewing gases.

Revelations of this almost decade-long deception laid bare VW’s previously hidden weakness: a culture of fear that treated failure as unacceptable – “North Korea without the labor camps,” as the German press had once dubbed it. Mr. Piëch and his protégé Mr. Winterkorn ruled as autocrats. Nobody had the standing or interest to oversee them effectively – not the Porsche and Piëch families, nor other shareholders such as Lower Saxony or Qatar. In effect, Mr. Piëch considered VW his personal fiefdom – even promoting his fourth wife, a kindergarten teacher and the family’s former governess, to the supervisory board. (Neither Mr. Piëch nor any of the other top executives has been personally accused of involvement in the scam.)

Surprisingly, the scandal did not keep VW from beating Toyota to become the world’s largest carmaker last year, when VW sold 10.39 million vehicles. That dream, which stretched from Hitler to Piëch, has come true. But it may yet turn into a nightmare. New allegations keep surfacing in the Dieselgate scandal: In March, German prosecutors raided Audi's offices, and one recent test showed that even a repaired diesel car still violates emissions limits in Germany. VW is also facing hundreds of lawsuits in the US and Germany. In February, Mr. Piëch implicated his old ally Mr. Winterkorn, as well as members of the supervisory board, including Lower Saxony’s Premier Stephan Weil and Wolfgang Porsche. The non-executive board members dismissed the allegation, with Mr. Weil calling it “fake news.”

VW, founded in a moral haze, appears destined to remain there.


Gilbert Kreijger is an editor at Handelsblatt Global. Franz Rother, a staff writer at business weekly WirtschaftsWoche, and Stefan Theil, the executive editor of Handelsblatt Global Magazine, also contributed to this article. To contact the author: [email protected]