Volkswagen Turns to Porsche Boss to Steer It Out of Crisis

By Andreas Cremer

BERLIN -- Volkswagen (VLKAY) will name Matthias Mueller, the head of its Porsche sports car brand, as its chief executive as it tries to recover from a scandal over its rigging of U.S. vehicle emissions tests, a source close to the matter said Thursday.

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

%VIRTUAL-pullquote-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.%Shares in the world's largest carmaker by sales have plunged as much as 40 percent since Friday, when U.S. regulators said it had admitted to fitting software on hundreds of thousands of diesel cars to detect when they were being tested, and alter the running of their engines to conceal their true emissions.

The crisis deepened Thursday, when 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.

Volkswagen has said 11 million cars globally had the software fitted, but it wasn't 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 car 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.

The new CEO's priority would be to renew Volkswagen's leadership, restructure costs and create a "performance-driven company" where management was more accountable," he added.

Pressure

Mueller, who has worked for parts of the Volkswagen empire since the 1970s, is a management board member of Porsche SE 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.

Dobrindt said Europe would agree 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.

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 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.

%VIRTUAL-WSSCourseInline-947%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.

They also called for more transparency, particularly in North America, where NordLB analyst Frank Schwope said Volkswagen hadn't published earnings figures since 2007.

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

The new CEO will also need to improve its 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.

"We are getting lots of phone calls asking 'What is the likely impact of this?'" said an insider at a major Volkswagen dealership in Britain, who declined to be named.

"But we are not getting anything from Volkswagen, so we don't have anything to pass on to them."

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