Shame and Degradation in Wolfsburg: The Fallout from the VW Diesel Scandal

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Has an automaker ever been knocked off its axis quite so dramatically as has happened with Volkswagen in the wake of it being caught cheating on diesel-engine emissions? The company has had its head lopped off in a single strike. And by that, we don’t just mean Martin Winterkorn, who stepped down just days after a humiliating apology in which he conceded the company’s deliberate wrongdoing while trying to dispel the assumption that he knew exactly what was going on.

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While we continue to wait for the full facts about who did what, it appears that a faction within VW thought they could cheat their way to passing U.S. emissions tests with engine-management software that altered emissions during the test cycle. Who came up with the idea, who approved it, and who implemented it remains to be seen. We expect this information to be revealed soon, and the implications for those involved likely will be harsh.

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The apparent disregard for the American consumer sheds a bright light on VW’s inability to understand the world’s biggest market, one in which their share is a fraction of their major competitors. Coincidentally, one of former supervisory board chief Ferdinand Piëch’s main gripes about Martin Winterkorn was the latter’s lack of a plan for the United States. It turns out that while Winterkorn may have had a plan, it wasn’t necessarily a good one.

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Newly ensconced VW Group CEO Matthias Müller has a tough road ahead.

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One thing is certain: VW can’t and won’t write off the U.S. and other North American markets; the company’s recent investment in production sites and new product in the region is vast and has yet to pay off. All eyes are now on North America, and one sign is putting heavyweight Winfried Vahland in charge of VW’s newly created North American Region (NAR). The role also secures him a seat on the VW brand’s board. (VW USA CEO Michael Horn will stay in his current role; after it had initially leaked that the supervisory board was looking to sack him, the American dealer body weighed in with a strong vote of confidence.)

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Given its position at the center of the crisis, and its importance in terms of the bottom line, VW North America will gain more clout in Wolfsburg. Should Vahland navigate these waters as adeptly as his superiors hope, he will be perfectly positioned as a possible successor of newly appointed VW Group CEO Matthias Müller.

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Meanwhile, the supervisory board has paved the way for a sweeping reorganization via an almost maniacal desire to sideline everyone who might be connected with the scandal.

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Müller, the former Porsche CEO, has spent four decades within the VW Group, mostly at Audi, and he knows cars inside and out. He also enjoys the respect of both the workforce and the engineers. Importantly, he is thoroughly immersed in the Volkswagen Group’s corporate culture. In an official statement announcing the appointment of Müller, family honcho Wolfgang Porsche praised Müller’s achievements, including the 918 Spyder and the Macan; he also mentions the Le Mans win with the 919 Hybrid.

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Audi, Porsche, and VW R&D heads Ulrich Hackenberg, Wolfgang Hatz, and Heinz-Jakob Neusser [left to right] have been put on temporary leave.

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Porsche might have mentioned R&D chief Wolfgang Hatz in connection with the Le Mans win, but Hatz has been put on temporary leave, along with VW R&D chief Heinz-Jakob Neusser and Audi R&D boss Ulrich Hackenberg. If their leaves become permanent, it will signal an unprecedented bloodletting of actual “car guys” within the VW Group. And more heads will roll among the slightly lower ranks. The departure of VW’s marketing chief Christian Klingler—a Piëch man—is unrelated to the scandal; the company has simply seized the opportunity.

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After his appointment, Müller has said that he aims to give each brand more autonomy in each market; on the other hand, he aims to tighten brand coordination by the Group. The specifics of these seemingly contradictory aims have yet to be revealed.

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We spoke to company and industry insiders to get further insights. Here are a few observations:

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• Communications are being extremely tightly controlled by headquarters; even the usually vocal dealers are reluctant to comment, and the sub-brands—including Audi, some of whose vehicles are also caught in the scandal—are keeping a low profile.

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• The conspiracy theories that amount to the assertion that the EPA wants to hurt a German brand are baloney. The EPA is similarly harsh with American and Japanese carmakers, but it’s true that when the EPA puts its boot on a company’s throat, it won’t let off. VW has grossly underestimated the EPA’s power and inexplicably failed to go public before the story broke, despite having ample warning.

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• The involved executives need to be prepared for a legal backlash that could affect them personally and financially.

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• The diesel engine will regain its footing in the market. It’s simply indispensable around the globe—and not just to comply with CO2 emissions. And it will remain strong in the U.S., too, at least in the pickup- and commercial-truck segments.

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• Depending on the legal fallout, VW might have to kill or postpone various product plans in order to free up cash. And that would take a toll on its aspirations to cement its position as the world’s number-one automaker.

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• Diesel Cheating Scandal Claiming Top Engineers at VW

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• Porsche CEO Matthias Müller to Become VW Group CEO

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• VW Diesel Emissions Scandal: Ongoing Coverage from Car and Driver

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Perhaps most important, VW’s travails will serve as a warning to carmakers who might underestimate the U.S. government’s power—and any who underestimate the importance of preemptive damage control. Ferdinand Piëch’s observation that his successor, Winterkorn, didn’t understand the American market has proved to be correct—although even Piëch wouldn’t have wanted a rushed corporate overhaul that forces the true product guys out. But did Piëch also help lay the foundation for this scandal? When he took over as VW’s CEO in 1993, his great adversary was Daniel Goeudevert, the visionary VW brand chief who promoted green technology—against the “cast-iron” engineers. Goeudevert might enjoy the unraveling of a VW that he never would have created.

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