VW's Recovery Relies on Insiders as Diesel Owners Await Fix

Is VW Scandal a Blow to German Branding?
  • Oversight panel members have been on VW's board total 31 years
  • Audi, VW set up websites so customers can see if cars affected

Volkswagen AG has turned to a small group of insiders to lead its recovery from a diesel-emissions scandal that’s left regulators, investors and 11 million customers still awaiting answers two weeks after its test cheating became public.

Owners of VW diesel vehicles with software that falsifies emissions are still waiting to hear how and when the company will fix their cars and what sort of compensation they’ll receive for being duped since 2009. As lawsuits pile up, customers have been left largely in the dark. The VW brand finally set up a website on Friday to relay information to 2.8 million affected customers in Germany.

While Volkswagen has hired U.S. law firm Jones Day to investigate, the Wolfsburg, Germany-based company has looked inward for oversight since the scandal broke. It hasn’t named a powerful outsider as General Motors Co. did to investigate an ignition-switch defect. Instead, VW is relying on five supervisory board members, who represent its entrenched interests. The group has a total of 31 years on the board and was paid a combined 3.5 million euros ($3.95 million) last year by VW.

“The company should put in place a neutral investigation,” said Ingo Speich, a fund manager at Volkswagen shareholder Union Investment. “It definitely shouldn’t be anyone from the management board or the supervisory board who leads this effort.”

Braunschweig Prosecutors

Volkswagen spokesman Andreas Lampersbach declined to comment on Friday. The company has filed a criminal complaint with prosecutors in Braunschweig, Germany, who will conduct their own investigation. The company has also hired U.S. law firm Kirkland & Ellis LLP, which led BP Plc’s defense in the criminal investigation of the 2010 Deepwater Horizon oil-spill disaster, to help deal with the widening scandal.

Berthold Huber, a five-year veteran from the IG Metall labor union and currently Volkswagen’s interim chairman, will lead the supervisory board committee overseeing the probe. He received 937,000 euros in pay from Volkswagen last year, according to the company’s annual report. Panel members Bernd Osterloh and Babette Froehlich are also employee representatives. Olaf Lies is economy minister of Lower Saxony, which owns 20 percent of Volkswagen’s voting shares, while Oliver Porsche represents the family that controls a majority of VW’s common stock.

VW’s response is a marked contrast to GM’s efforts to recover from the ignition-switch defect that’s linked to 124 deaths and led to the recall of 2.59 million vehicles. A little more than two weeks after it apologized for the defect, the company hired Anton Valukas, a former U.S. attorney who also examined the downfall of Lehman Brothers, to investigate why it took so long to uncover the flaw.

Volkswagen’s counterparts at Siemens AG also made different choices in the wake of a bribery scandal in 2007. There, Chief Executive Officer Klaus Kleinfeld was replaced by an outsider, Peter Loescher, who eventually removed half the company’s top 100 executives. The venerable German engineering giant also appointed corporate governance advocate Gerhard Cromme as chairman to help lead the investigation.

VW has stuck to company veterans. CEO Matthias Mueller, appointed after Martin Winterkorn was pressured to step down, has a four-decade career at the carmaker. Designated Chairman Hans Dieter Poetsch, previously chief financial officer, had long been a close associate of Winterkorn, who remains CEO of VW’s majority shareholder Porsche Automobil Holding SE.

Access Worries

Some Volkswagen managers have worried that giving Jones Day full access to documents for their investigation could result in the lawyers seeing confidential information not linked to diesel emissions, according to a person familiar with the situation.

The supervisory board on Thursday said it would ensure the law firm “can carry out its investigation independently.” The company should take the initiative to publish information it collects on the scandal regularly, starting next week, Lower Saxony Prime Minister Stephan Weil said Thursday.

Customers are also lacking clarity. The VW brand and Audi division took two weeks to set up websites that customers can use to see if their cars are affected.

“The product is still great but that the company actively manipulated emissions results, that’s a sore point,” said Ralf Schroeder, of Berlin, who drives a diesel Audi A3 Sportback. “I would have wanted better communication about whether my car is affected.”

VW Solution

While VW has said it has a solution to make its vehicles compliant with emissions regulations, the company hasn’t disclosed how the repairs will affect their performance.

At the very least, Volkswagen will need to disable the illegal software. The upgrade could also require physical changes to the cars’ emissions systems to treat the harmful nitrogen oxides. Depending on the fix, drivers may see lower gas mileage than they used to get, said Gregor Rottenkolber, head of the automotive-engineering degree program at the University of Applied Sciences Esslingen near Stuttgart, Germany.

In a letter to investors posted Thursday on Volkswagen’s website, Mueller asked for patience.

“I know that you will have many questions you would like to see answered,” the CEO said. “I am personally committed to answering them. However, I must ask you to give me time to gather the full facts first.”

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