Volkswagen turns to Porsche boss to steer it out of crisis: source

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Volkswagen Scandal Spreads to Porsche and Audi

Volkswagen (VOWG_p.DE) will name Matthias Mueller, the head of its Porsche sports car brand, as its chief executive, a source close to the matter said on Thursday, as the fallout from the U.S. vehicle emissions test rigging scandal broadened.

Mueller, 62, has been widely tipped to succeed Martin Winterkorn, who quit on Wednesday, when the German carmaker's supervisory board meets on Friday. He will take responsibility for steering Volkswagen through the biggest business crisis in its 78-year history.

The crisis deepened on Thursday as officials in Europe and the United States stepped up their investigations.

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Volkswagen turns to Porsche boss to steer it out of crisis: source
circa 1950: Rows of ' Beetle ' cars at a German Volkswagen plant. (Photo by Fox Photos/Getty Images)
View of a Volkswagen Beetle, 1960s. (Photo by Hulton Archive/Getty Images)
circa 1975: Volkswagen Beetle cars parked. (Photo by Keystone/Getty Images)
DETROIT, UNITED STATES: Members of the media surround the new Volkswagen Beetle after its introduction 05 January at the North American International Auto Show in Detroit, Michigan. The Beetle, the best selling car in history, is being offered on the US market after a 19 year absence. AFP PHOTO/Matt CAMPBELL (Photo credit should read MATT CAMPBELL/AFP/Getty Images)
The New 1999 Beetle From Volkswagon. The Trademark Beetle Body Shape Is Immediately Recognizable, Though It Shares No Parts With The Old Beetle. It's Both Larger (161.1 Inches In Length And 96.3 Cubic Feet Inside) And More Powerful Than Its Predecessor And The Engine Is No Longer In The Back. The Car Is Available With A New Turbocharged 150-Horsepower 1.8-Liter Four-Cylinder Engine, A 115-Horsepower 2.0-Liter Four-Banger Or A High-Tech Turbo Direct Injection Diesel Engine That Gets 48 Mpg On The Highway And Has A Driving Range Of 700 Miles. The New Beetle's A Truly Modern Volkswagen, With A Fully Galvanized Body And German Engineered Suspension. Plus A Security System, Airbags* And 6-Speaker Cassette Stereo. (Photo By Getty Images)
NUERBURGRING, GERMANY - OCTOBER 07: INTERNATIONALES ADAC EIFFELRENNEN 2000 Nuerburgring; VW NEW BEETLE CUP (Photo by Christof Koepsel/Bongarts/Getty Images)
384066 02: FILE PHOTO: The new Volkswagen 'Microbus' concept vehicle is displayed for this publicity photo. The Microbus was introduced January 7, 2001 at the North American International Auto Show in Detroit, MI. (Photo courtesy of Volkswagen/Newsmakers)
398508 01: UNDATED FILE PHOTO A redesigned Volkswagen Beetle is displayed in this undated file photograph. Volkswagen officially opened a new assembly hall near Dresden, Germany, December 11, 2001 to produce the new Phaeton luxury car, which represents a dramatic new step for the German car company away from its traditional medium and small car market. (Photo courtesy Volkswagen AG/Getty Images)
A worker walks past a Polo car at a production line in Shanghai Volkswagen Automotive Company, 09 June 2003. One out of every 120 Chinese now own their own car as the government announced that there were more than 10 million privately owned cars plying Chinese roads, state press said. AFP PHOTO/LIU Jin (Photo credit should read LIU JIN/AFP/Getty Images)
