As Volkswagen AG faces a Friday deadline for proposing how it
will fix nearly half a million cars tainted by illegal software,
the German auto giant is grappling with a contentious relationship
with regulators in the U.S. and Europe who will determine the
penalties for its emissions-cheating.
Two months after the U.S. Environmental Protection Agency
disclosed that Volkswagen deceived diesel emissions testers for
years and later falsely claimed technical problems when challenged,
the details of how and why Volkswagen cheated, who was responsible
and how it plans to fix affected cars are still largely
unclear.
Volkswagen is set to discuss initial recall plans in meetings
Thursday and Friday with U.S. and California regulators, an EPA
spokeswoman said. On Friday, the company also is expected to
provide details of deep spending cuts.
Since the EPA disclosure, Europe's largest car maker has
publicly sparred with U.S. regulators over details, angered German
and European Union officials by failing to provide information and
frustrated investors. Its stock-market value has declined 37%, and
the company has set aside almost $10 billion to pay for the
crisis.
Buyers also have cooled on Volkswagen cars. In October, the
first full month of sales since the crisis became public,
Volkswagen brand sales fell more than 5% world-wide, while the U.S.
and European car markets grew.
"I'm disappointed…by their response so far," said Mary Nichols,
head of the California Air Resources Board, one of the agencies
meeting with Volkswagen this week. "I would have hoped we would
have heard from them sooner and in a more forthright fashion," she
added.
Volkswagen officials say their initial response to the crisis
was slowed by management upheaval and the scope of the scandal, but
has since improved. "There is no way to have a plan for a crisis
like this," said spokesman Hans-Gerd Bode. "Nevertheless, we
responded quickly, and very quickly said how we would get to the
bottom of what happened."
A more than $1,000 cash-and-services offer to U.S. diesel-car
customers this month that was meant to show goodwill instead met a
lukewarm response and scorn from some U.S. lawmakers, who called it
"insultingly inadequate."
"This is a textbook example of how it should not be done," said
Sasja Beslik, head of Responsible Investments at Swedish fund group
Nordea Asset Management. "Volkswagen's communications have been
totally reactive." Nordea held about half a million shares of
Volkswagen's common stock before the crisis, but since has sold off
90% of its holdings, Mr. Beslik said.
Impressions matter in high-stakes government investigations.
Past cases indicate the U.S. is more inclined to impose lower fines
on companies that are seen as cooperative in public, even if
disagreements over facts continue behind closed doors.
In its settlement with General Motors Co. over a defective
ignition switch linked to more than 100 deaths, the U.S. Justice
Department credited the auto maker for a swift and robust internal
probe that furnished federal prosecutors with documents ordinarily
protected by attorney-client privilege. Prosecutors also noted GM's
decision to fire wrongdoers and set up a compensation fund to dole
out hundreds of millions of dollars to victims.
GM paid a $900 million financial penalty from prosectors, less
than the $1.2 billion assessed Toyota Motor Corp. in a criminal
settlement for misleading consumers and concealing safety problems
in its vehicles.
Prosecutors had difficulties interviewing Toyota executives in
Japan because the company refused to make them available, people
familiar with the matter have said. Toyota has said it is working
hard to improve communications with customers and regulators.
Toyota also cooperated with the probe, prosectors said in
settlement documents.
Volkswagen's scandal, potentially affecting more than 12 million
vehicles world-wide, would swamp most businesses.
No one holds more sway over how much Volkswagen eventually may
have to pay in fines and penalties than the EPA. But Volkswagen
often has been defiant, to the point of publicly criticizing the
agency's testing methodology and suggesting the EPA was out to
stifle competition.
Days before offering the U.S. goodwill package, Volkswagen
received another notice from the EPA, this time alleging cheating
software also was in 3.0-liter diesel engines used in luxury sedans
and sport-utility vehicles made by its namesake, Audi and Porsche
units. Volkswagen contested the EPA's claim, but still angered some
customers who bought the vehicles only to see them drop in
value.
"They should have pulled it off the market months earlier," said
Charles Taylor, a 74-year-old retired college athletic director in
Brevard, N.C., after he found out that a 2015 Audi Q7 sport-utility
vehicle he had just leased was among the tainted vehicles. Audi
halted sales of the model with a three-liter diesel engine in the
U.S. even though it wasn't among the specific ones the EPA
cited.
