INTERNATIONAL BUSINESS

Volkswagen C.E.O. Martin Winterkorn Resigns Amid Emissions Scandal

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Volkswagen Announces C.E.O. Resignation

Berthold Huber, a member of Volkswagen’s supervisory board, discussed on Wednesday the decision of Martin Winterkorn to resign as chief executive following the diesel emissions deception.
 By THE ASSOCIATED PRESS on September 23, 2015. Photo by Alexander Koerner/Getty Images.Watch in Times Video »
FRANKFURT — Martin Winterkorn resigned as chief executive of Volkswagen on Wednesday, taking responsibility for an emissions cheating scandal that has gravely damaged the carmaker’s reputation.
“As C.E.O., I accept responsibility for the irregularities that have been found in diesel engines,” Mr. Winterkorn, 68, said in a statement.
But Mr. Winterkorn, who had headed the company since 2007, continued to insist that he personally had committed no misconduct. “I am not aware of any wrongdoing on my part,” he said.
Mr. Winterkorn’s resignation came less than a week after the company admitted that some diesel cars in the United States contained software designed to evade emissions tests. And it came a day after he issued a videotaped apology in an attempt to salvage the situation, and perhaps his job. On Tuesday, Volkswagen said that 11 million cars worldwide contained the software, although the company did not clarify whether it was also used to deceive regulators in other countries.

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How Volkswagen Got Away With Diesel Deception

Volkswagen could have saved fuel or improved performance by allowing more pollutants to pass through its cars’ exhaust systems, researchers said.
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Separately, representatives of Volkswagen’s supervisory board said they would refer the case to German prosecutors for possible criminal prosecution. But they also said they did not believe that Mr. Winterkorn had any knowledge of the manipulation.
An executive committee of the supervisory board did not immediately name a successor. As Mr. Winterkorn’s status came into doubt in recent days, speculation in German news media has focused on Matthias Müller, who is in charge of the Volkswagen division that makes Porsche sports cars.
Another potential candidate, according to media reports, is Rupert Stadler, head of the Audi division of Volkswagen’. If Volkswagen brought in an outsider, one oft-mentioned person is Wolfgang Bernhard, the head of the trucks division at Daimler, who earlier in his career was a top manager at Volkswagen.
Mr. Winterkorn’s resignation came after a daylong meeting of the executive committee, which includes the company’s main shareholders.
“In the view of the executive committee, criminal proceedings may be relevant due to the irregularities,” the panel said in a statement. It said that Volkswagen would cooperate fully with any investigation.
Mr. Winterkorn “had no knowledge of the manipulation of emissions data,” the panel said.
That statement immediately raised the question of why Mr. Winterkorn needed to resign if he had not known about the manipulation. One answer might be that Volkswagen has long been known as a top-down organization, where even relatively minor decisions require approval from the high-rise executive office building, topped by a giant VW grill ornament, which looms over the company’s vast main factory in Wolfsburg, Germany.
Volkswagen’s command-and-control structure probably made it difficult for Mr. Winterkorn to escape responsibility, even if there was no direct culpability. Critics have long faulted what they said was a company culture that hampered internal communication and might have discouraged midlevel managers from delivering bad news.
“For something of this magnitude, one would expect that the C.E.O. would know, and if he doesn’t know, then he’s willfully ignorant,” said Jeff Thinnes, a former Daimler executive who consults with European companies on compliance and ethics issues.
Martin Winterkorn, 68, had been chief executive at Volkswagen since 2007.Christian Charisius/Reuters
Volkswagen, he said, should have had a system in place to ensure that something that exposed the company to so much risk came to the attention of top management.
“It could well be he didn’t know,” Mr. Thinnes said of Mr. Winterkorn. “But when it’s risk related, the information needs to get to the right people at the right place at the right time.”
In the German media on Wednesday, there was already speculation that the scandal would force Volkswagen to decentralize authority and make changes that critics say are long overdue.
Volkswagen shares, which had been up on Wednesday after two days of steep declines, closed 6 percent higher in Germany. But they were still about 25 percent below the closing price in Frankfurt on Friday, before the Obama administration told the automaker to recall nearly a half-million cars over illegally installed software.
Even before Volkswagen’s executive committee said it would refer the case to criminal prosecutors, state prosecutors in Braunschweig, near Volkswagen’s headquarters, said in a statement that they were exploring whether there were grounds to begin a criminal investigation against yet unidentified company employees suspected of being responsible for manipulating diesel emissions tests results.
Complaints from many citizens were already filed with the authority, prosecutors said, and they were gathering and evaluating possible evidence. The Volkswagen board would most likely refer its case to the same prosecutors, in the state of Lower Saxony.
Even before Mr. Winterkorn resigned, there was growing concern in Germany on Wednesday that the scandal could damage the country’s economy, which revolves around the auto industry. Volkswagen is one of its biggest companies, employing 274,000 people at 29 German factories, and it is already struggling with high labor costs. That figure does not count the tens of thousands of people employed in Germany by Volkswagen suppliers.
“While the German economy defied Greece, the euro crisis and the Chinese slowdown, it could now be facing the biggest downside risk in a long while,” Carsten Brzeski, chief economist at ING-DiBa bank in Germany, wrote in a note to clients. ”The irony of all of this is that the threat could now come from the inside, rather than from the outside.”
The revelations about Volkswagen’s cheating on environmental standards threaten to further tarnish the country’s image as a bastion of quality and safety, where regulations are strict — and strictly enforced. And they come six months after a mentally ill pilot flying for a subsidiary of Lufthansa, Germany’s leading airline, crashed his plane into a mountainside.

