Volkswagen boss Winterkorn to go as crisis spreads

California has laid formal criminal charges against the Volkswagen Group over the 'Dieselgate' scandal as German media swirls with rumours that Porsche boss Matthias Mueller could take over from VW Chairman Martin Winterkorn as soon as Friday.

Volkswagen not only cheated the US emissions test, writing a 'defeat' code into its engine-management software on the EA189 2.0-litre turbo-diesel engine fitted to the VW Golf, Passat, Jetta and the Audi A3, but lied about it for over a year when questioned by both EPA and California state investigators.

But the crisis continues to spread, with Volkswagen today admitting the software cheat, which switched its diesel Golfs, Passats and Jettas onto the highest emissions-cleaning setting, involved more than 11 million cars, not the half a million it apologised for on Friday -- and more cars than it sells in a year.

It appears that the Volkswagen Group’s 3.0-litre V6 turbo-diesels have been caught in the same net, with investigations from the EPA broadening to include the V6 diesels used in Audi and Porsche as well as Volkswagen. The engines use the same core engine management software as the EA189 motors.

It has set aside €6.5 billion to repair the affected cars in a gigantic recall and to rebuild public faith in the brand, which has always portrayed itself as an technological edifice run by engineers rather than marketing or accounting specialists.

"The irregularities in the diesel engines of our group contradict everything which Volkswagen stands for," a contrite Winterkorn said in a streamed message that crashed Volkswagen’s media website last night.

"Also I have not yet got the answers to all these questions at the moment, but we are about to uncover the background relentlessly.

"In addition, we will put everything on the table as quickly, thoroughly and transparently as possible and we will continue to work closely with the relevant state agencies and authorities.

"This quick and comprehensive information is a top priority. We owe that to our customers, our employees and the public. And to put it bluntly, manipulation at Volkswagen must never happen again.

"Many millions of people around the world trust our brands, our cars and our technologies. I’m so sorry that we have broken this trust. I apologise to our customers and the general public for the misconduct.

"Believe me, we will do everything possible to make amends for any damage and we will do everything to regain your confidence step by step."

Yet contrition may not be enough, with most analysts demanding Dr Winterkorn step down and take the fall for the crisis. Already facing an up to $US18 billion in fines from the United States Environmental Protection Agency, Volkswagen is now facing a separate investigations from the European Commission and the French, Italian and South Korean governments.

"We are facing a case of blatant consumer deception and environmental degradation," Germany’s State Secretary Jochen Flasbarth said.

Germany’s Transport Minister also yesterday ordered an official Commission of Investigation into the test manipulation and ordered his department to conduct independent tests on all Volkswagen Group cars, ranging from volume brands like Volkswagen, Seat and Skoda to premium and sports brands like Audi, Porsche, Bentley, Lamborghini and Bugatti.

Aware that the ongoing crisis was denting Germany’s proud industrial reputation, Merkel has tried to express her displeasure without panicking the market further.

"All necessary measures have been initiated, as far as I can see," she said yesterday. I hope to get the facts on the table as soon as possible."

That might not be enough, though, with the German Green party yesterday accusing the Chancellor’s Christian Democrats party of a political cover up, citing a letter to parliament on July 28 asking for follow-up information on emissions results.

It might get even worse, with the Northern District of California accusing Volkswagen of criminal breaches of Federal Law, opening case number 13 – cv – 3072 – EMC against the Group.

"The fury in Europe at the deception from Volkswagen is tempered by the EU6 test being easier for diesel carmakers to pass than the US version. The EU6 rules demand the cars emit fewer than 80 milligrams of nitrogen oxide per kilometre, while the US lowers that bar to 70 milligrams per km (43mg/mile). [Ed: please note corrected figures]

"To our employees I say, I know with how much effort and great sincerity they do their work day after day," Dr Winterkorn said. "I am well aware that much of that is now questioned. I understand that.

"We ask, I ask for your trust on our journey. We are working intensively on the necessary technical solutions and we will do everything possible to prevent harm to our customers and employees."

Despite a year of denials, citing technical or process reasons for failed tests, the company was caught red handed by the International Council on Clean Transport (ICCT), which was, ironically, testing to prove the cleanliness of a raft of diesel engines.

The culpable software uses information from its anti-lock braking sensors to assume that its front wheels are turning on rollers while its rear wheels are stationary, changing software parameters and injecting urea. It’s reported that the urea injection is largely disabled in real-world driving.

The larger issue for Volkswagen, which caused the expansion to 11 million cars, is that the combustion processes in its four- and six-cylinder diesels is largely the same, so the affected software code has spread to the larger engines. And so has the US EPA investigation.

Volkswagen yesterday insisted that all of its diesel engines are fully compliant with the European EU6 rules (and Australian EU5), and went on to assert that the issue didn’t impact safety, handling or fuel consumption.

Where 2009 versions of the 2.0-litre turbo-diesel used an NOx catalyst to lower their emissions, the DieselGate cars from 2012 used a cheaper Selective Catalytic Reduction (SCR) system.

Giant German auto industry supplier Bosch denied any wrong-doing, even though it provided Volkswagen with the exhaust after-treatment systems involved. It released a statement insisting: "We manufacture components according to the specifications of Volkswagen."

