VW Crisis Comes to a Head This Week

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A Volkswagen Passat is evaluated at the California Air Resources Board emissions test lab in El Monte, Calif., earlier this year. The auto maker knew two years ago that the group was looking closely at its diesel vehicles’ performance. ENLARGE
A Volkswagen Passat is evaluated at the California Air Resources Board emissions test lab in El Monte, Calif., earlier this year. The auto maker knew two years ago that the group was looking closely at its diesel vehicles’ performance. Photo: Nick Ut/Associated Press

WOLFSBURG, Germany—Two years ago this month, a senior executive in Volkswagen AG VLKAY 4.99 % ’s U.S. business learned via email that environmental authorities suspected the car maker of rigging diesel engines to cheat on emissions.

The email exchange, reviewed by The Wall Street Journal, marks the earliest date revealed thus far that Volkswagen knew that its diesel engines were in the crosshairs of U.S. regulators.

The timing is significant in light of two milestones Volkswagen faces in its emissions-cheating scandal this week. On Thursday, it is due to submit a proposal to fix nearly 600,000 cars in the U.S. to a federal judge in California.

On Friday, Volkswagen’s board of directors is to review the company’s investigation of the scandal, but under pressure from the Justice Department may keep the report confidential.

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Its shares jumped 4.5% to €134.80 ($152.71) in Frankfurt on Wednesday as investors cheered reports a settlement might be disclosed on Thursday. The ultimate costs of the remedies sought by authorities could run into the billions of dollars.

For investigators now reconstructing events that culminated in a Sept. 18, 2015, disclosure by the Environmental Protection Agency and California authorities of Volkswagen’s emissions fraud, the email is the start of two conflicting versions of the story.

In one—the version put forth by plaintiffs suing Volkswagen—the email suggests Volkswagen’s top management knew by April 2014 or earlier that certain of its diesel-powered engines were rigged to cheat, and from that point covered their tracks.

From the Archives

Volkswagen’s admission that it used software to manipulate the results of emission testing to sidestep pollution standards in millions of cars has rocked the automaker. And the figures involved are pretty staggering. WSJ’s Dipti Kapadia explains the scandal in numbers. Photo: Getty (originally published Oct. 9, 2015)

Volkswagen’s account is very different. In public statements, sworn testimony and recent court filings, it maintains low-level engineers rigged the engines to meet U.S. nitrogen-oxide emissions standards during laboratory testing. The rigging allowed much higher emissions, and better performance, during normal driving. The engineers kept their superiors in the dark, the company insists. Once U.S. authorities began investigating, the engineers lied until forced to come clean in September 2015, Volkswagen says.

No evidence linking current or former top executives to the cheating has emerged.

Volkswagen’s account, presented in a 113-page brief filed with a German court in February and reviewed by The Wall Street Journal, begins on Nov. 22, 2005.

That is when Volkswagen’s product strategy committee approved funds to develop a new “clean diesel” engine, the EA 189, the centerpiece of its diesel push in the U.S.

Engineers developing the engine were unable to meet U.S. and European Union emissions targets while staying on budget and schedule, the brief says.

In November 2006, the engineers tweaked the EA 189’s control software to cut NOx emissions only during lab tests. Just a few changes to the about 15,000 lines of software algorithms made the engines compliant with U.S. emissions testing, according to the brief.

No additional approvals or funding was needed, letting the engineers evade detection for a decade, it says.

Volkswagen says in the court filing that top managers only learned of elevated NOx emissions in some U.S. diesel models on May 15, 2014, when a study conducted by the International Council on Clean Transportation, the California Air
Resources Board and West Virginia University was published.

But Volkswagen knew more than a month earlier that CARB was looking closely at its diesel vehicles in the U.S.

Results of the trio’s study had been presented on March 31, 2014, at a conference in San Diego, Calif., and in Brussels to a working group of the European Commission.

The following week, Stuart Johnson, head of Volkswagen’s Environment and Engineering Office in Auburn Hills, Mich., received a copy of the Brussels presentation. Specifics of cars tested weren’t disclosed. On April 8, Mr. Johnson contacted an ICCT analyst. “Can you please identify which cars are Volkswagen group products?” he asked in the email, reviewed by The Wall Street Journal.

No plausible explanation for the dramatically increased NOx emissions can be given to authorities….

—Bernd Gottweis, VW

The ICCT analyst told Mr. Johnson that a Volkswagen Jetta and Passat were the cars with elevated NOx emissions.

He asked Mr. Johnson to explain, but the Volkswagen executive broke off contact.

Volkswagen sent Bernd Gottweis, a quality-control officer known inside Volkswagen as “the fireman,” to the U.S. to understand the “diesel issue.”

On May 23, then-CEO Martin Winterkorn received a memo from him.

“No plausible explanation for the dramatically increased NOx emissions can be given to the authorities,” Mr. Gottweis wrote, adding: “It is to be assumed that the authorities will subsequently examine VW systems to determine if Volkswagen has installed test recognition into the engine control software (a so-called defeat device).”

Mr. Gottweis’s memo, reviewed by The Wall Street Journal, was first reported by the Bild am Sonntag newspaper in Germany. Volkswagen confirmed its authenticity.

It has fed speculation that Volkswagen tried to cover up the diesel fraud.

“If it looks like a duck and walks like a duck, what do you think it is?” asks Michael Hausfeld, a class-action lawyer among several appointed to a civil lawsuit in California on behalf of Volkswagen car owners.

According to Volkswagen’s German court brief, only in May 2015—more than one year after the first email exchange—did Volkswagen’s auditors suspect an illegal device manipulated emissions tests. But their investigations were blocked by engine-development engineers who “stonewalled” and misled investigators, according to the German court brief.

On Sept. 3, 2015, Volkswagen executives conceded to U.S. officials that their diesel vehicles deployed defeat devices.

William Boston at william.boston@wsj.com



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