VW's CEO was told about emissions software months before scandal: Der Spiegel

FRANKFURT - 19 August 2018: Volkswagen (VOWG_p.DE) Chief Executive Herbert Diess was told about the existence of cheating software in cars two months before regulators blew the whistle on a multi-billion exhaust emissions scandal, German magazine Der Spiegel said.

Der Spiegel’s story, based on recently unsealed documents from the Braunschweig prosecutor’s office, raises questions about whether VW informed investors in a timely manner about the scope of a scandal which it said has cost it more than $27 billion in penalties and fines.

The Braunschweig prosecutor’s office was not reachable for comment on Saturday.

Volkswagen’s senior management, which has denied wrongdoing, is being investigated by prosecutors in Braunschweig, near where Volkswagen is headquartered, to see whether the company violated disclosure rules.

U.S. regulators exposed VW’s cheating on Sept. 18, 2015.

Responding to the magazine report, the carmaker reiterated on Saturday that the management board had not violated its disclosure duties, and had decided to not inform investors earlier because they had failed to grasp the scope of the potential fines and penalties.

Citing documents unsealed by the Braunschweig prosecutor’s office, Der Spiegel said Diess was present at a meeting on July 27, 2015 when senior engineers and executives discussed how to deal with U.S. regulators, who were threatening to ban VW cars because of excessive pollution levels.

Diess, who was VW’s brand chief at the time, became chief executive of Volkswagen Group in April this year. Volkswagen also owns the Scania, Skoda, Audi, Porsche, Bentley, Bugatti, Lamborghini and Ducati brands.

The U.S. Environmental Protection Agency (EPA) had found unusually high pollution levels in VW’s vehicles and was threatening to withhold road certification for new cars until VW explained why pollution levels were too high.

Diess, who had defected from BMW to become head of the VW brand on July 1, 2015, joined the July 27 meeting with Volkswagen’s then Chief Executive Martin Winterkorn to discuss how to convince regulators that VW’s cars could be sold, a VW defense document filed with a court in Braunschweig in February, shows.

Volkswagen on Saturday said both Winterkorn and Diess declined to comment given the ongoing proceedings. A spokesman for Martin Winterkorn declined to comment on Saturday. Winterkorn’s lawyer Felix Doerr, could not be reached for comment.

Following this meeting, Winterkorn asked Diess whether BMW too had installed “defeat devices” in its cars, Der Spiegel said.

In the United States, legal engine management software is described as an “auxiliary emissions device” while the term “defeat device” is used to describe only illegal software.

Diess is said to have answered that BMW had not made use of such software, Der Spiegel said.

EVALUATE

Volkswagen said on Saturday: “The contents of the discussion, where Martin Winterkorn and Herbert Diess were present, cannot be fully reconstructed, because the recollections of the people who were present partially deviate.”

Volkswagen further said it was the task of authorities and courts to evaluate the conflicting statements and to assess whether individual witnesses were credible.

Diess and Winterkorn left the July 27 meeting taking a presentation with them, Der Spiegel further said.

A VW employee intervened and cautioned the managers that it would be better if they were not in possession of the presentation, Der Spiegel said.

Volkswagen said on Saturday the purpose of the July 27 meeting was not to discuss whether Volkswagen had broken U.S. law, but how to resolve the issue of whether new models would be given regulatory clearance.

Volkswagen argued that it had struggled to understand whether its software was in fact illegal, the defense document filed with the Braunschweig court shows.

On July 31, 2015 Volkswagen hired a law firm to help the company understand its regulatory troubles, and lawyers were unsure whether the software would be deemed an illegal “defeat device” in the United States, VW said in the court filing.

The court filing further said that Hans Dieter Poetsch, Volkswagen’s finance chief at the time, on Sept. 14, 2015 believed the potential financial risk from regulatory penalties tied to emissions would be around 150 million euros ($172 million).

Hans Dieter Poetsch is now Volkswagen’s chairman.

Volkswagen on Saturday reiterated that it had not violated disclosure rules and had informed investors in a timely manner about the financial scope of the scandal when it published an “ad hoc” disclosure notice on Sept. 22, 2015.

Volkswagen said that although it had admitted to using defeat devices to regulators on Sept. 3, 2015 it had assumed that penalties would not exceed 200 million euros, based on the size of fines imposed against rival carmakers who had committed similar regulatory breaches.

Because the company had already accrued sufficient provisions for vehicle recalls to cover this amount, there was no need to inform investors that profits could take a further hit before September 2015, Volkswagen’s court filing said.