Conflict of Interest? State's Cozy Ties with Volkswagen in the Spotlight

The premier of the automaker’s home state of Lower Saxony has come under fire for not supervising the company more closely at a time when he must fight a re-election battle.
Better days: VW CEO Matthias Müller and Stephan Weil, premier of Lower Saxony, tour a VW factory

It’s taken two years, but the Dieselgate scandal that has engulfed German carmaker VW is finally beginning to reverberate through the political world, two months before the country holds general elections. While Angela Merkel’s Christian Democrats are still likely to win the most votes, the scandal could impact the structure of her ruling coalition.

For the moment, the biggest impact of the scandal appears to be in the populous state of Lower Saxony, where VW has its headquarters. Under a 1960 law that was enacted when VW was privatized, the state government owns 20 percent of VW’s shares and holds two seats on the company’s supervisory board. Since the state premier, Stephan Weil, has one of those board seats, he is now coming under fire for not exercising proper oversight of the company during the diesel scandal.

Making matters worse for Mr. Weil, who heads the Social Democratic Party faction in the state Landstag, or legislature, the state government lost its one-vote majority this week and Mr. Weil was forced to call for new state elections October 15, just three weeks after the national vote.

There was a complete policy failure in the automobile sector Christian Lindner, Leader of the Free Democratic party

Mr. Weil’s re-election now seems far from assured following a newspaper disclosure that Mr. Weil submitted a parliament speech about VW to the company for review before delivery. One report said the company had edited the speech to remove comments the company found unflattering, but Mr. Weil denied that charge.

But for the first time, the state’s relationship with VW is coming under blistering attack. Christian Lindner, who leads Germany’s center-right Free Democratic Party, who is hoping to join Ms. Merkel’s coalition as a junior partner this year, told Handelsblatt on Tuesday that the state “should completely privatize VW.” Such a demand would have been unthinkable just a few months ago.

Mr. Lindner said that VW was just one of many companies with state shareholdings that needed to be freed from state control and properly regulated. “There was a complete policy failure in the automobile sector,” he said, and called for repeal of the VW law that grants state ownership because the state ownership “is no longer appropriate.”

Also jumping on Mr. Weil was the leader of the opposition Christian Democrats in Lower Saxony, Bernd Althusmann, who said that if his party wins control at the next election, he would seek to install an automotive expert in one of the two board seats controlled by the state, whose full-time job would be to supervise VW operations.

Mr. Althusmann, mindful that VW is responsible for 200,000 jobs in Germany, many of them at six factory sites in the state, said he was still in favor of the state retaining its supervisory board seats. “We will stick with the VW law and keep our 20 percent stake,” he said.

What remains to be seen is if there is any political fallout at the national level because of the diesel crisis. Five car companies are being investigated for antitrust violations by the European Union and the current coalition government apparently did little or nothing to inspect all makes of diesel cars, after it was revealed by the US government that VW had installed software on its cars to cheat on emissions testing. In fact, German Transport Minister Alexander Dobrindt took the unusual step of banning new registrations of a Porsche SUV which had the same cheating software that was detected two years ago in America.

The government convened an emergency “diesel summit” between carmakers and government officials last week, which resulted in the carmakers agreeing to install new software to lower some emissions. But the agreement, which also included the establishment of a €1 billion fund to pay for non-polluting municipal transport, was widely criticized for not going far enough.

In the last federal election, the Christian Democrats won 41 percent of the vote in Lower Saxony, against 31 percent for the Social Democrats. If the SDP is now blamed for the VW scandal, that could alter the national calculus. The CDU and SPD currently rule in a grand coalition which might collapse if either party is blamed for the diesel crisis.


Several Handelsblatt correspondents contributed to this report. Charles Wallace adapted the story into English for Handelsblatt Global. To contact the editor: [email protected]