EPA's New VW Cheating Allegations Threaten to Taint CEO Mueller

  • German automaker denies using defeat device on V-6 engines
  • Former Porsche chief promoted to give management a fresh start

EPA Looking at More VW Diesel Cars

New allegations from U.S. regulators that German automaker Volkswagen AG cheated on more diesel-powered models, including one Porsche, could be trouble for new Chief Executive Officer Matthias Mueller, who came from the company’s prestigious sports-car maker after his predecessor, Martin Winterkorn, resigned.

Mueller’s appointment in September was meant to signal a clean break from the group that oversaw the engineers who cheated and to usher in greater accountability. That may be short-lived as the U.S. Environmental Protection Agency has now accused Porsche of using similar software to trick a U.S. emissions test so its larger V-6 diesel engines could pass clean-air rules. Volkswagen denied that it cheated to meet regulations on additional models.

The inclusion of a Porsche model in the EPA’s allegations on Monday is problematic for Mueller, even if he isn’t directly implicated. If he didn’t know what his engineers were doing, that doesn’t look good for his management of the sports-car brand. For now, the first step is to try to dispel the accusations, said Joe Phillippi, president of AutoTrends Consulting in Andover, New Jersey.

“This just keeps getting uglier,” Phillippi said. “If they are going to deny this, they will have to do a deep dive internally and figure out who did what. If the EPA is right, then Mueller could have to fall on his sword, too.”

Volkswagen fell as much as 5.1 percent on Tuesday, the steepest intraday drop since Oct. 5, and was trading down 3 percent at 109.35 euros as of 1:03 p.m. in Frankfurt. Since the initial revelations on Sept. 18 that a line of diesel engines carried the so-called defeat device, Volkswagen stock has plunged 33 percent, wiping 20.6 billion euros ($22.5 billion) from the carmaker’s value.

Firm Statement

The company is adamant that there is no software cheat on the 3-liter diesel engine that powers some Porsche Cayenne and VW Tuareg sport utility vehicles, as well as several Audi models.

“Volkswagen AG wishes to emphasize that no software has been installed in the 3-liter V6 diesel power units to alter emissions characteristics in a forbidden manner,” the manufacturer said in a statement.

While Mueller has worked at Volkswagen and its subsidiaries for most of his adult life, the CEO was seen by the supervisory board as the right choice to spearhead a fresh start, a challenge Mueller embraced by calling for an economic and cultural overhaul of Europe’s largest carmaker. Among measures he’s proposing is a style of more open communication to detect issues and problems, and a review of the company’s portfolio of 300 models to establish which ones are profitable.

Mueller’s choice as CEO signaled that the Porsche-Piech family that controls the carmaker wanted to rely on an internal candidate rather than somebody brought in from the outside. When Mueller took over, he vowed to leave “no stone unturned” in his quest to regain the public’s trust after the company admitted to cheating on emissions tests.

Culture Change

Part of Mueller’s push for a new corporate culture has been to move more authority to the subsidiaries and regions, a departure from the previous set-up that routed all major decisions through VW headquarters in Wolfsburg. While Mueller has sought to inject a more approachable management style into the company than Winterkorn, he has routinely thanked his predecessor for his services to Volkswagen and the expansion he championed.

While Volkswagen has hired law firms and external accountants to help shed light on the scandal, the main group of managers tasked with uncovering the probe is made up of the inner circle of the supervisory board, highlighting the company’s reluctance to look outside for assistance. The new chairman of the board, Hans Dieter Poetsch, was until recently the long-time CFO of the company.

If the manufacturer is guilty of cheating on these additional models, the extra 10,000 noncompliant cars in the U.S. won’t do much more damage than VW has already sustained, Maryann Keller, an independent auto-industry consultant in Stamford, Connecticut, said in a phone interview. The real trouble for Mueller comes if he or his management team knew what was going on before the U.S. government found the software cheat.

“If he knew,” she said, “then they will have to find someone else.”

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