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Volkswagen's governance in question

Spencer KimballNovember 4, 2015

The emissions scandal is spreading across Volkswagen's brands. Experts say Matthias Müller, chief executive for just over a month, will face hard questions about his leadership.

VW Logo Volkswagen Himmel dunkel
Image: picture-alliance/dpa/J.Stratenschulte

The scandal engulfing Volkswagen is only deepening. The Environmental Protection Agency said it found illegal software used to cheat nitrogen oxide tests in the carmaker's Porsche brand. The German automaker disputes the allegations, but says it's cooperating with US authorities.

"VW has once again failed its obligation to comply with the law that protects clean air for all Americans," said Cynthia Giles, the assistant administrator of the EPA's compliance office.

It's not just nitrogen oxide and diesel engines anymore. Through its own internal investigation, Volkswagen has found 800,000 vehicles also have carbon dioxide emission "irregularities." The automaker said on Wednesday that a "majority" of the vehicles have diesel engines, implying that gasoline engines are also affected.

"They're trying to get out in front of it and identify everything that could be an issue," Peter Henning, an expert on white collar crime and the automobile industry at Wayne State University, told DW. "We don't know how much they know at this point."

The allegations of cheating at Porsche have put renewed pressure on Volkswagen's leadership. Matthias Müller led Porsche for several years before being named Volkswagen's chief executive in September. He succeeded Martin Winterkorn, who resigned over the emissions scandal.

"If Porsche is involved in the emissions issue, you're going to have more questions directed at what Müller's knowledge was," Henning said.

'Who's in charge?'

While Porsche has denied the EPA allegations, the company has stopped selling 2014 to 2016 Cayenne diesel SUV models in North America. Porsche said the move was voluntary and current owners of the Cayenne models can continue operating their vehicles normally.

According to Martin Zimmerman, the decision shouldn't be interpreted as an admission of guilt before the facts are sorted out.

"I suspect they did it to be cautious," Zimmerman, a former chief economist at Ford Motor Company, told DW. "They can't sell vehicles without regulatory approval."

Volkswagen was on the right track in responding to the crisis, Zimmerman said. Winterkorn resigned, three top engineers were suspended and an internal investigation, led by a US law firm, was commissioned. But the new allegations by the EPA and Volkswagen's own admission of carbon dioxide irregularities raise unavoidable questions about how the company is run.

"The pressure is a lot broader now," Zimmerman said. "It goes to the supervisory board, what is the governance structure, even if the top guys didn't know about it."

"That creates this sense of what's going on here, who's in charge?" he said. "You've gotta get the information out. You can't hide it. You got to forthrightly deal with it and make sure it doesn't happen again."

VW sales flat

By the company's own estimate, the carbon dioxide issue could cost €2 billion ($2.17 billion). Volkswagen has already set aside €6.7 billion to deal with the nitrogen oxide cheating scandal. For the first time in 15 years, Germany's largest employer suffered a quarterly loss of €3.4 billion.

Volkswagen is also recalling 92,000 vehicles due to a brake malfunction, the Associated Press reported on Wednesday. They include Beetle, Jetta, Golf and Passat models from 2015-2016. The affected vehicles have 1.8 liter and 2-liter turbocharged gasoline engines. A fix would be available by the end of March, the automaker said.

Volkswagen stocks dropped 10 percent on Wednesday. During the third quarter, Toyota reclaimed its crown from Volkswagen as the world's best-selling automaker.

Despite those losses, the emissions scandal hasn't had much of an impact on actual sales in the US, which were never that strong. Volkswagen actually saw a small sales increase of 74 vehicles, but that came at the price of hefty discounts. According to Jack Nerad, consumer behavior hasn't really been affected by the "firestorm in the press."

"It hasn't had a giant affect at the show room," Nerad, the executive editorial director of Kelly Blue Book, told DW. "You would expect a drop in sales and so the fact that sales are essentially flat actually should be somewhat of a positive sign for Volkswagen."

Nerad said Volkswagen customers in the United States are loyal, and they aren't abandoning the brand just yet. He pointed to Toyota as an example. The Japanese automaker concealed a defect that led to sudden acceleration in some vehicles. Lawsuits against Toyota have alleged death and injury related to the malfunction.

"That brand has come all the way back and is stronger than ever and this despite deaths attributed to things it was doing," Nerad said. "No deaths have been attributed to this. Nobody likes cheating, but I think Volkswagen fans are remaining Volkswagen fans and will see how it unfolds."