Using the SCR meant Volkswagen lowered its build costs compared to other car makers in its segments, which could be used in profit, sales incentives or increased equipment levels, handing the brand an unfair sales advantage.

The share price of the world’s biggest car maker continued its turbulent run on the German stock exchange. From a trough of 22 per cent yesterday, its share price plummeted another down almost 19 per cent on Tuesday, so a 38 per cent drop in two days, for losing €26 billion in market value.

Volkswagen’s share price has been on a slow decline since a high of €248.74 a share in April, a spike caused by Winterkorn successfully ousting Volkswagen Group Supervisory Board chairman, Ferdinand Piech, and the hope of smoother waters ahead.

It closed at €106 yesterday, even though Volkswagen is usually cushioned from sharemarket volatility because only 12 per cent of its voting shares are publicly traded. The remaining 88 per cent of shares are owned by the Porsche and Piech dynasties, the Government of Lower Saxony, the Qatari sovereign wealth fund and foreign institutional investors.

Volkswagen has scheduled an emergency Supervisory Board meeting for today to hear the full extent of the crisis from Winterkorn and his management team, but Volkswagen Group board member, Olaf Lies, admitted there were likely to be personnel changes.

Volkswagen has also brought BMW and Mercedes-Benz’s parent, Daimler, down with it, largely because, as Germany’s former Environmental Agency head, Axel Friedrich, suggested yesterday: "It is just a coincidence that Volkswagen has been caught out first."

Daimler shares lost five per cent of their value yesterday, while BMW was down four per cent.

Volkswagen is not without its supporters, though, with a Twitter hashtag #istandwithvolkswagen gaining all of three followers.

Ironically, Volkswagen held the US market launch of its new Passat diesel in New York on Monday night, where US VW boss Michael Horn fielded very few questions about the Passat.

"We totally screwed up," he said.

The car industry hasn’t lacked for huge, expensive recalls in the last couple of years, with the Takata airbag issue, Toyota’s brake issue and GM’s ignition lock crisis three of the biggest.

The difference is that those were safety-related recalls and while many of them were unsavoury, they had a different flavour to Volkswagen’s systematic flaunting of the law.

Takata announced potentially faulty airbag inflators and the possibility for shrapnel to hurt, maim and even kill drivers in a crash large enough to trigger the deployment.

More than 16 million cars in the US were caught up in it, plus another seven million worldwide, caused, it seems, by Takata altering the specification of the airbag without informing manufacturers. There are seven known deaths from the issue in Honda cars, plus 30 injuries, along with another 109 from other carmakers, including Toyota, Ford and Chrysler.

The US NHTSA had to drag Takata kicking and screaming to force a recall, even resorting to dragging them in front of a House of Representatives sub-committee to make a statement. The New York Times also alleged that Honda and Takata knew about the faulty airbags as early as 2004, but hid the data from investigators. For its role, Honda was fined US$70 million.

General Motors has just settled its ignition-lock penalty of close to a $US1 billion with the US Government, plus recalled 2.3 million cars. It set aside $US625 million to pay victims.

While GM stated that 13 deaths were related to the switches, an investigating lawyer found 124 deaths and nearly 300 injuries, or 10 times the number of fatalities GM claimed.

GM identified the fault as early as 2001, but fought against changing the design of the ignition locks, which could be knocked out of the “on” position over rough roads, via heavy keyrings or simply by being bumped by the driver’s legs, over cost issues.

It finally recalled the cars after 10 years of trying not to. Like Takata, GM was also dragged before a House subcommittee, then boss Mary Barra fired 15 employees over the scandal.

Toyota, too, has had its recall scandal, recalling 10 million cars due to a sticky throttle, but it also had to be dragged kicking and screaming to do it.

A dozen deaths were linked to the pedal issue, and Toyota reached a $US1.2 billion settlement with the US Department of Justice.

"Rather than promptly disclosing and correcting safety issues, Toyota made misleading public statements to consumers and gave inaccurate facts to members of Congress," then US Attorney General Eric Holder said at the time.

Fiat Chrysler was also recently fined $US105 million after it messed up 23 recalls that could have affected 11 million cars.  

The closest major recall in philosophy to the Volkswagen DieselGate scandal came in 2012, when the EPA found that Hyundai and Kia were overstating the fuel efficiency of the Accent, the Elantra, the Veloster, the Sante Fe and the Kia Rio and Soul.

It was found that the cars were optimistic by between one and 2.5 km/litre, which Hyundai claimed was an honest mistake, but it was fined $US100 million anyway. It cost four times that much to settle a class-action lawsuit from customers, though.

A Volkswagen Australia spokesman told journalists yesterday that the local arm was 'still investigating' how this affected cars sold Down Under.

According to Kieren Gradidge, Technical Manager for Volkswagen Australia, the EA189 engine is not used in the importer's current line-up and is believed to have been withdrawn from the local market with the introduction of the Golf 7, if not earlier.

That predates the introduction of Euro 5 legislation in Australia, meaning Volkswagen could be off the hook for cars sold locally, at least.