The Cable

Diesel Emissions Scandal Claims Its First Scalp: Volkswagen’s CEO

The U.S.-led investigation into Volkswagen's emissions cheat claims its first victim.


Volkswagen CEO Martin Winterkorn resigned Wednesday after his company admitted it installed software on millions of diesel vehicles that allow them to cheat on U.S. emissions tests, leading to massive market losses and putting the iconic German carmaker at strong risk of prosecution and subject to billions of dollars in fines.

As many as 11 million vehicles, including about 500,000 in the United States, have the software that altered how they worked when undergoing emissions tests. Volkswagen admitted the flaw following a U.S. Environmental Protection Agency investigation that has now given rise to looming inquiries by Congress, a group of U.S. states, Germany, and other European nations.

The company owned up to its mistake and promised to cooperate with authorities, and on Tuesday, Winterkorn insisted he would fight for his job. However, after meeting with the company’s board Wednesday, he relented and quit.

“I am shocked by the events of the past few days,” Winterkorn said in a statement released by the company. “Above all, I am stunned that misconduct on such a scale was possible in the Volkswagen Group.”

The company also admitted Wednesday there is likely to be a criminal investigation in Germany. The U.S. Justice Department is also reportedly looking into Volkswagen’s actions, but did not return a request for confirmation of a criminal probe.

The EPA and the California Air Resources Board, which also participated in the initial investigation, might dispute the notion that recent events come as a surprise, as Winterkorn claims. They said the company has known about problems in the diesel cars in question, sold under the Volkswagen and Audi brands, for more than a year.

The problem first came to light in May 2014, when West Virginia University researchers uncovered inconsistencies when they compared emissions test results to real-life driving conditions. The EPA eventually discovered the emissions cheat, which allowed the vehicles in question to “emit up to 40 times more pollution” than allowed by U.S. regulations.

Winterkorn is the first prominent Volkswagen executive to fall because of the scandal. But the damage to the company, and to those who hold its stock, has been on full display this week. A share in the company traded at $162.20 at the market’s close Friday. On Wednesday, that same equity is worth $111.50. Qatar, the oil-rich nation that’s heavily invested in Volkswagen, has already lost $5 billion.

Volkswagen has set aside $7.3 billion to “cover the necessary service measures and other efforts to win back the trust of our customers.” The EPA could levy $18 billion in penalties against the company.

The company could also face an onslaught of class action lawsuits. One was filed in Canada on Tuesday.

“The class action alleges serious and pervasive design defects in subject vehicles including, but not limited to, severely toxic emissions above legal limits,” a notice on the Merchant Law Group website said, inviting people to join the lawsuit.  

Photo Credit: Alexander Koerner/Getty Images

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