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VW Dieselgate: Clouds slow to clear

Clouds from Dieselgate have been spreading over VW's horizon for six months and that's unlikely to change for now. Although VW has promised improvements and a thorough investigation, progress has been patchy.

Until about half a year ago, Volkswagen CEO Martin Winterkorn was one of the most powerful managers in Germany. In April of that same year, VW supervisory board chairman and company patriarch Ferdinand Piëch announced he was distancing himself from Winterkorn - causing a power struggle that culminated with a victory for Winterkorn. In the end, it was Piëch who found himself resigning.

But the beginning of the end of Winterkorn’s omnipotence started on September 18 - the day the world found out that VW had been defrauding regulators and governments, car owners and taxpayers all over the world for years. The US Environmental Protection Agency (EPA) went public with findings that VW diesel cars were installed with "default devices" - software that helped the carmaker cheat emissions tests. Five days later, Winterkorn stepped down from his post.

A spate of suits

All over the world,

motorists owning cars of various VW makes are demanding damages

. In countries, like the US where class-action lawsuits are possible, law firms are scrambling to represent actual or supposed victims of the emissions cheating.

European customers want to bring their bundled lawsuits to a Dutch court, while in Germany a so-called model procedure is envisaged, where several lawsuits with similar facts are pooled and decided uniformly.

Deutschland Volkswagen Porsche Martin Winterkorn

Martin Winterkorn: a mighty manager no longer.

At the same, the US justice ministry has also launched its own $45-billion (39.7-billion-euro) suit against Volkswagen, for violating environmental laws. US authorities also reportedly sent

a civil subpoena under a bank fraud law

and are investigating the embattled carmaker for possible tax violations.

State prosecutors in Germany’s Braunschweig are also moving in this direction, five people stand accused of tax evasion connected to the case. A total of 17 are being investigated for fraud and unfair competition.

Investors who have put their money in VW stocks, are also considering lawsuits

against the carmaker. The company potentially failed to properly inform investors of looming shocks to the share price. Since the scandal broke, VW stocks have plummeted. If the plaintiffs are successful, and VW has to compensate them for their losses, that could result in a lot of pain for VW.

Bildergalerie weltweite VW-Standorte Wolfsburg

Wolfsburg, in the heart of Lower Saxony. A city for one company: Volkswagen

But wait, there’s more…

Disgruntled customers, fleeced taxpayers, duped authorities, and betrayed governments - VW has made few friends in the last months. And Frank Schwope, analyst and automotive industry expert at the Nord-LB, told DW that the list is probably far from complete. The case's dimensions in their entirety "are probably not known yet".

After some thought, he added: "Every week, a new law firm comes with demands from whichever country. There are around 200 countries in the world, VW cars are driven in most of them - this is theoretically possible from every country."

The key question

The question hanging over every quest for redress:

who knew what at VW

, and when? Did the management board at least not have a vague idea, or shouldn’t they have at least guessed? Or was Martin Winterkorn being truthful, when he said in September that Dieselgate was about the "terrible mistakes of a few?"

Frank Schwope is not in the least bit surprised that the clarification is so slow in coming.

"In a giant company, with 600,000 employees, one doesn’t really know what happened when and where," he said. "The investigation would go faster, if the highest level of managers were privy."

But that’s not something to be taken for granted at this point, said Schwope.

"They themselves have to get an overview of what happened, and that’s been chaotic."

Burning billions

Given the US Justice Minister‘s $45 billion, and the many other lawsuits pending, VW is going to have a hard time keeping the lights on - even Europe’s biggest carmaker is unlikely to endure such a bloodletting with ease. But experience shows that similar cases were settled for smaller amounts.

Schwope predicts VW will be able to do this too. But the bank analyst’s personal estimate would probably still be hard for VW to hear.

"I would assume a sum of $20 to 30 billion," he said. Still, he said VW would be wise to brace itself for the worst. Indulgence is less likely to win out over maximum strictness, when it comes to the meting out of fines and penalties.

"The fines from the courts will definitely add up to the two-digit billion range," he said.

But it’s not just the dreaded court decisions that are bound to hit VW hard.

"In the end, the scale of an image problem can be determined through the

future sales

that won’t be made, the profits that aren’t earned. This damage to VW’s image would be worth another set of billions."

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Learning from mistakes

To the question as to why such a disaster like Dieselgate could happen at VW, Schwope has a clear answer.

"Until now, everything in VW was designed around one man at the top, or management team. That was very old-fashioned."

Now much would depend on a more "decentralized" organizational structure, he said.

VW will also have to concentrate on its core business, already having started to think of new approaches for its commercial vehicle segment, like having a separate management structure.

And Schwope said slimming down would certainly help VW, which has 12 brands. The company has to think about whether it "really needs Bugatti, Lamborghini, or Bentley,” he said.

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