SYDNEY, AUSTRALIA - OCTOBER 16: The Volkswagen Golf R32 on display during the Sydney International Motorshow at the Sydney Exhibition Centre October 16, 2003 in Sydney, Australia. The Sydney International Motorshow is the largest collection of automobiles on show in Australia with sixty new production models unveiled and concept vehicles on display. (Photo by Cameron Spencer/Getty Images)
DETROIT - JANUARY 5: Volkswagen displays the Concept T vehicle at the North American International Auto Show January 5, 2004 in Detroit, Michigan. The show, which will feature more than 700 vehicles, opens to the public January 10. (Photo by Bryan Mitchell/Getty Images)
ZOUERAT, MAURITANIA: Finnish Juha Kankkunen drives his Volkswagen Touareg 05 January 2005, during the sixth stage of the 27th Dakar Rally between Smara and Zouerat in Mauritania. Reigning champion Stephane Peterhansel of France won the stage. Peterhansel, hampered by a cold for two days, crossed the finishing line in 4hr 0min 29sec to beat out fellow Mitsubishi driver, and two-time champion, Hiroshi Masuoka of Japan by 5min 58sec and the Volkswagen of Bruno Saby by 7min 26sec. AFP PHOTO MARTIN BUREAU (Photo credit should read MARTIN BUREAU/AFP/Getty Images)
A line of 2006 Volkswagen Jetta GLI sedans sits on the lot of a Volkswagen dealership in the west Denver suburb of Lakewood, Colo., on Thursday, June 29, 2006. High gas prices continued to pull down sales by domestic automakers in June, while Toyota Motor Corp. credited the company's 14.4 percent sales boost to its many fuel-efficient offerings. (AP Photo/David Zalubowski)
Chinese men look at Volkswagen cars on a sales yard in Beijing in this March 31, 2006 file photo. (AP Photo/Greg Baker, File)
Unsold 2007 New Beetles sit in a long row on the back lot of a Volkswagen dealership in the west Denver suburb of Lakewood, Colo., on Tuesday, April 17, 2007. Volkswagen of America Inc. on Friday, June 1, 2007 reported U.S. sales rose 6.3 percent in May 2007 compared with May 2006, according to Autodata Corp. (AP Photo/David Zalubowski)
WOLFSBURG, GERMANY - MARCH 13: (L-R) Volkswagen Board members Detlef Wittig, Francisco Javier Garcia Sanz, Horst Neumann, Martin Winterkorn, Chairman of German automaker Volkswagen, Jochem Heizmann and CFO Hans Dieter Poetsch pose at the new Volkswagen model 'Scirocco' during the company's annual press conference on March 13, 2008 in Wolfsburg, Germany. The Volkswagen Group significantly increased its earnings last year. Profit before tax therefore grew to 6.5 billion euros. (Photo by Andreas Rentz/Getty Images)
A new 2010 Volkswagen Beetle convertible, right, is seen at the Los Angeles Auto Show in Los Angeles on Thursday, Nov. 20, 2008. The 2010 model will go on sale in Spring 2009. (AP Photo/Damian Dovarganes)
A SEAT Cupra is shown during the Volkswagen Group Night held in China's National Aquatic Center, also known as the "Water Cube", in Beijing, Sunday, April 22, 2012. (AP Photo/Alexander F. Yuan)
Volkswagen introduces the Golf R SportsWagon during the Los Angeles Auto Show on Wednesday, Nov. 19, 2014, in Los Angeles. The annual event is open to the public beginning Nov. 21. (AP Photo/Chris Carlson)
The new Volkswagen Passat is displayed during a reveal event at the Brooklyn Navy Yard, Monday, Sept. 21, 2015, in New York. (AP Photo/Kevin Hagen)
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Germany's transport minister said Volkswagen had manipulated tests in Europe too.

