Volkswagen admits former CEO was told of emissions cheating in mid-2014
The Volkswagen Group has issued a preliminary statement admitting that its former CEO, Martin Winterkorn, was informed of the emissions cheating scheme back in the middle 2014.
This latest development coincides with the company submitting a formal statement of defence in a shareholder lawsuit being heard at the Braunschewig district court. The claimants allege that Volkswagen didn’t meet the disclosure requirements required by Germany’s capital market laws.
Volkswagen insists that disclosure was not warranted or legally required until its violation notice was made public by American authorities in mid-September 2015.
According to the German auto giant, its problems began in 2005 when the company decided to differentiate its core brand in the US via a marketing campaign centred around “clean diesel” technology. As part of this push, the company began developing the EA189 turbo-diesel engine range.
Confronting the engineering team were tough US regulations, which allowed for maximum emissions of 31mg of NOx (oxides of nitrogen) per kilometre. That’s around 5.8 times more stringent than the contemporary EU5 requirement of 180mg/km. The latest EU6 standard permits NOx emissions of up to 80mg/km.
Faced with this, as well as tight budgetary and time constraints, Volkswagen asserts that “a group of persons — whose identity is still being determined — at levels below the Group’s Management Board in the powertrain development division, decided to modify the engine management software” so it that would produce compliant results only during laboratory testing.
In normal driving, these EA189 engines would then revert to its standard engine mapping, producing the advertised levels of power and torque, but also emitting up to 35 times more NOx than allowed. This “significant modification” is something Volkswagen says that it “expressly regrets”.
As we’ve reported earlier, a paper published in May 2014 by West Virginia University found that two EA189-equipped Volkswagen diesel cars — a Jetta and the larger North American Passat — exhibited NOx emissions that were five to 35 times higher in the real world than when tested in laboratory conditions.
The company now admits that a memo was sent on May 23, 2014 to Martin Winterkorn, the group’s then CEO, regarding this International Council on Clean Transportation-funded report.
As this information was part of the CEO’s “extensive weekend mail”, the company states “whether and to which extent Mr. Winterkorn took notice of this memo at that time is not documented”.
On November 14, 2014 Winterkorn received a second memo that “reported, amongst other things, on several then current product defect cases and referred to a cost framework of [approximately] 20 million euros ($30 million) for the diesel issue in North America”.
Volkswagen admits that “the diesel matter … was treated as one of many product issues facing the Company [and] did not initially receive particular attention at the management levels of Volkswagen” because “emission deviations between test bench and road operation exist at all automobile manufacturers and are by no means automatically attributable to violations of regulations”.
Above: Martin Winterkorn, CEO of the Volkswagen Group from January 1, 2007 to September 23, 2015.
The company is also aware of a meeting where the US diesel issue was raised. The regularly scheduled meeting took place on July 27, 2015 and involved Martin Winterkorn and Herbert Diess, the chairman of the Volkswagen brand.
At this stage the Wolfsburg-based conglomerate is not sure of the “concrete details of this meeting”, nor is it clear “whether the participants understood already at this point in time that the change in the software violated U.S. environmental regulations”.
It wasn’t until late August 2015 that it became clear that the company was involved in cheating emissions testing when “Volkswagen technicians gave a full explanation of the technical causes for the irregularities discovered regarding the emission of nitrogen oxides”.
Present at this meeting were Volkswagen’s in-house lawyers and the company’s US law firm, Kirkland & Ellis.
The company confessed about its wrongdoing to the US authorities on September 3, while their CEO was officially informed “in a note” on September 4.
Volkswagen argues that any of the information that it had available at board level wasn’t relevant to the stock price until September 18, 2015, when the US authorities publicly announced the company’s violations, an act that the German car maker describes as “unexpected, because of the course of the discussions with the U.S. authorities until then”.
The company argues that “up until that point in time it was expected that a manageable number of vehicles (approx. 500,000) would be affected by the diesel matter and that fines in a two-digit or lower three-digit million amount would be imposed, as had been the case in the past in the U.S. in comparable cases involving passenger vehicles”
An external investigation run by law firm Jones Day, and commissioned by Volkswagen, is currently under way. Investigators are still hard at work sifting through around 102 terabytes of data, and a preliminary report is expected in late April.