The Volkswagen (VW) Group's supervisory board is meeting today (23 September) to discuss its response to the emissions testing scandal that has put the company at the top of news bulletins worldwide for the past few days in a storm of negative publicity. The company's shareholders and regulators will expect it to come up with a clear and cohesive strategy to show it is determined to get to the bottom of how the situation occurred. The problem first came to light in the US after VW was served with notices by the Environmental Protection Agency (EPA) and the California Air Resources Board (CARB) over serious discrepancies between the nitrogen oxide emissions (NOx) in testing and real world conditions of the company's diesel models. However, VW admitted in a statement yesterday that the issue extended far beyond the US and affects in the region of 11 million vehicles worldwide fitted with the group's EA189 powertrain.
The German government has responded by announcing that it expects the VW Group to provide absolute clarity about how the situation occurred and how it intends to deal with it, according to a Reuters report. At a press conference in Berlin, German chancellor Angela Merkel said, "Considering the difficulty of the situation, there has to be full transparency and an effort to clarify the whole matter. I hope the facts will be put on the table as quickly as possible." The German government has also said that it expects all relevant information to be passed onto to the country's Federal Motor Transport Authority (KBA) so that it can assess whether false emissions data has been compiled in Germany and other European countries. In addition, German transport minister Alexander Dobrindt said he had set up an investigative commission that will prepare the government's own report on the matter. There have also been responses from the other top western European car markets where VW diesels have traditionally been strong sellers and where the majority of the car parc affected will have been sold. French finance minister Michel Sapin said that a pan-European investigation was required in order to reassure the public. He also stated that it was necessary to carry out checks on cars manufactured by French OEMs. He said, "We are in a European market, with European rules that need to be respected. Even if it's just to reassure people, it seems necessary to me that [checks should be carried out] also on French carmakers." French environment minister Ségolène Royal said the French government would launch its "in-depth" probe into the scandal as far as it concerned France, and that her agency had asked the EPA for all relevant information on the "defeat device" technology used to circumvent the emissions test in the US. Italian environment minister Gian Luca Galletti said that VW should consider halting sales of some diesel cars in Italy until the situation is fully understood and rectified. Galletti has written to VW Group Italia CEO Massimo Nordio for clarification.
Bosch has released a statement distancing itself from the scandal as the supplier of engine control units (ECUs) on the offending powertrains. According to Reuters it said, "We produce the components [to the] specifications of Volkswagen. The responsibility for application and integration of the components lies with Volkswagen."
Outlook and implications
VW is currently facing a tidal wave of negative press coverage, the ire of environmental institutions and the concern of governments worldwide. It admitted in a short statement yesterday (22 September) that the issue was not just restricted to the US but affected 11 million models worldwide fitted with the company's EA 189 diesel power unit. The vast majority of these sales will have been in Western Europe and therefore the concern of Western European governments and their relevant ministries. The company's management faces arguably the toughest challenge since it re-established the business in the years following the Second World War. Other recent issues such as the hostile takeover attempt from Porsche SE that ran between 2005 and 2009 are likely to pale into insignificance by comparison. A heavy burden will undoubtedly rest on the shoulders of CEO Martin Winterkorn as the company's supervisory board meets today to discuss the response to the crisis. So far the situation has been handled reasonably well. VW has communicated clearly and has offered a mea culpa in terms of the of the EPA and CARB findings and Winterkorn made the admission yesterday in a video statement that "at present we do not yet have all the answers to all the questions." This is wise, as any evidence of obfuscation or lack of transparency in getting to the truth of how this situation occurred will not play well. The cost implications of the false emissions tests are likely to be significant and wide-ranging; VW announced yesterday that it has set aside EUR6.5 billion (USD7.3 billion) although this figure is likely to rise.
In the medium term it is likely that some tough questions will be asked about VW's governance and fundamental management structure. It is possible there may be growing resistance to the idea of appointing the current chief financial officer (CFO) Hans Dieter Pötsch to the position of supervisory board chairman. The rationale was that he knows the company inside out and understands the complex relationship between shareholders, the powerful works council lobby and management. However, it would not be a stretch of the imagination to see some stakeholders claiming that this is precisely the reason he should not be appointed; that he is too close to the existing management team and that the Group could do with some oversight from an outside candidate. The company was already in the process of formulating a new management structure which would separate what is now a very complex structure of brands into smaller business units aligned across vehicle types and engineering competencies. However, this reorganisation appears to be something of a sideshow now, with the management team now focusing its energies on getting to the bottom of how this situation occurred and the best way of presenting this information to government, the public and customers. Its relationship with customers is the most important thing that needs to be repaired, and regaining trust will be a long-term process to which VW will need to devote considerable energy and resources.
