VW board payments slammed

Porsche has announced its development chief, Wolfgang Hatz, has left the company and has been replaced by the brand's head of quality management Michael Steiner.

The news follows a savaging by Germany’s finance minister of its parent company, Volkswagen Group, for paying bonuses to the same executives who oversaw the Dieselgate emissions scandal that threatens it with extinction.

While Volkswagen has said it was contractually and legally obligated to pay out €63.24 million in bonuses for the 2015 financial year, the minister thought otherwise.

“I have no sympathy for managers who first drive a large, blue-chip, listed company into an existence-threatening crisis and then defend their own bonuses in a public debate,” Wolfgang Schaeuble told German newspaper Frankfurter Allgemeine Sonntagszeitung.

“That shows that something is not working.”

The Volkswagen Group showed an almost-inconceivably tin ear to public opinion last month when it first refused to consider waiving or even reducing its annual executive bonus payments, then took a full 24 hours to conditionally slice a percentage off the bonuses.

The bonus payments also kicked off a savage debate at its Supervisory Board, which pits representatives of the majority-shareholding Porsche family holding company with those from the government of Lower Saxony (Volkswagen’s second-largest shareholder) and Volkswagen’s workers’ unions.

Supervisory Board member Bernd Osterloh said the bonus issue was “also about morals,” and insisted the management board should volunteer to cut its bonus payments, or repay them.

“As soon as business is back to normal (after Dieselgate) we should think about changing the (bonus and salary payment) system,” Osterloh told German weekly Welt am Sonntag.

Lower Saxony’s former Supervisory Board member, Joerg Bode, went further, insisting former CEO Martin Winterkorn and all the board members who lead Volkswagen into Dieselgate should pay back their bonuses, saying they had been made via “cost cuts through fraud”.

This in a year when the Volkswagen Group was exposed as a chronic rule-breaker, lost billions in a share-price plummet and has alienated affected European and Australian owners by refusing them the same compensation levels it has promised American owners. It has also not yet finalised an engineering fix for the US, much less settled the worst of its hundreds of civil action suits.

It also displayed little initial comprehension of the scale of the disaster, communicating poorly with governments, owners and its own distributors. It also initially set aside €7 billion to deal with the crisis, though this last week ballooned to €17 billion in a company with €24.5 billion in liquidity.

Its 2015 annual report highlights how blithe it was to the dangers it faced, even though the California Air Review Board told it of the breach in early 2014 and even the most senior board members inarguably knew about it in September last year.

“The scope of the costs expected by the Volkswagen Group was not dissimilar to that of previous cases in which other vehicle manufacturers were involved,” the report said of the initial estimates of the costs of Dieselgate.

It was only when the US Environmental Protection Agency dropped the bomb by publicly slamming Volkswagen (“a surprise to the company”) after more than a year of frustrating negotiations that the board began to appreciate its position.

The EPA “presented the situation in a completely different light,” the annual report said.

While it is being sued all over the world over Dieselgate, the annual report insisted the “large majority of proceedings have less than a 50 per cent probability of success”.

In a following paragraph, though, Volkswagen admitted: “further significant liabilities may emerge”.

That’s in part because it still has no confirmed engineering fix for the US, but mostly because the cost estimates refuse to acknowledge lawsuits brought by its own shareholders about the timing of Volkswagen’s public admissions on Dieselgate, though the company insists it “duly complied with its capital market obligations”.

If things do go further south for the company to the point where Dieselgate’s costs outstrip its cash reserves, the annual report admits it could lead to “assets having to be sold” to pay for it, which indicates both that it has been pushed closer to the brink than it has admitted and that its advisors frankly have no accurate clue as to how much Dieselgate will cost.

While Volkswagen also initially pointed the finger at a handful of rogue engineers, its long investigation has yet to fire or prosecute a single person to blame for Dieselgate, much less a handful.

Yet its top 12 managers, at least two of whom are not longer with the company in the wake of Dieselgate, will share in the €63.24 million bonus pool, much to the Government’s dismay.

Under pressure last month, it agreed to withhold a portion of the bonus payments, but they may be paid in full if the company hits its performance targets and lifts its share price.

Meanwhile late yesterday, Porsche announced R&D chief Hatz had left the company "at his own request" after being placed on temporary leave since September, when the Dieselgate scandal was outed.

The 57-year-old, who was VW Group's powertrain boss at the time the car-maker developed and sold the diesel engines involved in the NOx-cheating scandal, was involved in the investigation by US law firm Jones Day, which was appointed by VW Group.

In an overnight statement, Porsche said "enquiries have shown no evidence of any co-responsibility by Hatz so far" but confirmed his departure is a direct result of Dieselgate.

"Nevertheless he has decided to leave Porsche AG due to the ongoing internal investigations and his resulting prolonged leave of absence," said Porsche.

Hatz, who oversaw VW Group powertrain development between 2007 and 2011, when he took the Porsche R&D job, joins two other top VW executives who have left the company since the diesel scandal broke -- Audi’s former development chief Ulrich Hackenberg and ex-VW powertrain boss Hans-Jakob Neusser.

Full coverage of Dieselgate on motoring.com.au