Germany based Volkswagen Group
has admitted that the software-influenced NOx emissions behaviour of its cars
in the US and elsewhere was due the interaction of three factors:
The misconduct and shortcomings of individual employees,
Weaknesses in some processes,
A mindset in some areas of the Company that tolerated breaches of
This was revealed by the
company on December 10, 2015. A day earlier, the company reported that extensive
internal investigations, which were subject to external independent review, did
not confirm the suspicion of irregularities during the CO2 certification
The company has approved
technical solutions to rectify the emissions problem and is working intensely
on plans to implement them. The recall of the highest-volume variant, the 2.0 litre
TDI, will begin in January 2016. The recall of the 1.2 litre TDI is currently
scheduled to begin in the second quarter. The implementation phase for the 1.6
litre models is planned to begin in the third quarter to allow time to prepare
for the hardware modification. Under the current plan, the entire initiative
will take at least all of calendar year 2016.
These technical solutions,
which have been positively evaluated by the German Federal Motor Transport
Authority ("Kraftfahrtbundesamt"), are now available for the European
variants of the EA 189 engine type affected. Volkswagen is thus ensuring that
the models affected in Europe will meet all legal requirements in the future.
The costs of implementing these solutions will be manageable in technical,
manufacturing, and financial terms. The software of the 2.0 and 1.2 litre TDI
will be updated. For the 1.6 litre TDI, a so-called flow transformer will be
used that increases the measurement precision and, in combination with
redesigned software, will optimise injection quantity.
Due to far stricter nitrogen
oxide limits in the United States, it is a greater technical challenge to
retrofit the vehicles such that all applicable emissions limits can be met with
one and the same emissions strategy. To this end, Volkswagen is cooperating
closely with the United States Environmental Protection Agency (EPA) and the
California Air Resources Board (CARB). The solution designed for North America
will be presented as soon as it has been approved by the responsible
Chairman of the Supervisory
Board of Volkswagen AG, Hans Dieter Pötsch, told the press in Wolfsburg:
"The Volkswagen Group is fully functional in every respect, even during
these eventful days. How, and when we meet the current challenges is primarily
– although not solely – up to us. In order to pass this test, we must make an
enormous, common effort – and we are all ready to do so."
Echoing similar sentiments, Chairman of the
Board of Management, Matthias Müller, said: "We are doing everything to
overcome the current situation, but we will not allow the crisis to paralyze
us. On the contrary, we will use it as a catalyst to make the changes Volkswagen
individuals when problematic
processes have to be identified and, if necessary, escalated,” said a company
investigation is producing valuable findings, which will help us create a
structure that, rather than favouring breaches of regulations, will prevent
them, or at least allow them to be detected early on," said Pötsch.
The Company has already drawn
a key conclusion based on Group Audit's findings, namely that its testing
practice must undergo comprehensive changes. Volkswagen has decided that in the
future emissions test will be evaluated externally and independently. In
addition, randomly selected real-life tests to assess emissions behaviour on
the road will be introduced. "We hope that this will help Volkswagen
regain lost trust," Potsch noted.
More time is
required for the external investigation
Although Group Audit's
analysis of the processes will be concluded shortly, Jones Day will need well
into next year in order to finish its work. The external investigators will
need more time for their investigation, for two reasons. The first is that they
have a massive volume of data to screen. At present, 102 terabytes of
information have been secured, which is the equivalent of the information
contained in approximately 50 million books. More than 1,500 electronic data
storage units have been collected from approximately 380 employees. The second
reason is that their investigation of the facts takes legal responsibility into
account. Therefore, their findings must not only be plausible and consistent,
but must also hold up in court. Volkswagen plans to provide a status update on
the external investigation at its Annual General Meeting on April 21, 2016.
Meanwhile, the information
that has been screened to date has largely explained the origin and development
of the nitrogen oxide issue. It proves not to have been a one-time error, but
rather a chain of errors that were allowed to happen. The starting point was a
strategic decision to launch a large-scale promotion of diesel vehicles in the
United States in 2005. Initially, it proved impossible to have the EA 189
engine meet by legal means the stricter nitrogen oxide requirements in the
United States within the required timeframe and budget. This led to the
incorporation of software that adjusted nitrogen oxide emission levels
according to whether vehicles were on the road or being tested. Later, when an
effective technical process was available to reduce NOx emissions, it was not
employed to the full extent possible. On the contrary, the software in question
allowed the exhaust gas treatment additive "AdBlue" to be injected in
variable amounts such that the NOx values were particularly low when vehicles
were in the test bay, but significantly higher when vehicles were on the road.
