On Wednesday, Volkswagen AG CEO Martin Winterkorn has resigned amid the emissions cheating scandal known as Dieselgate. On Friday, Winterkorn’s contract as CEO was due to be extended (or not) at the Volkswagen AG supervisory board meeting. With the scandal engulfing the company, driving its stock price down by about 40% since Monday. At a special meeting of Volkswagen’s core shareholders and union representatives on Wednesday, they grilled Winterkorn about getting VW, Europes largest automaker, out from under the scandal. At the end of the day, Winterkorn was unable to hold onto the CEO position.
Last Friday, news broke that the US Environmental Protection Agency (EPA) and the California Air Resources Board (CARB) had jointly determined the VW Group had violated the Clean Air Act since 2009. The violations were in 2.0 liter TDI Diesel passenger cars sold under VW and Audi brand names. According to EPA’s research, the vehicles passed their emissions tests in the laboratory, but on the road the cars emitted 10-40x the allowable air pollutants.
After studying the issue for over a year with VW’s cooperation, the company finally admitted in early September they had been filing fraudulent emissions test reports. The cars had been designed to detect when they’re undergoing an emissions test, and to configure the emissions control to reduce pollutants to pass the test, but under normal driving those control systems were turned off allowing pollutants into the atmosphere. The EPA calls this a “defeat device,” which are plainly disallowed under the Clean Air Act. As a result these cars should never have been allowed to be sold, and the EPA has prohibited Volkswagen from selling 2016 model year TDI Diesel vehicles.
Since this revelation, Volkswagen has admitted that while the issue affects about 500,000 cars sold in the U.S., it affects about 11 million cars sold worldwide. Both Winterkorn and the head of VW America have publicly admitted Volkswagen’s deceit, and apologized profusely.
Government agencies from around the world are launching investigations into Volkswagen’s conduct. That started with the EPA and CARB, followed closely by a criminal investigation started by the US Justice Department. Agencies in at least France, Germany, Italy, the European Union, South Korea have announced their own inquiries. Additionally several class action lawsuits have been launched, and there is obvious grounds for a shareholders lawsuit.
The impact is that VW’s cars emit more pollutants than is allowed. These cars have been touted as Clean Diesel that happened to also deliver a fabulously fun driving experience. The EPA and other agencies had promoted these cars as an example of the ultra clean vehicles we all need to clean up the environment. It’s been estimated that up to 1 million tonnes of extra pollutants were emitted because of this deceit.
With Winterkorn’s resignation it’s an open question just how did VW decide to commit this fraud. Was it decided by the upper management? The supervisory board statement below claims that Winterkorn did not know about this. But many find that surprising, since he was known to be interested in minute details. If the decision was made by mid-level management it indicates a broken corporate governance system.
Winterkorn issued this statement:
“I am shocked by the events of the past few days. Above all, I am stunned that misconduct on such a scale was possible in the Volkswagen Group.
As CEO I accept responsibility for the irregularities that have been found in diesel engines and have therefore requested the Supervisory Board to agree on terminating my function as CEO of the Volkswagen Group. I am doing this in the interests of the company even though I am not aware of any wrongdoing on my part.
Volkswagen needs a fresh start – also in terms of personnel. I am clearing the way for this fresh start with my resignation.
I have always been driven by my desire to serve this company, especially our customers and employees. Volkswagen has been, is and will always be my life.
The process of clarification and transparency must continue. This is the only way to win back trust. I am convinced that the Volkswagen Group and its team will overcome this grave crisis.”
Volkswagen’s supervisory board issued this statement:
1. The Executive Committee takes this matter extremely seriously. The Executive Committee recognizes not only the economic damage caused, but also the loss of trust among many customers worldwide.
2. The Executive Committee agrees that these incidents need to be clarified with great conviction and that mistakes are corrected. At the same time, the Executive Committee is adamant that it will take the necessary decisive steps to ensure a credible new beginning.
3. The Executive Committee has great respect for Chairman Professor Dr. Winterkorn’s offer to resign his position and to ask that his employment agreement be terminated. The Executive Committee notes that Professor Dr. Winterkorn had no knowledge of the manipulation of emissions data. The Executive Committee has tremendous respect for his willingness to nevertheless assume responsibility and, in so doing, to send a strong signal both internally and externally. Dr. Winterkorn has made invaluable contributions to Volkswagen. The company’s rise to global company is inextricably linked to his name. The Executive Committee thanks Dr. Winterkorn for towering contributions in the past decades and for his willingness to take responsibility in this criticall phase for the company. This attitude is illustrious.
4. Recommendations for new personnel will be presented at the upcoming meeting of the Supervisory Board this Friday.
5. The Executive Committee is expecting further personnel consequences in the next days. The internal Group investigations are continuing at a high tempo. All participants in these proceedings that has resulted in unmeasurable harm for Volkswagen, will be subject to the full consequences.
6. The Executive Committee have decided that the company will voluntarily submit a complaint to the State Prosecutors’ office in Brunswick. In the view of the Executive Committee criminal proceedings may be relevant due to the irregularities. The investigations of the State Prosecutor will be supported in all form from the side of Volkswagen.
7. The Executive Committee proposes that the Supervisory Board of Volkswagen AG create a special committee, under whose leadership further clarifying steps will follow, including the preparation of the necessary consequences. In this regard, the Special Committee would make use of external advice. Further details about this will be decided at the Supervisory Board meeting on Friday.
8. The Executive Committee is aware that coming to terms with the crisis of trust will be a long term task that requires a high degree of consistency and thoroughness.
9. The Executive Committee will work on these tasks together with the employees and the Management Board. Volkswagen is a magnificent company that depends on the efforts of hundreds of thousands of people. We consider it our task that this company regains the trust of our customers in every respect.