 "Volkswagen")
Volkswagen is expected to announce substantial spending cuts on Friday as the carmaker braces for the financial impact of its emissions-cheating crisis - potentially setting up a confrontation with its powerful labour representatives.
Volkswagen also faces a Friday deadline to inform regulators in the United States of how it plans to bring its diesel cars there into compliance with air-quality standards. The company admitted in September that it had installed software in the cars that was meant to enable the vehicles to cheat on emissions tests. That scandal, which involves about 11 million vehicles worldwide - most of them in Europe - is a big reason Volkswagen is now forced to cut costs. The company must pay to modify the cars and could face billions of dollars in fines and legal settlements.
Senior officials from the United States Environmental Protection Agency and the California Air Resources Board plan to meet with representatives from Volkswagen and its Audi division on Thursday and Friday to review the company's proposed solutions, according to a spokeswoman for the EPA.
Volkswagen is also under pressure to demonstrate to United States authorities that it is serious about identifying the people responsible for installing the software. Of the vehicles affected worldwide, about 500,000 are in the United States. In addition, Volkswagen has admitted making exaggerated claims about the carbon dioxide output and fuel economy for 800,000 more cars in Europe.
The Friday deadline was set by the California Air Resources Board, which helped to expose Volkswagen's use of the so-called defeat software in its diesel vehicles. CARB, as it is known, is a particularly influential regulator in part because of the size of the California car market and also because it sets some of the most stringent emissions standards in the US.
A spokesman for the agency, David Clegern, said it expected Volkswagen to submit its plan to modify its cars and to describe how it intends to proceed with a recall. He said he did not know whether the company would propose a definitive fix by Friday, or only an initial version of such a plan. He declined to say whether the company might face penalties if it failed to deliver by the 45-day deadline. Volkswagen's supervisory board, which will meet on Friday at the company's headquarters in Wolfsburg, Germany, is scheduled to discuss how to cover billions of euros in expenditures necessary to retrofit vehicles so that they comply with emissions regulations.
It may be difficult to find savings without undercutting Volkswagen's ability to compete in a fast-changing automobile market - and even more difficult to do so without alienating its workers council, which effectively controls the supervisory board and is likely to oppose any plan that involves major job cuts.
"It's a very important signal whether management can emancipate themselves from the guys who have been running the business - the works council," said Arndt Ellinghorst, head of global automotive research at Evercore ISI, an investment advisory firm.
The supervisory board always meets at the end of the year to discuss investment and spending for the year ahead and beyond. Until this year, it was almost always the case that the board could announce spending increases. The emissions scandal has changed that.
In addition to the cost of modifying vehicles so that they are not polluting more than allowed, Volkswagen also faces dozens of lawsuits from shareholders and vehicle owners. It is also likely to face large fines from the authorities in the United States and other countries for violating clean-air rules.
Volkswagen said on Wednesday that 120,000 diesel car owners in the United States will get $500 cash cards and $500 toward vehicle repairs under a program it announced last week. Jeannine Ginivan, a VW spokeswoman, said about one quarter of the 482,000 vehicle owners covered by the emissions scandal had applied to the program, which would cost at least $120 million in benefits to the participating owners.
Matthias Müller, the chief executive of Volkswagen since late September, is seen as more willing to challenge Volkswagen's labor representatives than was his predecessor, Martin Winterkorn, who resigned in September after the cheating became known.
But Müller answers to the supervisory board, and his powers are limited. As is the case at all large German companies, labor representatives have half the seats on the supervisory board, with the chairman casting a tiebreaking vote if necessary.
Labor is even more influential at Volkswagen, though, because the state of Lower Saxony owns 20 per cent of the voting shares and has two board seats. The Lower Saxony representatives typically vote with labor, but might be open to compromise because of Volkswagen's urgent need to save money while continuing to invest in new technologies like self-driving and battery-powered cars.
"I think Lower Saxony increasingly understands that VW urgently needs to be turned into a more efficiency-driven company and not just pursuing world domination," Ellinghorst said.
Volkswagen has about 45 per cent more workers than Toyota, one of its main rivals, while producing slightly fewer cars. Ellinghorst said the company also spent far more on research and development than its rivals, without necessarily being more innovative.
Bernd Osterloh, the head of the Volkswagen works council, caused a stir this month when he complained publicly that Müller had not been consulting with labor representatives about cost-cutting plans. It was a rare breach of collegiality between Volkswagen management and labor.
Volkswagen employees have become increasingly nervous about job cuts, according to several employees who spoke on the condition of anonymity because they were not authorized to speak publicly. There is also widespread anger at managers whose misconduct is seen as threatening the livelihoods of hundreds of thousands of workers who had nothing to do with the cheating, the employees said.
The Nov. 20 deadline was set last month by the California air-quality regulators. It represents a period of 45 days following the announcement of Volkswagen's wide-scale violation of emissions on Sept. 18.
Both the E.P.A. and California regulators are investigating Volkswagen's emissions-cheating devices, and have together been conducting road testing of all diesel car models.
E.P.A. officials have said that they expected Volkswagen to submit detailed plans for how it will modify the affected diesel cars before ordering any recall. Regulators expect to test Volkswagen's fix in their own labs before signing off on it.
It is unclear whether Volkswagen will be presenting regulators with technical blueprints, or whether the carmaker has engineered a test car to demonstrate its technical fix. Any solution is likely to be costly and difficult, perhaps requiring installation of additional equipment such as tanks to store chemicals used to neutralize harmful nitrogen oxide emissions. Finding space in the car for additional hardware is a major technical challenge.
The United States authorities will also be expecting an update on the progress of Volkswagen's internal investigation into who was responsible for the cheating. The company last week announced an amnesty for employees who come forward with information, in what was seen as an indication that the internal inquiry is making slow progress.
German prosecutors are also investigating possible fraud and other charges in the case, and have said they are focusing on six suspects. The prosecutors, citing German disclosure laws, have not said if the six suspects are the same six managers that Volkswagen has suspended in connection with the case.
Prosecutors in Braunschweig, a city near Volkswagen's headquarters, have told legislators in Lower Saxony that they have not found sufficient evidence to identify Winterkorn, the former chief executive, as a suspect.
©2015 The New York Times News Service
