2016, Jan - Feb

VW's Game Plan 

by Cliff Leppke

What’s VW’s next move in the emissions scandal? 

One of my family’s year-end rituals: playing board games. From childhood through adulthood, my parents, grandparents, aunts and uncles invited me to play games. It was fun, an initiation into how to follow the rules and work with others. Some games are pure luck, good sportsmanship a key virtue. Others involve deft collaboration or skillful maneuvers. This playful and sometime downright serious pastime—my parents will dock me if I don’t discard while playing Sequence—is one way we create a sense of community, a sense of family.

As the holidays approached, I wondered which of my winter pastimes best fit the VW story during 2015. Until mid-year, Monopoly, Risk or Chess seemed to express VW’s world—the one-time small-car company had grown into an international powerhouse set on snatching Toyota’s seat on the throne. And it accomplished that despite soft sales in the USA. Things change. 

VW’s car on the road of Life took a detour into an uncharted territory that revealed serious troubles with VW’s so-called clean diesel engines and the management of the people who designed, built and marketed its vehicles. Some thought VW’s pollution problem was a minor quibble. VW would regroup (lose a turn), while others spun their wheels. That wasn’t in the cards. Instead it became Trivial Pursuit. VW fumbled key questions. It tried Sorry, but its bell didn’t ring. Now, it’s Aggravation: will VW do the right things? 

Since VW’s game plan in the auto business has shifted gears, I thought I’d present VW’s lineup of players and pieces in a manner that makes sense of the firm’s fate. 

But first, I must report that the automotive trades say VW of America finally did something smart. In a game-changing move, it retained Kenneth Feinberg to design and administer an independent claims resolution for owners of 2.0-liter and 3.0-liter TDIs. 

Feinberg, who oversaw the compensation program for victims of General Motors’ defective ignition switches, anticipates a “menu of remedies.” He’s become the man with the plan when it comes to settling high-profile cases. He also oversaw compensation programs for victims of the 9/11 terrorist attacks and the 2010 BP Deepwater oil spill. VW says it wants to satisfy affected owners while avoiding protracted litigation. At this moment, Feinberg believes remedies will be attractive enough, the equivalent of legal litigation. And everything is on the table, including vehicle buy backs. 

•EXECUTIVE BOARD SHUFFLE: OPERATION, RISK or SORRY?: Volkswagen’s management and supervisory boards shuffled their decks; found new players. If this were a board game, it’s not Candy Land. The two top players (see below) are VWAG insiders with Porsche connections. Will they dial 911? Their challenge: remake VW’s management structure and mission and then ditch those who were criticized for hierarchal behavior, brand elitism and large egos. The game: win confidence with a change VW’s organizational structure. Forbes magazine is skeptical; VW’s management includes people tainted by their connections to those who created the EA 189 engine or other scandals. One such person, says Forbes, is the firm’s new compliance officer, Francisco Javier Garcia Sanz. Ouch! 

VW’s new look is supposedly symbolized by an emphasis on corporate compliance and integrity. For example, VW announced the appointment of Michael Steiner (Porsche quality czar) as group compliance commissioner. He handles VW’s worldwide discussions with global regulatory authorities. Steiner reports to VWAG Board CEO Matthias Mueller. Coming soon: Christine Hohmann-Dennhardt (Mercedes), who will also report to Mueller. She will be board member for integrity and legal affairs. These leaders, Mueller says, are on par with sales, research and development. Not a believer? Christian Klingler, board manager responsible for sales and marketing, exited shortly after Martin Winterkorn resigned due to disagreements with VW’s management board. 

Here is an incomplete look at VWAG’s managerial lineup:

Top Job: Hans Dieter Poetsch, chairman of VW’s Supervisors Board (fills Ferdinand Piech’s spot vacated last spring during the failed Winterkorn ouster). Second fiddle: VW’s CEO: Matthias Mueller, chairman of VW’s Board of Management. His managerial team: Herbert Diess handles VW cars (new guy from BMW). Audi’s Rupert Stadler retains his chair, and Frank Witter is the finance chief or, CFO. This is the short list. 

Seat, Skoda and other VW brands have their own managers too. Farther down the metaphorical corporate ladder is Skoda’s Frank Welsch, who became VW’s new head of technical development. Former engineering big shots were suspended or resigned, so someone must move up. VW will simplify its corporate structure, paring costs and making it more responsive to local markets. It’s not certain whether it will have the resources to regain a toehold in North America.

On Dec. 17, VW announced five new leaders for development, sales, design and production:

• Ulrich Eichhorn: Leads R&D, replaces Ulrich Hackenberg

• Fred Kappler: Group sales leader, replaces Christian Klingler

• Michael Mauer: Group design head, replaces Walter de Silva

• Wolfram Thomas: Group production chief, replaces Michael Macht

• Ralf-Gerhard Willner: Group auto architectures guru. 

The number of top managers who report to Mueller is nearly half what it was before the diesel scandal broke. 