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“If this reputation is under threat, so are growth and prosperity,” wrote Ulrich Schäfer, a columnist for the Süeddeutsche Zeitung, noting that one out of seven German jobs depends directly or indirectly on the country’s car industry.
The German Engineering Federation, which represents machinery makers and is closely intertwined with the auto industry, said there was a risk that the “Made in Germany” brand could suffer. The organization said in a statement that it was worried “that one instance of misconduct could be carried over to all of German industry.”
The regulator for the German stock market, the Federal Financial Supervisory Authority, said that it had begun an inquiry into what it described as unusual price movements in Volkswagen shares recently. The authority, known by its German acronym BaFin, said it was also examining whether Volkswagen had notified shareholders soon enough of its problems in the United States.
As in the United States, German companies are required to advise shareholders of information that could affect the stock prices and face fines and shareholders lawsuits if they do not.
The Volkswagen scandal has already raised questions in Europe about the accuracy of emissions testing and put all automakers on the defensive. Environmental groups have long complained that existing tests understate the amount of pollution that cars generate under real driving conditions.
On Wednesday, a committee of the European Parliament took steps to speed the adoption of rules that would test cars on roads rather than in stationary testing centers.
Some other European carmakers that have struggled for market share against Volkswagen, including Ford, Fiat and the Opel unit of General Motors, might view the scandal as an opportunity to gain ground against the company, which sells more cars in Europe than any other maker.
On Wednesday, the European Automobile Manufacturers Association sought to distance itself from the scandal, saying in a statement that it “recognizes the gravity of the situation,” but added, “There is no evidence that this is an industrywide issue.”
German criminal law does not allow for a company to be held responsible for crimes, but proceedings can be taken against individuals believed to have been responsible. Part of the basis of a preliminary investigation like the one begun by prosecutors in Braunschweig is to identify who might have been responsible for wrongdoing.
In many cases, the chief executives are brought before a court to answer for the bad behavior of their companies. That was the case last year when prosecutors in Munich filed criminal charges against Jürgen Fitschen, at the time co-chief executive of Deutsche Bank, on suspicion of attempted trial fraud in an earlier case.
Mr. Winterkorn may yet be called to answer for his former company, unless others are found to have been directly involved in the development or installation of the software.
Melissa Eddy contributed reporting from Berlin, and Nicola Clark from Paris.