Germany launches criminal probe against VW's ex-CEO

Yahoo – AFP, Simon Morgan, 28 Sep 2015

Volkswagen CEO Martin Winterkorn resigned after the pollution scandal that

has engulfed the German auto giant (AFP Photo/Thomas Kienzle)

Frankfurt (AFP) - German prosecutors on Monday announced a criminal investigation against Volkswagen's former chief executive as the government pressed the embattled auto giant to resolve a pollution cheating scandal that has rocked the auto sector.

The affair will also be on the agenda when the European Union's 28 trade or industry ministers gather in Luxembourg this week for the first high-level meeting in Europe on the VW crisis since it erupted last week.

In Germany, public prosecutors in the northern city of Brunswick said they have launched a criminal probe against Martin Winterkorn, who resigned as VW's CEO after the group revealed that 11 million of its diesel vehicles are equipped with devices that fool official pollution tests.

The scandal has tarnished VW's name, 

left it exposed to up to 18 billion dollars

 (16 billion euros) in US fines, and wiped

a third off its stock market value in a week

(AFP Photo/Francois Nascimbeni)

In his resignation statement, the 68-year-old manager, a renowned perfectionist in the industry, said he was "not aware" of having done anything wrong.

The carmaker's supervisory board also appeared to absolve him initially, insisting that Winterkorn -- who as Germany's highest-paid executive could under normal rules stand to pocket a payout of around 60 million euros ($67 million) -- had not been aware of the fraud.

Chain of responsibility

But prosecutors said they were looking to establish the exact chain of responsibility in the scam, which is snowballing into one of the biggest ever in the European automobile industry and threatening to tarnish Germany's pristine engineering reputation.

"Following a number of legal suits, the public prosecutors in Brunswick have opened an investigation against Martin Winterkorn, the former chief executive of Volkswagen," they said in a statement.

"The investigation will focus on the allegation of fraud by selling vehicles with manipulated emission values," it added.

VW Friday announced it was replacing Winterkorn with the head of VW's luxury sports car brand Porsche, Matthias Mueller.

The new 62-year-old boss faces daunting challenges as he seeks to steer VW out of the wreckage left by the affair.

The German government has given Volkswagen until October 7 to submit measures and a timetable to fix vehicles that have been fitted with the cheating software, a ministry spokesman said Monday.

The devices can switch on pollution controls when they detect the car is undergoing testing. They then switch off the controls when the car is on the road, allowing it to spew out harmful levels of emissions.

Ignored warnings

According to German media reports at the weekend, Volkswagen ignored warnings from staff and a supplier years ago that the emission test rigging software was illegal.

The scandal has tarnished VW's name, left it exposed to up to 18 billion dollars (16 billion euros) in US fines, and wiped a third off its stock market value in a week.

Volkswagen's top-of-the-range automaker Audi said that 2.1 million of its diesel cars worldwide are among the 11 million fitted with the so-called defeat devices. Czech subsidiary Skoda said 1.2 million of its vehicles were affected.

The environmentalist group Greenpeace lashed out at VW's piecemeal communication of the scandal, especially after new CEO Mueller promised a "ruthless" investigation into the affair and a "fresh start".

With the carmaker facing the possibility of having to recall as many as 2.8 million 

vehicles in Germany alone, the direct and indirect costs of the affair are still 

incalculable (AFP Photo/John Macdougall)

In addition to Germany, national authorities in several other countries have announced probes. And lawsuits are being filed, including class-action suits in the United States.

VW's diesel vehicles are coming under close regulatory scrutiny worldwide and France has even extended the checks to cars made by other manufacturers.

VW was not immediately available on Monday to comment on the news of the criminal investigation against Winterkorn, or media reports suggesting the group had suspended a number of managers in its R&D division.

Incalculable costs

With the carmaker facing the possibility of having to recall as many as 2.8 million vehicles in Germany alone, the direct and indirect costs of the affair are still incalculable.

VW has already said it will set aside 6.5 billion euros in provisions in the third quarter. But analysts at DZ Bank suggested it could be 1.0-3.0 billion euros more.

On top of that sum, VW also faces onerous regulatory fines, including up to $18 billion in the United States. And the fallout on customer purchases cannot yet be estimated.

Investors appear to fear that more bad news is still to come.

After losing 34 percent of their value or around 25 billion euros last week, VW shares were again the biggest losers on the Frankfurt stock exchange Monday, where they showed a loss of as much as 9.3 percent in intraday trade. They ended the day 7.5 percent lower.

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