09-23-2015, 11:01 PM
The mounting pressure became too much to bear and somebody had to take the fall. Volkswagen's CEO Martin Winterkorn has officially stepped down. This is a quick turn on his recent apology and reports that he would not resign but needed to get all the facts before proceeding. Well, the fact is, Volkwagen is in major trouble and the trouble is so large it is affecting the other German brands.
Winterkorn states he is stunned and wonders how this type of misconduct could take place at Volkswagen. Well, it usually starts at the top when it is on this large of a scale and if Winterkorn was isolated from this and not to blame he would not have stepped down this fast. Especially considering he seemed a bit defiant to the idea to begin with. Don't cry for him, he will get a golden parachute among the millions and millions he already has.
In case you are wondering what is going on and why this is such a big deal Volkswagen got caught using software capable of detecting when the EPA and CARB would test their diesels and the vehicles would adjust emissions output to meet federal guidelines. On the road they would pollute up to 40 times more than the legal amount. That is a pretty big gap.
Volkswagen's stock already took a major tumble and continues its slide. The loss is so large and the potential fine so big that it has even affected BMW and Mercedes stock as the two brands also took a hit. BMW is down about 5.5% and Mercedes around 6.5% but as this is a fluid situation these numbers will change daily. Porsche and Audi of course are affected as their parent company is losing billions upon billions with no end in sight.
In the US roughly 500,000 cars are affected from 2009-2015.
In theory this could result in a fine of up to $18 billion if it were done a per car basis as the EPA states it could do. These types of fines are often negotiated down so it is unlikely we will see a fine anywhere near that amount. The fact is VW has already lost that much money and more in its stock tumble alone not to count the legal fees they are about to incur. On top of that Volkswagen will compensate US dealers who have been ordered to stop selling diesels. Who knows what the final tab will be.
Now this is where things get interesting as the EPA no doubt will check BMW and Mercedes to make sure they are compliant. These brands have taken a hit simply because a big hit may be coming. Is VW alone in emissions cheating?
Let's assume for a moment BMW and Mercedes are found to have also been cheating diesel emissions standards. Billions upon billions will be wiped out from the German automotive industry and future US diesel sales from the Germans will be in jeopardy. They may leave the US diesel market entirely. This is of course a worst case scenario but you can sort of start to understand why the US does not get the high performance European diesel models as just making the economy models compliant is tough enough. Apparently tough enough that some makes decided to cheat the standards.
Volkswagen is setting aside $7.3 billion to contain this mess. We wonder if there should also be some blame on the EPA for not catching this loophole years ago. Whoever devised a test that could be beaten with software should of course take some responsibility. Technically, VW did pass the tests.
Volkswagen is hiring the legal firm that defended BP. Yes, British Petroleum, during its oil spill crisis. We do not consider this on the level of a disaster decimating millions of fish, birds, other wildlife, shipping, fishing, water supply, etc., that will take decades to recover from if the area ever does fully recover but VW is clearly gearing up for a giant fight of unprecedented scale.
Other countries are beginning to investigate Volkswagen as well so even if the US fallout is contained there may be many other countries levying fines should Volkswagen be found in violation of their emissions standards.
Is this bad? Yes, it's a nightmare for the Germans. Is it as bad as other major automotive scandals? We do not think so. GM is still in business after the ignition switch recall and that cost dozens and dozens of lives.
Fining the world's largest automaker to the point they will no longer be able to conduct business is likely not a good idea for the future of the automotive world or for the future of automotive business in Germany.
We will see what happens but this has the potential to get very ugly for a very large amount of people worldwide. The CEO will not be the only person losing their job over this.
Statement from the Executive Committee of Volkswagen AG's Supervisory Board
In a meeting on Wednesday, September 23, the Executive Committee of the Supervisory Board of Volkswagen AG discussed in detail the manipulation of emissions data of Volkswagen Group diesel engines and came to the following conclusions:
1. The Executive Committee takes this matter extremely seriously. The Executive Committee recognizes not only the economic damage caused, but also the loss of trust among many customers worldwide.
2. The Executive Committee agrees that these incidents need to be clarified with great conviction and that mistakes are corrected. At the same time, the Executive Committee is adamant that it will take the necessary decisive steps to ensure a credible new beginning.
3. The Executive Committee has great respect for Chairman Professor Dr. Winterkorn's offer to resign his position and to ask that his employment agreement be terminated. The Executive Committee notes that Professor Dr. Winterkorn had no knowledge of the manipulation of emissions data. The Executive Committee has tremendous respect for his willingness to nevertheless assume responsibility and, in so doing, to send a strong signal both internally and externally. Dr. Winterkorn has made invaluable contributions to Volkswagen. The company's rise to global company is inextricably linked to his name. The Executive Committee thanks Dr. Winterkorn for towering contributions in the past decades and for his willingness to take responsibility in this critical phase for the company. This attitude is illustrious.
4. Recommendations for new personnel will be presented at the upcoming meeting of the Supervisory Board this Friday.
5. The Executive Committee is expecting further personnel consequences in the next days. The internal Group investigations are continuing at a high tempo. All participants in these proceedings that has resulted in unmeasurable harm for Volkswagen, will be subject to the full consequences.
6. The Executive Committee have decided that the company will voluntarily submit a complaint to the State Prosecutors' office in Brunswick. In the view of the Executive Committee criminal proceedings may be relevant due to the irregularities. The investigations of the State Prosecutor will be supported in all form from the side of Volkswagen.
7. The Executive Committee proposes that the Supervisory Board of Volkswagen AG create a special committee, under whose leadership further clarifying steps will follow, including the preparation of the necessary consequences. In this regard, the Special Committee would make use of external advice. Further details about this will be decided at the Supervisory Board meeting on Friday.
8. The Executive Committee is aware that coming to terms with the crisis of trust will be a long term task that requires a high degree of consistency and thoroughness.
9. The Executive Committee will work on these tasks together with the employees and the Management Board. Volkswagen is a magnificent company that depends on the efforts of hundreds of thousands of people. We consider it our task that this company regains the trust of our customers in every respect.
In a statement, Winterkorn said:
"I am shocked by the events of the past few days. Above all, I am stunned that misconduct on such a scale was possible in the Volkswagen Group.
As CEO I accept responsibility for the irregularities that have been found in diesel engines and have therefore requested the Supervisory Board to agree on terminating my function as CEO of the Volkswagen Group. I am doing this in the interests of the company even though I am not aware of any wrongdoing on my part.
Volkswagen needs a fresh start - also in terms of personnel. I am clearing the way for this fresh start with my resignation.
I have always been driven by my desire to serve this company, especially our customers and employees. Volkswagen has been, is and will always be my life.
The process of clarification and transparency must continue. This is the only way to win back trust. I am convinced that the Volkswagen Group and its team will overcome this grave crisis."