The role of Volkswagen AG’s (VLKAY) top management in the diesel emissions scandal came under increased scrutiny at the weekend, after a German newspaper reported that then-chief executive Martin Winterkorn knew about the risk of a U.S. investigation into the use of so-called ‘defeat devices’ as early as May 2014.
The Sunday edition of the tabloid Bild-Zeitung (German-language, paywall) a mass-circulation tabloid, reported that a senior member of VW’s staff had alerted Winterkorn in May about the fact that the Environmental Protection Agency and California Air Resources Board were zeroing in on excessive emissions of nitrogen oxides in VW’s diesel cars. It said the alert was given in an internal memo that has been uncovered by the internal investigation being carried out at VW’s order by law firm Jones Day.
“There is no well-founded explanation for the dramatically higher NOx emissions that can be given to the authorities,” the memo said. “It is to be suspected, that the authorities will examine the VW systems to see whether Volkswagen has installed engine management software (a so-called Defeat Device).”
It’s the second–still unconfirmed–leak suggesting that knowledge of the problems went far higher, far earlier, than VW admits. The German magazine ‘Manager’ had alleged that the VW brand’s management had already discussed the issue (specifically, a letter from the EPA) in the spring of 2014, citing minutes from the meeting. Winterkorn resigned in September, saying he hadn’t known anything about the manipulations, which the company has suggested was the result of a conspiracy among a small circle of engineers. According to various German media reports, Winterkorn has told Jones Day that although he knew of an issue with excess emissions in the U.S. in May 2014, he wasn’t aware of the use of defeat devices applied specifically to circumvent U.S. regulations. The head of VW’s operations in the U.S., Michael Horn, has made similar arguments.
The revelations may have an important bearing on the legal issues facing VW: U.S. authorities are typically inclined to exact higher penalties for wrongdoing, the more senior management was aware of it. In addition, the revelation strengthens the case of investors suing VW for creating a false market in its shares by failing to disclose the extent of the problem earlier. The scandal wiped more than €25 billion off the company’s shares initially.
Bild said the memo in question was penned by Bernd Gottweis. Gottweis had the reputation of being an internal ‘fire-fighter’ before Winterkorn took over as CEO in 2007, leading a team called the “Product Safety Taskforce,” which concentrated on crisis prevention and management. He was pulled out of retirement by VW in October, in the weeks following Winterkorn’s resignation.
According to Bertel Schmitt, a veteran reporter-turned-PR man-turned blogger, Gottweis’ duties occasionally set him against Winterkorn while the latter was still head of quality assurance at VW. In the years after Winterkorn took over as CEO, Schmitt writes, Gottweis was quietly sidelined.
Separately, Bild reported that a senior VW manager had already admitted the true level of emissions to a CARB official on August 5, over a month before the EPA issued its first Notice of Violations against the company, taking the scandal public. Bild added that VW brand chief Herbert Diess had convened meetings on Aug. 24 and 25 to discuss how to react to the scandal that was about to break.
VW had declined to comment on the report Sunday. A spokesman didn’t immediately respond to a request for comment Monday. Earlier this month, the company postponed its annual shareholder meeting and the publication of its annual results “with a view to questions that are still open regarding the consequences of the emissions issue, and valuation questions arising from it.”