VW admits small number of employees broke rules in emissions situation, external investigation ongoing

Volkswagen (VW) yesterday (10 December) held a press conference at its main Wolfsburg headquarters where for the first time it gave a comprehensive progress report on the state of the investigation into the emissions affair. Supervisory board chairman Hans-Dieter Pötsch outlined where the company and its external investigators were in establishing what has happened while CEO Matthias Mueller outlined further details on the technical fixes for the issue.

In terms of the scope of the investigation and what its goals are Pötsch said, "Exactly what happened and when, where regulations and laws were broken and which ones, to what extent did our internal processes encourage this, who is responsible for the misconduct - directly and overall - and finally how do we ensure nothing like this happens ever again." Pötsch went on to add that 450 internal and external investigators were working on gathering and analysing data relating to the incident. Pötsch also indicated that VW will do all it can to find out who were the individuals directly responsible for taking the decision to fit the EA189 diesel engine with the defeat device software. Pötsch also outlined the scenario that led to the "rogue" engineers fitting the defeat devices. He said, "We are not talking about a one-off mistake but a chain of mistakes that wasn't interrupted. Looking back we have to accept the developers couldn't find a way to meet tougher US NOx limits by permissible means - or at least which fitted the budget and timeframe they had been given. So software was fitted to manipulate NOX levels on a test bench." This has long been the scenario envisaged by IHS Automotive as it appeared to be the only technical solution available at the time that would allow VW to pass the NOx tests in the US with the technology that was available at the time. VWs own internal investigation uncovered serious flaws in its own monitoring processes and internal procedures that made it possible for the individuals in question to break the rules. Pötsch added that "...procedural problems encouraged misconduct. Our engine control units were not suitable for preventing the software in question. Remedial measures include structuring processes better - for example, the belt and braces principle will be applied to developing ECUs, and approval processes will include more binding requirements. We cannot control individuals, but in future it will be much harder to bypass the rules." He added that there was an attitude in some parts of the company that "tolerated breaches of rules." Pötsch said nine executives have been suspended as a result of the scandal, one more than previously admitted. He declined to speculate on whether additional managers would be suspended.

With regards to the V-6 diesel powertrain issue in the US, Pötsch also outlined the fundamental difference between this situation and the EA189 issue. He said, "There is one fundamental difference. The crux for EA189 engine is that the vehicle had two different exhaust strategies - one for the road and one for the test bench. That is not the case for Audi's V6 - the warm up strategies are identical on road and the test bench. One of the devices fitted could be considered forbidden in the US, but we will be offering a solution as swiftly as possible, and I would like to pull out that this affects around 100,000 units, so it is manageable." Pötsch also confirmed the information in the press release yesterday that the actual number of cars involved in the CO2 emissions situation was less than 5% of the original estimate, with only 36,000 cars affected. "As internal source drew attention to CO2 issues and this was immediately and proactively communicated. We announced up to 800,000 vehicles could be affected. Slight deviations were only found for a very small number of vehicles which will now be adjusted in normal procedure of customers. That is good news for customers."

Pötsch then handed the floor to CEO Matthias Mueller who said that the emissions situation would be used as a catalyst for change within VW as an organisation. Management mechanisms have already been put in place that will give individual brand and unit heads, and regional units, more autonomy, while at the same time there will also be a focus on compliance and proper internal audit trails to prevent the situation ever happening again. He said, "All of these structural changes aim to reduce complexity. There is definitely room for improvement. Our most valuable currency is credibility and trust in our brands, products and people." As a direct result the number of Mueller's direct reports will fall from the current 30 to 19, which will allow him more time "to concentrate on the essentials." Commenting on the change in culture from the top-down, autocratic management styles that appear to have been prevalent at VW in the past Mueller said, "We don't need yes-men, but managers and engineers who make good arguments in support of their convictions and projects, who think and act like entrepreneurs. I am calling for people who are curious, independent, and pioneering. People who follow their instincts and are not merely guided by the possible consequences of impending failure. In short: the future at Volkswagen belongs to the bold. We need a little more Silicon Valley, coupled with the competence from Wolfsburg, Ingolstadt, Stuttgart, and the other Group locations."

Outlook and implications

VW claims it is making good progress on the five goals it set itself at the end of October in response to the emissions crisis. The company has presented the technical solutions to fix the EA189 powertrains that are affected in Europe and which involve the vast majority of vehicles implicated in the emissions situation, and these fixes will begin to be rolled out across the region next month. The company is making progress with the investigation into the diesel emissions element, with the firm looking to present a full and complete report at next April's annual general meeting (AGM). In addition the company is implementing new and managerial structures and protocols as well as embarking on a new strategic direction which will put a far greater emphasis on electromobility. In terms of the ongoing investigation into the affair VW said that 450 internal and external experts are conducting the process. There are two elements to this investigation: an internal review, being conducted by a task force of experts from various Group companies with a clearly defined mandate and a deadline. This internal review will provide its findings to the external experts of US law firm who will access to all information to clarify the facts and responsibilities, and they have also been commissioned to conduct a "forensic investigation". In terms of remedying the set of circumstances that led to the defeat device software being installed on the EA189 powertrains VW has already identified key areas of focus. In the future for engine control devices will have two joint lead employees to ensure there is a "check and balance" process in place. In addition, the bodies responsible for the release of such software are being reorganised. However, VW was also keen to emphasise that these are preliminary findings and the company will update the progress of the external investigation at VW's next AGM on April 21. The investigation is lengthy and ongoing as it involves data equivalent to 50 million books taken from 380 employees. It appears the key to the emissions situation is in the comments made by Mueller about "yes" men. It is hard to escape the conclusion that VW's previous management culture was autocratic and top-down and there was immense pressure to hit targets and fulfil strategies even if some of the technical challenges in following these strategies were insurmountable. Mueller appears to be serious about heralding a new culture of transparency and openness, and the company also appears serious about getting to the bottom of what caused this issue, which has caused great damage to Europe's largest carmaker.