VW scandal: German prosecutors launch inquiry into former boss

Dog Detective

The crisis enveloping Volkswagen has intensified as German prosecutors opened an investigation of the former boss of the world’s biggest carmaker, Martin Winterkorn, over the emissions scandal.

As a senior German politician expressed concerns about the effects on the wider economy, Winterkorn became the subject of a preliminary inquiry by prosecutors in Braunschweig into possible fraud relating to the sale of vehicles with manipulated emissions data.

Braunschweig is a town close to Wolfsburg, the home of VW. The carmaker has been rocked by the scandal, which erupted 10 days ago when a US government agency revealed that it had discovered VW had been using sophisticated software to cheat emissions tests.

Since then shares in VW, a lynchpin of the Germany economy, have been in freefall. They are now down 40% since the US Environmental Protection Agency accused the carmaker of installing a “defeat device”, which reduced nitrogen oxide (NOx) emissions under test conditions.

The latest slump in the shares – they lost 7.5% on Monday – came after VW provided more detail about the 11m cars caught up in dodging the emission tests. Some 2.1m are Audis – A1, A3, A4, A5, A6, TT, Q3 and Q5 models – and 1.2m are Skodas.

Car owners in the UK are still awaiting information about how many of the affected vehicles were sold here. Lawyers in the UK and other countries said there was likely to be an avalanche of claims when it becomes clear where the cars fitted with the defeat devices were sold.

The company refused to comment on reports that three senior executives – Heinz-Jakob Neusser, head of brand development at VW, Ulrich Hackenberg, head of research and development at Audi, and Wolfgang Hatz, R&D chief at Porsche – had been suspended. It also refused to confirm reports that one of the biggest US law firms, Jones Day, was being lined up to lead an internal investigation.

Reuters has reported that Hackenberg is taking legal action.

Winterkorn was named in a statement issued by the German prosecutors, who said he was being investigated over “allegations of fraud in the sale of cars with manipulated emissions data”. The prosecutors said they were trying to establish who was responsible for the installation of the defeat devices. In Germany prosecutors are obliged to investigate allegations and in this case it is understood charges have been filed by about 10 individuals.

Winterkorn, one of the highest paid bosses in Germany, could not be reached for further comment. But when he quit last Wednesday – just 48 hours before he had been expected to be confirmed in the top job for another five years – he insisted that he was not responsible for the scandal gripping the business he has run since 2007.

“Above all, I am stunned that misconduct on such a scale was possible in the Volkswagen Group. I am doing this [resigning] in the interests of the company even though I am not aware of any wrongdoing on my part,” he said last week.

His replacement, Matthias Müller, who was head of Porsche, which is owned by VW – is now scrambling to repair the company’s reputation. According to a letter seen by Reuters, he told staff: “VW is in a dramatic situation. It will be far from easy to restore the reputation of the company and win back trust from customers.”

The company has set aside €6.5bn (£4.8bn) to cover the costs of the scandal, but analysts expect the final total to be much higher given that fines levied in the US alone could reach $18bn (£12bn).

Germany’s deputy finance minister, Jens Spahn, said the wider Germany economy could also be hit by the scandal. “The car industry is crucial for the German economy,” he told a conference. “ It [the scandal] can have a big impact on the German economy. This should worry us a little.”

Vehicle products make up 17% of German industrial output, according to economists at Capital Economics, while the automotive industry accounts for almost 5% of overall economic output. Economists calculate that if industries with ties to vehicle manufacturing are included, as many as 15% of German jobs may be reliant on the industry in some way. However, they have played down the long-term impact of the scandal on the economy.

The company is also facing protests from investors at its annual meeting next month. Hans-Christoph Hirt, a director at the advisers Hermes EOS, which represents about 40 investors, intends to raise questions about the make-up of the board and call for changes to corporate culture.

The supervisory board’s choice of corporate insiders as CEO and chair-elect also raises some real doubts whether the key shareholders have recognised the need for fundamental reform and a real new beginning,” said Hirt.

Hirt said he had been in contact with about six other major carmakers to seek clarity on whether they were being drawn into the emissions scandal.

Powered by Guardian.co.ukThis article was written by Jill Treanor, for theguardian.com on Monday 28th September 2015 20.31 Europe/Londonguardian.co.uk © Guardian News and Media Limited 2010


JefferiesAnd the Best Place to Work in the global financial markets 2016 is...

Register for Financial Markets News Alerts