"We have been informed that also in Europe, vehicles with 1.6 and 2.0 liter diesel engines are affected by the manipulations that are being talked about," Alexander Dobrindt told reporters, adding it was unclear how many vehicles in Europe were affected.

Dobrindt said Europe would agree on new emissions tests in coming months that should take place on roads, rather than in laboratories, and that random checks would be made on all manufacturers.

Separately, a group of at least 27 U.S. state attorneys general launched a multi-state investigation of Volkswagen's representations to consumers about its diesel vehicles, and said it will send subpoenas to the automaker.

"I am furious that the world's leading car company wilfully took steps that polluted our environment and deceived consumers," Maryland Attorney General Brian Frosh said in a statement.

In Sacramento, California, that state's top air quality regulator said her agency is preparing a series of actions against Volkswagen in response to the company's admission that it cheated on tailpipe pollution tests. "Right now we are organizing ourselves for a major enforcement action," said Mary Nichols, head of the California Air Resources Board.

The state also intends to order a recall of Volkswagen diesel vehicles sold in the state with software that enabled the cars to pass the agency's emissions tests, but then emit far more pollution on the road.

Volkswagen has said 11 million cars globally had the software fitted, but it was not activated in the bulk of them. As well as the cost of regulatory fines and potentially refitting cars, Volkswagen faces criminal investigations and lawsuits from cheated customers and possibly shareholders.

More immediately, the new CEO will have to restore the confidence of customers and motor dealers, who have expressed frustration at a lack of information about how they will be affected by the scandal.

Mueller has a majority on the 20-member supervisory board, the source said. Volkswagen declined to comment.

The board will also dismiss the head of the company's U.S. operations and top engineers at its Audi and Porsche brands, a senior source told Reuters, as it seeks a fresh start.

"He is a good choice even though he may be seen as a transitionary CEO until another internal candidate such as VW brand CEO (Herbert) Diess has earned their stripes," Arndt Ellinghorst, an analyst at Evercore ISI investment banking advisory firm, said of Mueller.

PRESSURE

Mueller, who has worked for parts of the Volkswagen empire since the 1970s, is a management board member of Porsche SE (PSHG_p.DE) and so is close to the Piech-Porsche family that controls Volkswagen through the holding company.

The company is under pressure to act decisively, with German Chancellor Angela Merkel urging it to quickly restore confidence in a business held up for generations as a paragon of German engineering prowess.

"There will be further personnel consequences in the next days and we are calling for those consequences," Volkswagen board member Olaf Lies told the Bavarian broadcasting network.

The research and development chiefs of Audi and Porsche, Ulrich Hackenberg and Wolfgang Hatz, will be removed by the supervisory board, as will Volkswagen's top executive in the United States, Michael Horn, the senior source told Reuters.

Hackenberg and Hatz had both held senior posts at VW in development, including of engines, before they switched to Audi and Porsche. They are among Volkswagen's top engineers.

Horn acknowledged this week that the company had "totally screwed up" by deceiving U.S. regulators about how much its diesel cars pollute.

The scandal has sent shockwaves through the car market, with manufacturers fearing a drop in demand for diesel cars and tougher regulations and customers worrying about the performance and re-sale value of their cars.

The European Commission urged all member states to investigate the use of so-called defeat devices by carmakers to cheat emissions tests and said there would be "zero tolerance" of any wrongdoing.

So far, no other carmaker has been found to have used the devices. German rival BMW said on Thursday it had not manipulated tests, after a magazine reported some of its diesel cars were found to exceed emissions standards.

DRIVERS WORRIED

Friday's board meeting had originally been due to extend the contract of Winterkorn and set out a new management structure.

Though Winterkorn oversaw a doubling in sales and a near tripling in profit during his eight-year reign, he faced criticism for Volkswagen's underperformance in the United States and for a micro-management style that critics say delayed model launches and hampered its ability to adapt to local markets.

Analysts said a new management structure, possibly more decentralized but also with a clearer system of checks, was all the more urgent, with top executives apparently unaware of the emissions test cheating despite a tight control on decisions.

Two sources close to the matter said Volkswagen would create a special position for the United States on its management board on Friday, with the head of its Skoda brand, Winfried Vahland, the favorite to get the job.

The new CEO will also need to improve communications with dealers and customers, with many frustrated that Volkswagen has yet to say which models and construction years are affected by the crisis and whether cars will have to be refitted.

Volkswagen said in a statement on its website it was working to answer these questions. "It goes without saying that we will take full responsibility and cover costs for the necessary arrangements and measures."

(Additional reporting by Reuters bureaus in Europe, Asia and Americas, Writing by Mark Potter and Joe White, Editing by Gareth Jones and Matthew Lewis)

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