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Volkswagen CEO Winterkorn Steps Down Over Emissions Scandal

Bloomberg logoBloomberg 23-09-2015 Chad Thomas

(Bloomberg) -- Volkswagen AG Chief Executive Officer Martin Winterkorn, who during nearly a decade at the helm catapulted VW to the top spot in global sales, stepped down after admitting the automaker cheated on U.S. emissions tests.

“Volkswagen needs a fresh start - also in terms of personnel,” Winterkorn said in a statement Wednesday. “I am clearing the way for this fresh start with my resignation.”

The move capped a dramatic fall from grace that began last Friday with the revelation that the Wolfsburg, Germany-based company fitted diesel-powered vehicles with software that circumvented air pollution controls, then lied about it to the U.S. Environmental Protection Agency. The 68-year-old CEO, who personally apologized for the affair, was unable to hang on as the stock price plummeted 35 percent over two days and pressure grew from the German government for quick action.

Winterkorn, who took over in 2007, led a turnaround that propelled VW from an also-ran that had cut 20,000 German jobs under his predecessor to a global powerhouse with about 600,000 employees that included a stable of 12 brands from Lamborghini supercars to Scania heavy trucks. He expanded aggressively, boosting the number of production sites around the world to more than 100 locations, with an emphasis on China and North America.

Winning Brawls

An avid soccer fan, he was accustomed to boardroom brawls and until Wednesday always came out on top. As chief of the luxury Audi division, where he set in motion a doubling of product offerings with models such as the Q7 SUV, he sparred with then-VW CEO Bernd Pischetsrieder over the direction of the company, eventually leading to Pischetsrieder’s ouster.

Faced with a takeover attempt from Porsche CEO Wendelin Wiedeking, Winterkorn fought off that effort as the global financial crisis undid the suitor’s company, turning the tables on his foe to buy the Porsche sports-car brand instead. His spending spree also included adding the MAN and Scania commercial-vehicle nameplates, as well as Ducati motorbikes.

At his side throughout was his confidante and mentor Ferdinand Piech, the automaker’s supervisory board chairman and patriarch of the Porsche-Piech clan that owns 50.7 percent of VW’s voting stock. When Piech turned on Winterkorn this year, the CEO fought for his job and, to the surprise of many company insiders, won. Piech stepped down in April after Winterkorn rallied support from labor leaders and members of the controlling family led by Piech’s cousin, Wolfgang Porsche.

Investigating Scheme

The new CEO’s top priority will be getting to the bottom of a scheme intended to dupe regulators and consumers about emissions of diesel engines installed in 11 million cars worldwide -- more vehicles than VW sells in a year. The automaker set aside 6.5 billion euros ($7.3 billion) on Tuesday to cover potential costs.

VW’s Achilles heel remains the American market. Even before the revelations of the last week, the VW marque was struggling in the U.S., despite investing $1 billion on a new factory in Tennessee to build a stripped-down, cheaper version of the Passat sedan. The brand’s U.S. sales have dropped, in contrast to growth in the overall market, as VW delayed decisions on building sport utility vehicles that would appeal to American consumers. The automaker is also grappling with a slowdown in China, the company’s biggest national market.

Working in the new CEO’s favor is an automaker that for the moment is financially sound. Volkswagen’s automotive division had net liquidity of 21.5 billion euros at the end of June, and posted record profit of 12.7 billion euros in 2014, helped by its strong presence in China and the expansion of the Audi and Porsche nameplates in the lucrative luxury-car segment. VW surpassed Toyota Motor Corp. in the first half to take the top spot in worldwide vehicle sales -- a goal that Winterkorn set early in his tenure to reach in 2018.

With the diesel-emissions scandal, Winterkorn’s attention to detail has come back to haunt him. Analysts have questioned how a man who would berate staff over the shine on chrome parts could have let something go so awry in the U.S. Winterkorn was known for carrying a measuring stick to check the uniformity of parts, and the automaker would often bring two of a model to an auto show in case he was unhappy with the looks of the one on display.

Winterkorn, who had been Germany’s top paid CEO and was set to get a contract extension this Friday, was intending to give up some of his control of the development process to regional managers, a plan that is now in question.

--With assistance from Naomi Kresge in Berlin.

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