Mr. Taylor later returned the vehicle and received a full refund
from the dealership, he said. He recently leased a new Acura MDX
SUV, he said.
Some dealers say they are equally frustrated.
"We still don't know what to tell our customers," said Steve
Kalafer, who co-owns Flemington Car & Truck Country, a New
Jersey-based dealership. "We need details about how VW plans to
make our customers whole."
Interactions between Volkswagen and the EPA got so bad that
German Transport Minister Alexander Dobrindt publicly criticized
the company after he met with agency officials last month.
The EPA "is dissatisfied—angry," he said in Washington, D.C., as
he left the meeting. "Trust has been destroyed and it will take
considerable work to rebuild it."
An EPA spokeswoman declined to comment on Wednesday.
CARB's Ms. Nichols said she hopes her staff this week will hear
clear plans from Volkswagen for fixing the vehicles and what
incentives or other measures it would offer consumers to prod them
into getting repairs completed. Regulators will review Volkswagen's
plans and continue discussions with the auto maker, she said.
Volkswagen's U.S. chief executive, Michael Horn, said his
company is cooperating fully with U.S. and California regulators
and aiming to be as transparent as possible. "We understand
apologies are not enough," Mr. Horn said on Wednesday in Los
Angeles.
"Nothing is more important to me personally than…making things
right," he said. "There is frustration and sometimes anger. All
these reactions are fully understandable."
Mr. Horn said 120,000 customers have so far registered for the
goodwill cash-and-services offer Volkswagen recently launched.
Volkswagen has tapped law firm Jones Day to conduct an
investigation and invited German prosecutors to scrutinize its
activities. It also hired an international team of public-relations
firms and recruited an "Integrity Officer" from rival Daimler AG to
help the company rewire its corporate governance and corporate
culture.
Under new Chief Executive Matthias Mü ller, who took over from
the ousted Martin Winterkorn on Sept. 25, Volkswagen is offering
immunity from job discipline to employees who come forward this
month with additional information about the emissions
deception.
This week, Volkswagen showed a German parliamentary committee of
experts how it planned to fix affected 1.6-liter vehicles. The fix,
which the company hasn't explained to the public, is now undergoing
further tests by Germany's KBA, the motor vehicle agency, an agency
spokesman said, declining to provide any details.
Volkswagen also has frustrated regulators in Europe.
EU Industry Commissioner Elzbieta Bienkowska was in Berlin
recently and believed she had a meeting set with Herbert Diess,
chief of the Volkswagen brand. The meeting was canceled.
"I don't think it was a good decision," she said. "I don't know
why it was canceled. It was not me who canceled."
A Volkswagen spokesman said Mr. Diess and Ms. Bienkowska didn't
have a confirmed appointment that day. While possibly a
misunderstanding, the exchange shows how tense Volkswagen's
relationship with Brussels has become.
Even Volkswagen's closest allies in Germany have complained the
company left them uninformed as the crisis brewed.
Lower Saxony Prime Minister Stephan Weil told his legislature on
Oct. 13 that he and a top deputy heard the news "from media
reports" over the weekend. Volkswagen's handling was "absolutely
unacceptable," he said later. "In my opinion, the information
should have been available a lot sooner."
The German state holds 20% of Volkswagen's voting stock and
depends on Volkswagen and the automotive industry for 200,000 jobs.
Mr. Weil sits on the company's supervisory board.
A Volkswagen spokesman said management wasn't required to inform
Mr. Weil or other directors until the full dimension of the scandal
became clear.
German Vice Chancellor Sigmar Gabriel, a former director on
Volkswagen's board, also learned about the scandal from media
reports. When one of his top aides awoke to coverage on Saturday
morning, Volkswagen was unreachable, the aide said.
Volkswagen made a brief statement on Sunday, but as Mr. Gabriel
prepared to give a speech that Monday at the Frankfurt Motor Show,
he still had few details about the storm threatening Germany's
largest industry.
"We came in Monday and the house was on fire," the aide
said.
Harriet Torry, Friedrich Geiger and Ruth Bender contributed to
this article.
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(END) Dow Jones Newswires
November 18, 2015 19:55 ET (00:55 GMT)
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