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Industryweek 13706 Marvin Winterkorn

Winterkorn Missed VW Scandal Warning Signs in 2014 Memos

March 3, 2016
The automaker paints a picture of a CEO possibly too consumed by running the 12-brand empire he built to take note of the 2014 memos.

Martin Winterkorn, the former Volkswagen AG chief executive officer famed for his obsessive attention to detail, missed warning signs preceding the biggest scandal in the carmaker’s history that led to his downfall.

That is the view that emerges from a four-page document Volkswagen released late on Wednesday that retraced key moments in the unfolding scandal. Winterkorn, forced to resign once the crisis became public in September, received two memos informing him of discrepancies in U.S. diesel emissions in 2014 and participated in a meeting that touched on the matter last summer, the automaker said in the statement. 

The release provides details for the first time about the information flow to top management on the cheating and how the decision to rig tests stemmed from a diesel push in the U.S. that dated back to 2005. Volkswagen made the comments after filing defense arguments with a regional court in Germany, where shareholders are suing, alleging the company was too slow to inform the public about the investigations into rigged diesel engines.

The automaker paints a picture of a CEO possibly too consumed by running the 12-brand empire he built to take note of the 2014 memos, one included in his “extensive” weekend reading and another in a packet of information about product safety issues. The former CEO was also present at a meeting last July, along with VW brand chief Herbert Diess, where the diesel situation was a topic among employees on the “periphery” of the gathering, VW said. The company added that it was still trying to determine the "concrete details" discussed. Winterkorn at the meeting asked for clarification of the issue, VW said.

Even six months after the scandal burst into the public, the question of who knew what, and at what point, in the upper echelons of the company hasn’t been properly answered. The document provided Wednesday retraces in greater detail some of the key events in the years leading up to the revelations, while alluding to the CEO’s overbearing workload as a key factor behind management failure to recognize the extent of the scandal earlier.

“According to current knowledge, the diesel matter, as it was treated as one of many product issues facing the company, did not initially receive particular attention at the management levels of Volkswagen,” the German automaker said in the release.

During his decade at the top, Winterkorn concentrated power at Volkswagen like no other CEO, with all product decisions across the group needing his direct sign off before moving forward. He also ran the VW brand, was head of the Porsche-Piech family holding company that controlled the automaker and was chairman of the Audi board. The missed warnings more than a year before the scandal rocked Europe’s largest carmaker highlight communication failures that ultimately led to the Environmental Protection Agency going public with the notice of violation on Sept. 18, catching VW off guard.

“Arguing that its CEO was too busy will unlikely impress regulators or judges,” Arndt Ellinghorst, a London-based analyst with Evercore ISI, said in a report. “We note that different to its previous communication that top management wasn’t aware of the US problems, VW is now admitting that top management did receive memos on the matter.”

The latest revelations represent something of an about-face by VW, which insisted when the scandal first broke that Winterkorn was not aware of the brewing crisis.

The new details indicate that the weekend reading prepared for the CEO in May 2014 talked about massive discrepancies between lab and real-world driving emissions found in an independent study. The memo in November of that year placed the cost of the diesel issues at about 20 million euros ($22 million). The likely price tag eventually ballooned into the billions once the global nature of the scandal came to light in the final months of 2015. Felix Doerr, Winterkorn’s lawyer, didn’t immediately reply to an e-mail seeking comment.

Volkswagen repeated on Wednesday that a group of employees below the level of the management board had decided to install emissions-rigging software in diesel engines to meet stringent regulations in the U.S. The employees were under pressure to meet tough internal cost targets, while working to establish a diesel niche for VW in the U.S., where the automaker had racked up years of losses. The exact number of employees involved is still being investigated, the company said.

The carmaker has hired U.S. law firm Jones Day to help in the investigation to determine those responsible, amounting to a review of data equivalent to 50 million books. VW plans to release preliminary results toward the end of April.

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