Volkswagen chief faces grilling by board over diesel scandal
Sep 23, 2015 08:03 AM EDT
Volkswagen CEO Martin Winterkorn faced a reckoning with his board on Wednesday, summoned to explain how the company falsified U.S. emissions tests in the biggest scandal in the 78-year history of the world's largest car maker.
Senior figures on the board's five-member executive committee grilled Winterkorn on Wednesday at the meeting at the company's headquarters in Wolfsburg, Germany.
Winterkorn is due to have his contract extended at the end of this week and has so far shown no sign of resigning over the affair, after pledging "utmost transparency" in ongoing investigations. The board must decide by Friday whether to extend the 68-year-old executive's contract.
A source familiar with the deliberations said the board was in a "tricky situation", trying to make a decision without yet knowing the full extent of the CEO's role in the scandal.
A story in the Tagesspiegel newspaper, denied by Volkswagen, said the board would replace him with Matthias Mueller, head of the automaker's Porsche sports car business.
Winterkorn did not mention his future in a video message posted on the company's website in which he repeated his apology for the scandal, which has wiped out tens of billions of dollars from the company's value.
The U.S. Environmental Protection Agency (EPA) says Volkswagen could face penalties of up to $18 billion for cheating emissions tests.
The company said it would set aside 6.5 billion euros ($7.3 billion) in its third-quarter accounts to help cover the costs.
The U.S. Justice Department has launched a criminal probe, a source familiar with the matter said. New York and other state attorneys general are also forming a group to investigate, New York Attorney General Eric Schneiderman said.
"No company should be allowed to evade our environmental laws or promise consumers a fake bill of goods," Schneiderman said in a statement.
Other countries in Europe and Asia have said they will also launch investigations into Volkswagens and other vehicles.
The crisis has sent shockwaves through Germany, with Chancellor Angela Merkel calling for "complete transparency" from a company seen for generations as a paragon of engineering excellence.
Some analysts expect Winterkorn to go, whether he knew about the wrongdoing or not.
"Winterkorn either knew of proceedings in the U.S. or it was not reported to him," Evercore ISI analyst Arndt Ellinghorst said. "In the first instance, he must step down immediately. In the second, one needs to ask why such a far-reaching violation was not reported to the top, and then things will get tough, too."
Volkswagen shares lost more than a third of their value in the first two days of trading since the scandal broke. Shares held steady in early trading on Wednesday, fluctuating near Tuesday's close of 106 euros.
JP Morgan analysts said they still saw value in the stock long term, cutting their rating to neutral from overweight and their target to 179 euros from 253.
Volkswagen was challenged by authorities as far back as 2014 over tests showing emissions exceeded California state and U.S. federal limits, but held off on admitting wrongdoing until regulators threatened to withhold certification for its 2016 diesel models.
TOTALLY SCREWED UP
The head of Volkwagen's U.S. business, Michael Horn, said on Monday: "We totally screwed up" by rigging the emissions tests of diesel-powered vehicles.
Winterkorn has built up Volkswagen since he took the helm in 2007, achieving success with a portfolio of strong brands ranging from budget Seats and Skodas to premium Audis and top-end Lamborghinis and Bugattis.
But he has also faced criticism for a centralised management style that some analysts say hampered the company's efforts to address underperformance in North America, for decades Volkswagen's Achilles heel.
There have been no suggestions so far that other carmakers have engaged in the same practices as Volkswagen. Germany's BMW and Daimler have said the accusations against Volkswagen did not apply to them.
But shares in those companies as well as rivals including Peugeot, Renault and Fiat Chrysler fell on Tuesday amid signs regulators across the world will step up scrutiny of vehicle tests, which environmentalists have long criticised for exaggerating fuel-saving and emissions results.
The EPA said on Monday it would widen its investigation to other automakers, and French Finance Minister Michel Sapin said on Tuesday an EU-wide inquiry was needed too.
Canada's environmental agency said on Tuesday it is investigating some 100,000 Volkswagen and Audi 2009-2015 model diesel cars sold there, and is in contact with its counterparts in the U.S. EPA and Volkswagen's Canadian unit.
California also said it was extending testing of VW vehicles from two-litre engines to cars with six-cylinder three-litre engines.
Germany's Transport Ministry said it would send an investigative commission to study whether cars built at Volkswagen's headquarters complied with German and European emissions guidelines. Italy asked VW to prove the cars sold in that country do not contain the "defeat devices" at the centre of the scandal, while Switzerland also said it would investigate Volkswagen's diesel vehicle emissions tests.
In Asia, South Korea's environment ministry said it would investigate 4,000 to 5,000 of Volkswagen's Jetta, Golf and Audi A3 vehicles produced in 2014 and 2015, and it could expand its probe to all German diesel cars if it found problems.