Volkswagen CEO Martin Winterkorn Resigns

Volkswagen CEO Martin Winterkorn stepped down, taking responsibility for the German car manufacturer’s rigging of U.S. diesel emissions tests. “Volkswagen needs a fresh start — also in terms of personnel. I am clearing the way for this fresh start with my resignation,” Winterkorn said in a statement.

“I am shocked by the events of the past few days. Above all, I am stunned that misconduct on such a scale was possible in the Volkswagen Group,” the embattled CEO said. “As CEO I accept responsibility for the irregularities that have been found in diesel engines and have therefore requested the Supervisory Board to agree on terminating my function as CEO of the Volkswagen Group. I am doing this in the interests of the company even though I am not aware of any wrong doing on my part.”

The car manufacturer’s supervisory board will consider successors at its meeting. Possible replacements as CEO are Matthias Mueller, the head of Porsche who is backed by members of the Porsche family, and Herbert Diess, who recently came over from rival BMW, a person familiar with the matter said. Mueller oversees the brand that’s a profit driver for the group. Diess, who joined in July to take charge of the VW brand, helped BMW cut billions of euros in purchasing costs during the global financial crisis.

Even with new leadership, it will be extraordinarily difficult for VW to get that fresh start. In the few days since the scandal came to light, the company has been barraged with news of class-action lawsuits, investigations by state, federal and international regulatory bodies, and U.S. congressional hearings that will force it to explain how the cheating came about and how it went undetected for seven years.

It also faces the task of bringing into compliance as many 11 million vehicles worldwide, and mollifying millions of angry customers whose cars may see declines in fuel economy, performance and value. Senior members of Volkswagen’s supervisory board said in a separate statement that they expected additional executives to leave the company in the coming days as an internal investigation seeks to identify who was responsible for what has turned into the biggest scandal in Volkswagen’s 78-year history.

Winterkorn had been under heavy fire since revelations that the company was cheating on tests by fitting its diesel vehicles with software that masked their real-world emissions, in violation of the U.S. Clean Air Act. The pressure intensified this week as the company announced that some 11 million vehicles worldwide had the illegal software. As early as the beginning of this month, Winterkorn, 68, who had survived an clash earlier this year with former Chairman Ferdinand Piech, appeared to be on course to have his contract renewed through 2018.

His ouster puts into question a broad restructuring of the company that would have organized Volkswagen into four holding companies. Under Winterkorn’s leadership, VW was closing in on Toyota Motor Corp. as the world’s biggest car manufacturer, with the German manufacturer overtaking its Japanese competitor in global sales in the first half of the year. VW’s six-month sales amounted to 5.04 million cars and trucks, exceeding Toyota’s 5.02 million deliveries. VW has a goal of becoming the No. 1 carmaker by 2018.

Winterkorn, who took over as CEO 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 has expanded aggressively, boosting the number of production sites around the world to more than 100 locations, with an emphasis on China and North America.

VW’s scheme began to unravel earlier this month after EPA officials confronted the company with an investigation that turned up discrepancies between emissions test results and real-world emissions. The EPA, working in conjunction with California regulators, had followed up on reports last year by independent researchers that found similar gaps. According to the EPA, VW admitted the ruse after it faced an EPA threat to withhold certification on VW’s lineup of 2016 diesel vehicles. EPA has since followed through on that threat, and current models with VW’s 2.0-liter diesel engines are subject to a stop-sale order as well.

An avid soccer fan, Winterkorn was accustomed to boardroom brawls and until recently 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 brand instead.

Winterkorn’s 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 Piech, the car manufacturer’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.

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 car manufacturer set aside $7.3 billion (6.5 billion euros) 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 car manufacturer is also grappling with a slowdown in China, the company’s biggest national market. Working in the new CEO’s favour is an car manufacturer 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.

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 car manufacturer 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, was intending to give up some of his control of the development process to regional managers, a plan that is now in question. The story has sent shockwaves through the car market, with dealers in the United States reporting people holding back from buying diesel cars and various negative hashtags trending on Twitter. Diesel engines account for less than 3 percent of new cars sold in the United States but around half of cars in Europe, where governments have encouraged their use to meet fuel efficiency and greenhouse gas targets.

Their biggest selling point is their fuel economy and low carbon emissions compared to standard petrol engines. But they also emit far more nitrogen dioxide, a toxic gas blamed for health problems. The suggestion that their emissions in real world conditions are worse than reported in tests could harm the whole sector and alter the future of the car industry worldwide.