Volkswagen chief warns scandal threatens carmaker's existence, Merkel plays down impact on German image

A man holding a newspaper advertisement by German carmaker Volkswagen (VW) in Berlin, Germany, on Oct 04, 2015. In the advert, VW says it wants to win back the trust among customers that was lost as a result of the diesel emissions cheating scandal.
A man holding a newspaper advertisement by German carmaker Volkswagen (VW) in Berlin, Germany, on Oct 04, 2015. In the advert, VW says it wants to win back the trust among customers that was lost as a result of the diesel emissions cheating scandal.PHOTO: EPA

BERLIN (BLOOMBERG) - Volkswagen's next chairman warned that the diesel-emissions scandal could pose an existential threat to the German carmaker, even as Chancellor Angela Merkel said the turmoil won't have a lasting effect on Germany's reputation.

The scandal presents "an existence-threatening crisis for the company," designated Chairman Hans Dieter Poetsch told a group of managers last week, according to Welt am Sonntag newspaper. He added he was certain the carmaker will overcome the crisis if everybody made an effort, Welt said.

Volkswagen and German industry have been rocked by charges, first made by US regulators on Sept 18, that the carmaker had used software to hoodwink regulators about the true emissions of its diesel cars for years. As owners of 11 million affected cars, regulators across the globe and investors await answers, the crisis has wiped out almost 30 billion euros (S$48.2 billion) of the company's value.

After mostly remaining silent on the cheating scandal, Ms Merkel on Sunday called the disclosure by Germany's largest carmaker "a dramatic event" and said Volkswagen must clarify the affair swiftly. She ruled out a longer-term impact on the country's industry.

"I believe that the reputation of German industry, the trust in Germany as a business location, hasn't been so shaken that we won't continue to be seen as a good business location," Ms Merkel told Deutschlandfunk radio in an interview.

As Volkswagen's new chief executive officer, Matthias Mueller, vows to repair the damage, the carmaker undertook a media campaign that included a full-page mea culpa advertisement published in major German newspapers to mark the 25th anniversary of the country's reunification.

Instead of lauding a quarter century of German unity, the company used fine print on a broad white field to say it would dispense with celebratory expressions, instead assuring the public that it will resolve the crisis.

"We just want to say one thing: We will do everything to win back your trust," the carmaker said in the ad Sunday.

An internal investigation has already yielded several engineers who admitted to installing the fraudulent software in 2008 for EA 189 diesel-motor models, Bild am Sonntag newspaper reported Sunday. The decision for the regulatory work-around came as project engineers determined there was no way to meet both emissions standards and cost controls, a jam that threatened to bring the marquee project to a halt, Bild said.

The result was a so-called defeat device that disengaged emissions controls when an auto wasn't being tested, breaching emissions rules and prompting a raft of government investigations and lawsuits since the US Environmental Protection Agency cited the violations last month.

Volkswagen has also found more executives are involved in the scandal than previously acknowledged, a group bigger than just a few developers, Frankfurter Allgemeine Sonntagszeitung reported, citing officials close to the supervisory board.

Volkswagen declined to comment on the German newspaper reports, company spokesman Eric Felber said by phone.

Martin Winterkorn quit as CEO on Sept 23. Audi development chief Ulrich Hackenberg, a Winterkorn confidante who was responsible for VW brand development in 2007 to 2013, and Wolfgang Hatz, who ran the group's powertrain development from 2007 and 2011, are among others who will leave, according to people familiar with the matter.

The manipulated software may have been put into parts supplied by Continental AG for 1.6-liter engines, Bild am Sonntag reported. Upgrading models with Continental parts would entail replacement parts, not just a software upgrade, Bild said.

Another engine-parts supplier, Robert Bosch GmbH, warned VW in 2007 that its planned use of the software was illegal, Bild reported on Sept. 27.

"We have no indication of any misuse of our technology," Continental spokesman Felix Gress said by phone, adding that it wasn't outfitted to gauge emissions.

In contrast with Merkel, European Parliament President Martin Schulz, a German Social Democrat, said the scandal is a "grave blow for the German economy as a whole."

"It's hard to believe the level of negligence and possibly even criminal activity was present here," Mr Schulz told the Funke group of German newspapers in an joint interview. "Still, I think Volkswagen is a strong company that has every chance to overcome the crisis."