he engines were set to be a revolutionary breakthrough, used not just for Volkswagen models, but also for the company’s premium brand Audi, and less costly offshoots Skoda and Seat, along with some light commercial vehicles. Although specifics remain sketchy, it appears that management from the engineering team instructed the use of the software, under pressure to market the “clean diesel” breakthrough. The internal audit discovered that engineers realized that the vehicles would not, at the very least, meet U.S. diesel emissions standards, which are more stringent than in Europe.
As more fallout comes from the Volkswagen emissions scandal, a clearer picture is emerging as to who those responsible were for the decision to cheat regulators. According to a source close to the matter that refused to be identified, Germany’s Bild am Sonntag newspaper is reporting that internal auditors have pinpointed that engineers began installing the “defeat device” software in its EA-189 “clean diesel” engines in early 2008, following years of developing the engine for both 1.6 and 2.0 liter varieties. The engines were set to be a revolutionary breakthrough, used not just for Volkswagen models, but also for the company’s premium brand Audi, and less costly offshoots Skoda and Seat, along with some light commercial vehicles. Although specifics remain sketchy, it appears that management from the engineering team instructed the use of the software, under pressure to market the “clean diesel” breakthrough. The internal audit discovered that engineers realized that the vehicles would not, at the very least, meet U.S. diesel emissions standards, which are more stringent than in Europe.
The 2009 models were the first Volkswagen vehicles sold to the public that contained the emissions-bypassing software. Although the inquiry could not specify the name of the person who ultimately made the decision to cheat, the company recently suspended three members of its engineering team, each in a position to make crucial decisions. According to the report, those suspended include Ulrich Hackenberg, currently the head of development for the entire Volkswagen umbrella and the former head of the Volkswagen brand development during the 2008 decision, the current head of the Volkswagen brand development Heinz-Jakob Neusser, and head of engine and transmission development for all Volkswagen brands, Wolfgang Hatz. Although speculation, it would be difficult to imagine that the suspensions of these high-caliber managers are not related somehow to the most crucial scandal in the company’s history.
If these employees are identified as the key decision makers, Volkswagen may be able to avoid some of the financial penalties that the U.S. Justice department is seeking. Naming names is exactly what the Department’s new procedure calls for in order to receive credit during criminal probes. Volkswagen is already facing significant liabilities in addition to Justice Department, FBI, and Environmental Protection Agency investigations, the latter could lead to a maximum (albeit unlikely) $18 billion fine. Whatever penalty the U.S. government throws at Volkswagen, it may pale in comparison to the 175 class-action lawsuits already on the docket in 31 states. Among other litigation is a $100 million lawsuit filed last week by Houston’s Harris County state attorney Vince Ryan, who expects similar suits to be filed in other municipalities and jurisdictions. This comes even as only 482,000 of the 11 million emissions-bypassing vehicles suspected of containing the software were sold in the U.S. An Associated Press probability analysis estimates that between 16 and 94 deaths were caused by increased emissions pollution in the U.S., with New York Times writers Margot Sanger-Katz and John Schwartz estimating that 106 Americans have died, using a similar statistical method. Although European diesel standards are more forgiving, it remains to be seen what statisticians discover regarding the European death toll probability, as it would still likely dwarf the U.S. numbers.
The company has already lost over 40 percent of its share value, or about $20 billion, with executives discussing the issuance of new (albeit lower-priced) stock for investors willing to take a gamble on the company’s resurgence. Despite the turmoil, Volkswagen topped Toyota this year in becoming the largest automaker in the world in terms of units sold. Despite the status, the company was going through financial hardships even before the scandal. Now former CEO Martin Winterkorn survived a near-coup de’ tat in March, and is now under investigation for fraud by multiple authorities. Even if the company survives the regulatory and liability gauntlet with a nickel in its pocket, it is unknown if the company will ever generate the type of sales that it once commanded. Gone instantly is the diesel market, 20 percent of Volkswagen’s sales, and its reputation as an engineering stalwart has been currently, and perhaps irrevocably nullified. Meanwhile, it remains to be seen if major diesel competitor Subaru will efficiently clean up that market, or if as many suspect, other automakers have also implanted software in its vehicles as well…stay tuned.
Business Day – Andreas Cremer
Fortune – Geoffrey Smith
New York Times – Jack Ewing
Property and Casualty – Jayleen R. Heft