Volkswagen paints timeline of diesel crisis in response to lawsuit

Volkswagen has revealed a general timeline of the diesel crisis ahead of the release of an internal investigation into the matter, shedding light for the first time on the events leading up to the Sept. 20, 2015 admission that the company had created emissions-cheating software for 2.0-liter diesel models in the U.S.

The automaker says that Dr. Martin Winterkorn, the CEO at the time, received a memo regarding the U.S. study on May 23, 2014 as part of his weekend mail, but the automaker is not sure if he had read it. Dr. Winterkorn received a second memo months later.

"On 14 November 2014, Mr. Winterkorn received another memo that reported, amongst other things, on several then current product defect cases and referred to a cost framework of approx. EUR 20 million for the diesel issue in http://motocar-news.com/category/car-reviews/North America," VW states.

The automaker now concedes that the issue of emissions discrepancies was not given due attention at the time, but it does not say whether the 20 million euro figure was cited as part of a recall or monetary fine calculation that VW expected itself to devote to the problem.

Since VW has not reproduced the actual memo, it is not clear just how many vehicles it expected to be affected or what measures it contemplated at the time.

"According to current knowledge, the diesel matter, as it was treated as one of many product issues facing the Company, did not initially receive particular attention at the management levels of Volkswagen," the automaker states. "Accordingly, the 'Committee for Product Safety' (APS) was responsible for this matter at Volkswagen."

VW points out that recalls and testing discrepancies are not out of the ordinary -- which is true -- and that discrepancies by themselves do not immediately signal an attempt by the automaker to circumvent those regulations.

"Emission deviations between test bench and road operation exist at all automobile manufacturers and are by no means automatically attributable to violations of regulations," VW says. "For global automobile manufacturers, service measures and recall campaigns are nothing out of the ordinary. Volkswagen expressly regrets that, looking back, the situation is different."

VW's statement on the matter pinpoints the summer of 2015 as the period during which it became apparent that a voluntary recall campaign would not be able to reduce the nitrogen oxide emissions in the affected TDI models. It was at this time that VW retained the law firm Kirkland & Ellis to advise it on U.S. emissions regulations and had its Committee for Product Safety create a diesel task force to address the issue.

VW US CEO Michael Horn

The automaker says that during a meeting on July 27, 2015, the diesel issue was discussed "on the periphery of a regular meeting" regarding product issues in the presence of Dr. Winterkorn and Dr. Herbert Diess, but that VW does not know if the participants of that meeting understood that altered software was at the root of the discrepancies. VW states that, in August of last year, individual VW technicians gave "a full explanation" of the causes to VW's in-house legal counsel and to lawyers from Kirkland & Ellis.

"These detailed explanations led to the Management Board members' realization that the modification of the engine management software constituted a prohibited defeat device under U.S. law," VW states. "It was then decided to communicate this information transparently to CARB and EPA. This occurred during a meeting with the U.S. authorities on 3 September 2015. Mr. Winterkorn was informed accordingly in a note dated 4 September 2015."

In August of last year, VW believed that the financial toll from the use of a defeat device would not be particularly severe, relying on precedent of a $100 million fine assessed against another automaker, with the penalties amounting to $91 per vehicle.

VW now says that it was expecting to enter into negotiations with U.S regulators and initiate a recall campaign, and predicted its financial exposure to be far below the record mark of $100 million.

Its expectations would prove to be incorrect, as even during the summer of 2015 VW expected this issue to be limited to about half a million U.S. market models -- a big recall for sure, but not an unprecedented one.

In publishing this timeline, VW has also revealed that the resulting publicity from the Notice of Violation filed by the EPA was unexpected, as it was in discussions with the EPA regarding the issue and expected to settle the matter.

Interestingly enough, VW has revealed this general timeline in response to a suit filed by its shareholders against the automaker in a German district court, which accuses the company of violating disclosure obligations under capital markets law. VW's position in the lawsuit is that its management board fulfilled its disclosure obligations under the capital market laws of Germany and has released its version of the timeline of events leading up to the Sept. 20 admission in an attempt to correct the "selective and incomplete publication of documents in the media" regarding the diesel crisis.

VW's position in this suit is that a violation of the disclosure obligations hinges on its principals' knowledge of facts and assessment of stock price.

The automaker contends that it expected the matter to be limited to 500,000 vehicles prior to Sept. 20 and thereafter, and that it expected a maximum financial exposure in the low hundreds of millions of dollars. The actual financial toll of the crisis is still a matter of dispute within VW, though it is now widely expected to cost the automaker billions of dollars in recall expenses and fines

Source: autoweek.com