On the same day the executive shakeup was announced, European Parliament voted to investigate VW’s emissions scandal and whether regulators such as the European Commission failed to prevent cheating by the auto industry in vehicle pollution tests. Claude Thames (Green member of EU Parliament) says, “It’s about private corporations organizing the largest industrial fraud ever.” Not so fast, say reps from the EU Commission; individual nations test and enforce pollution rules. 

Time magazine’s year-end roundup says: VW’s flaunting of diesel emissions standards is the low point in its list of issues that drove the news. Three months after the public learned of VW’s malfeasance, the German firm still hasn’t presented a clear remedy for its dirty 2.0-liter TDI engines sold in the U.S. It’s already developed and received approval for a European market fix-it plan, but for the U.S. all we know is that VW presented something to the EPA on Nov. 20. 

Since revelation of VW’s scam, a series of admissions and blunders by the people-car firm has further tarnished its image, upended its management, angered dealers and confused consumers. I’ll take you on a tour of what’s unfolded since your last Autoist.

Early November: The EPA found fault with the Audi-developed 3.0-liter V-6 diesel (TDI) affecting some 80,000 Audi, Porsche and VW models sold in the U.S. That’s the Touareg’s mighty diesel. VW/Audi initially claimed this mill didn’t have emissions cheating software, but later changed its tune when it evaluated the EPA’s evidence. 

While this diesel engine doesn’t have the same emission-skirting software that’s at the center of the 2.0-liter diesel fiasco, it has a defeat-like program. That software is part of the engine’s temperature-conditioning mode. It adjusts catalytic converter temperature. It also impacts NOx, but its engineering goal is less nefarious; Audi wanted to ensure that the emissions system sensors and other components worked and kept working. VW/Audi issued a stop-sell order. 

Weeks later, VW/Audi proposed fixes: it will properly document its emission control software to comply with EPA rules. It will also recall affected vehicles for a software update. 

•TROUBLE: VW’S CARBON DIOXIDE EMISSIONS BLUNDER: In early November, VW revealed yet another wrinkle. In addition to its dirty diesels’ NOx woes, 800,000 European diesel and gas-powered vehicles built by several of its brands had “implausible” mpg figures. They produced more carbon dioxide emissions than VW claimed. Because CO2 emissions are directly tied to fuel consumption, VW admitted yet another snafu. It didn’t properly conduct European-market fuel-economy certification tests. 

A month later, CEO Mueller claimed the CO2 emissions situation was less serious than thought. Further examination showed that only 36,000 vehicles spanning nine models were at odds with EU mandates. One affected machine: the 2.0-liter TDI Golf convertible with five-speed manual. Another: the three-cylinder 1.0-liter TSI Polo BlueMotion. 

•SORRY: VW’S ENGINEERS COULDN’T MEET U.S. NOX RULES, CHOSE DECEPTION: On Dec. 10 in Wolfsburg, VW chairman Hans Dieter Poetsch explained the origins of the firm’s emissions crises. Investigations reveal that 10 years ago a small group of unnamed engine development engineers working on the 2.0-liter TDI (EA189) mill for the U.S. market could not comply with American emissions requirements and also meet cost and timing targets. 

Engineers, therefore, developed software that contained emissions strategies that produced low NOx in lab tests but produced significantly higher NOx levels for real-world driving. This was not one mistake but a series of evasive moves that breached the rules and tainted the “lean NOx trap” used on Jettas, Beetles and Golfs plus the 2012 U.S.-built Passat’s AdBlue selective catalytic reduction system. That mistake also affects VW’s new EA288 four-cylinder diesel engines introduced for 2015. Although these engines have up-to-date exhaust after-treatment systems, they were not fully utilized in an apparent move to reduce consumption of AdBlue, or urea fluid. 

European authorities have accepted VW’s relatively low-cost EA 189 fixes. VW CEO Matthias Mueller says that software and hardware updates comply with European NOx goals without changing engine performance. He says you can trust his words. VW’s engineers developed an astonishingly simple device that received regulatory approval for Euro 1.6-liter diesel engines. It’s a gizmo that has everyone astonished; it looks as if VW’s engineers plucked it from a Home Depot plumbing aisle—a flow transformer. This plastic-fantastic tube with mesh improves the airflow metering system’s accuracy, assuring optimum fuel combustion. Stateside, VW is still working with authorities to solve NOx emissions violations. Mueller planned to visit the U.S. during and after the Detroit auto show in January.

Skeptics say VW’s emissions evading scheme must have involved more than a small group of engineers. Bloomberg News reports that German prosecutors are investigating whether Robert Bosch employees helped VW rig software. Previously, Bild-Zeitung reported that Bosch warned VW in a 2007 letter that the way the carmaker planned to use the software installed in diesel engines was illegal. Bosch claimed that it only supplied VW with exhaust treatment components that were standard in many cars. VWCA

Cliff Leppke | leppke.cliff@gmail.com 


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