VW's Isolation Increases as European Governments Condemn Actions

VW Diesel Scandal Widens as CEO Heads for Board Showdown
  • CEO Winterkorn making plea to board members to keep post
  • Porsche and VW brand chiefs seen as possible replacements

Volkswagen AG’s crisis deepened, with Fitch announcing a possible ratings cut and an institutional investor reducing its holdings as investigations mount over revelations the German carmaker rigged diesel engines to pass U.S. pollution tests.

Fitch Ratings service said the decision to put VW on watch for a downgrade reflected the potential “reputational damage” for the group, and how the scandal is “another illustration of our assessment of the company’s fairly weak corporate governance.” Union Investment in Germany reduced its VW holdings across all asset classes, citing the uncertainty of the unfolding events.

Volkswagen Chief Executive Officer Martin Winterkorn is fighting to keep his job in an appearance Wednesday before the executive committee of the automaker’s supervisory board. A critical point in the discussion will be what Winterkorn knew about a scheme intended to dupe regulators and consumers about emissions of diesel engines installed in 11 million cars worldwide.

France’s environment minister called the matter fraud against the state because the government provided incentives to purchase diesel vehicles, while prosecutors in the German state where VW is based said they’re reviewing whether to open a criminal probe. Germany’s transport minister has started his own investigation and is planning to send a team to VW’s headquarters this week to check documents and question executives.

The case involves “improper tampering with the vehicle, which is explicitly prohibited under European and German rules,” Transportation Minister Alexander Dobrindt told reporters in Berlin Wednesday.

The 68-year-old CEO’s career hangs on convincing a few key power players, including Wolfgang Porsche, head of the family that controls a majority of VW’s voting shares; Bernd Osterloh, VW’s influential labor leader; and Stephan Weil, prime minister of the German state of Lower Saxony, which has special blocking rights at the company. All three are on the five-person committee, which is set to debate his future.

The group is discussing how to handle the crisis as the German government demands the automaker take quick action. Talks may continue on Friday at a gathering of the full 20-person board, which plays an oversight role and was supposed to sign off on a contract extension for Winterkorn. A VW spokesman declined to comment.

Widening Scandal

VW’s peers are also turning their backs on the region’s biggest car manufacturer. The European automakers’ lobby group, the ACEA, issued a statement saying that “there is no evidence this is an industry-wide issue.”

Pressure is building amid the widening scandal over diesel engines that cheated U.S. air-pollution tests. Winterkorn, who has run the Wolfsburg, Germany-based company since 2007, is responsible for product strategy, putting him at the center of the storm that’s erased about 23 billion euros ($25.6 billion) from Volkswagen’s market value since the start of the week.

VW shares-- which declined 35 percent over Monday and Tuesday -- clawed back some losses Wednesday. The stock was up 7 percent at 4:37 p.m. in Frankfurt.

Should Winterkorn end up going, possible replacements are Matthias Mueller, head of the Porsche brand who is backed by members of the Porsche family, and Herbert Diess, who recently came over from rival BMW, a person familiar with the matter said. Mueller oversees the marque that’s a profit driver for the group. Diess, who joined in July to take charge of the VW brand, helped BMW cut billions of euros in purchasing costs during the global financial crisis.

“We believe VW needs a new CEO,” said Arndt Ellinghorst, a London-based analyst at Evercore ISI.

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