It is for the first time that
the company is providing detailed commentary on the status of its
investigation, which is being coordinated by a special committee of the
Supervisory Board. Approximately 450 internal and external experts are involved
in the investigations, which are being conducted in two phases. An internal
review, being conducted by a task force of experts from various Group companies
with a clearly defined mandate and a deadline, is focused on the mandate to
Group Audit by the Supervisory Board and the Management Board to investigate
relevant processes, reporting and monitoring systems, and the associated
infrastructure. Group Audit will provide its findings to the external experts
of Jones Day. The Supervisory Board has given this internationally respected
law firm a parallel mandate to completely clarify the facts and
responsibilities – i.e., among other things, it has been asked to conduct a
forensic investigation. In connection with its work, Jones Day is being
provided with operational support by the audit firm Deloitte.
Hans Dieter Pötsch stressed
that, "No business transaction justifies overstepping legal and ethical
bounds." As a first step, nine managers who may have been involved in the
manipulations were suspended. Pötsch emphasised: "I here and now guarantee
that we will pursue our thorough investigation to its conclusion. I vouch for
this personally, as does the entire Supervisory Board of Volkswagen AG."
Matthias Müller added ,
Chairman of the Board of Management, promised: "Volkswagen will not rest
until this matter has been resolved once and for all to our customers'
satisfaction." Volkswagen will inform the owners of the affected vehicles
individually as to when their vehicles will be updated. Volkswagen guarantees
that the solutions will be implemented free of charge. The company waives any
statute of limitations for the technical solutions, and will provide an
appropriate replacement vehicle if required.
of the new Group structure commences
Parallel to overcoming the
crisis, Volkswagen is also instituting a comprehensive new alignment that
affects the structure of the Group, as well as its way of thinking and its
Volkswagen will be managed in
a more decentralised fashion in the future, and its brands and regions will be
granted more independence. The Group's Board of Management is fully focused on
its core task: advancing the major, global issues for the future, as well as
synergies, controls, and strategy. Volkswagen will have significant input to
the technical changes that have a major impact on its own business model,
becoming more agile, and streamlining its decision-making processes. In
addition, Volkswagen will become leaner and improve cost efficiency. All these
structural changes ultimately aim to reduce managerial complexity and ensure
that the Group can be effectively led over the long term.
At an organisational level,
with the appointment of Dr. Christine Hohmann-Dennhardt, the Integrity &
Law area will be represented as its own department on the Group's Board of
Management in the future – a clear indication that these issues are extremely
important to Volkswagen. Significantly more importance will be attached to
digitalisation, which will report directly to the Chairman of the Board of
Management. Overall, direct reports will be reduced from more than 30 to 19.
The renewal of personnel in
the Group has recently again been given new impetus. Since the beginning of
2015, the Group's Board of Management has seen six new members join, seven of
the brands have had their top personnel changed, and eight departments falling
within the CEO's area of responsibility now have new heads. Müller stated:
"The team with which we wish to address the challenges of the coming
months and years is in place." The details of the new structure are to be
worked out in the first quarter of 2016. The new structure will be in place
Group-wide by the start of 2017.
destination under development
In addition, Volkswagen has
initiated development of a new strategic target: "Strategy 2025",
with which Volkswagen will address the main issues for the future, is scheduled
to be presented in mid 2016.
Müller explained, "We are
realigning Volkswagen strategically and technologically. Our goal is to
courageously and decisively participate in shaping the future of
mobility." Among other things, the Group aims to achieve a significant
expansion of its sales outside of its current core business. Furthermore, a digitalisation
and an electrification offensive are being prepared.
In parallel, Volkswagen is
currently doing everything it can to limit the effect the current situation has
on its business performance. The operating business is meeting expectations,
and the 2015 annual forecast, which was updated at the end of October, remains
unchanged. The sales figures are very mixed as regards the various markets and
brands. Müller explained, "Overall, the situation is not dramatic, but, as
was to be expected, it's tense."
The Chairman of the Board of
Management stated: "Although the current situation is serious, this
company will not be broken by it. We have a clear mission: we will create a
new, better, and stronger Volkswagen. A company that uses its strengths to make
the transition to the new world of automobiles. A company that now releases new
forces, and takes better advantage of its huge potential. And, last but not
least, a company that will be successful over the long term on the basis of
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