What Did Volkswagen's CEO Know?

The first rumblings of an approaching crisis reached the highest levels of Volkswagen management in May 2014, but how much knowledge then-CEO Martin Winterkorn had of the looming diesel emissions scandal is still debatable.

It’s debatable because Winterkorn should have known about the initial study that raised red flags with environmental regulators — he was presented with a memo detailing the situation — but to this day Volkswagen can’t say if he even read it.

Later, the matter was discussed in the vicinity of Winterkorn … but Volkswagen doesn’t know if his ears picked up the dialogue.

When Volkswagen dropped a detailed document on March 2, it began by refuting the basis of a proposed shareholder lawsuit against the company. The automaker complied with capital markets laws, Volkswagen assured the army of potential litigators. There had been no knowledge of anything that could severely impact the company’s stock price, it said, arguing that the diesel issue was a relatively minor matter prior to the Environmental Protection Agency’s Notice of Violation.

Winterkorn’s job was an early casualty of the scandal that broke last Sept. 18.

He resigned on Sept. 23, stepping off the stricken boat and into a waiting severance package bound for the sunny shores of anywhere but here. In the background, his former company’s shares were falling like a Jetta dropped from a plane.

Six months on from Winterkorn’s departure, Volkswagen’s first detailed explanation of facts related to the scandal adds fuel to the questions swirling about his level of awareness.

After the International Council on Clean Transportation (ICCT) released a study in early 2014 showing emissions irregularities in certain Volkswagen products, the California Air Resources Board (CARB) called on Volkswagen to prove it wasn’t an egregious polluter. The ball was rolling, and it was gathering snow.

In Volkswagen’s words:

On 23 May 2014, a memo about the ICCT study was prepared for Martin Winterkorn, then-Chairman of the Management Board of Volkswagen AG. This memo was included in his extensive weekend mail. Whether and to which extent Mr. Winterkorn took notice of this memo at that time is not documented.

Mail piles up when you’re a CEO, it seems.

That summer, Volkswagen’s product safety committee formed a task force to deal with the diesel issue, and lawyers were hired to advise on American emissions laws.

According to current knowledge, on 27 July 2015, individual Volkswagen employees discussed the diesel issue on the periphery of a regular meeting about damage and product issues, in the presence of Martin Winterkorn and Herbert Diess. Concrete details of this meeting have not yet been reconstructed. In particular, it is not clear whether the participants understood already at this point in time that the change in the software violated U.S. environmental regulations. Mr. Winterkorn asked for further clarification of the issue.

Internal testing showed that the defeat device installed in its vehicles was in violations of federal and state regulators, and Winterkorn was notified of the situation in a note dated Sept. 4, 2015. For the next year, Volkswagen claims it was assured the fallout would be limited, that the number of vehicles affected didn’t exceed 1.1 million, didn’t extend to Europe, nor would it incur an unmanageable fine.

Volkswagen claims it expected to resolve the matter by bringing the affected vehicles to compliance and paying any associated fines, which it had estimated as not exceeding $100.1 million. It also implies the publicity heaped on the company by the unexpected Notice of Violation by the EPA pushed the company’s stock value off the ledge, forcing the company to scramble to assess the damage.

Volkswagen’s admission ends there. But last fall the scope of the scandal multiplied — and share values sank ever further — as more and more vehicles were discovered to contain the defeat device. Volkswagen’s diesel task force had a year to come up with an accurate tally of affected vehicles — a figure that proved to be a fraction of the actual number.

Don’t expect the lawsuits to go away anytime soon.

[Image: Volkswagen AG [ CC BY 3.0]/ Wikimedia Commons]