‘VW emissions probe taking too long’

Shareholders are frustrated with the slow pace of restructuring at Volkswagen's six plants in Lower Saxony.

Shareholders are frustrated with the slow pace of restructuring at Volkswagen's six plants in Lower Saxony.

Published May 19, 2016


Wolfsburg, Germany - Volkswagen has expressed frustration with the slow pace of investigations into its emissions scandal, responding to demands from an activist shareholder for rapid reforms at the German carmaker.

In a letter to British hedge fund TCI chief financial officer Frank Witterthat wrote that Volkswagen had made significant progress in implementing a new structure for the group and the VW brand - including building on Porsche’s experience.

“We would like to highlight the introduction of product line management where the best ideas from Porsche are being introduced into Volkswagen’s engineering processes,” the letter said.

However, Witter also acknowledged that an inquiry by United States law firm Jones Day into who was responsible for rigging US exhaust emissions tests was dragging on.

“We are all frustrated at the time this is taking,” he wrote.

VW commissioned the inquiry in 2015 but Witter said in the letter Jones Day had to be allowed to continue its work into the second half of this year to ensure “no stone is unturned in the pursuit of truth”.

The letter, dated 17 May, was addressed to TCI founder Chris Hohn, who has said Volkswagen needs to improve its performance and create a new governance structure.

Also read: 'VW hasn't fixed a single car in UK'


In April VW announced a €4.1 billion (R73 billion) operating loss for 2015 after making huge provisions to cover the cost of clearing up the scandal.

It has reached a nearly $10 billion (R160 billion) deal with the US government, but still faces an array of civil law suits and members of its management board - which runs the company day-to-day - are under fire over their bonus scheme.

Asked about Witter's letter, TCI partner Ben Walker said Volkswagen had to reduce its labour costs and raise its profitability. Walker aimed his criticism at trade unions and the government of Lower Saxony state, which has a 20 percent stake in VW.

“It's a letter of fine ambitions but the key point is that the unions and, in particular, Lower Saxony have to back the management team now,” he said.

“Then this could be the turning point for Volkswagen. Lower Saxony and the unions have to acknowledge that a successful car company cannot survive long-term with margins of two percent.”

Vokswagen W employs more than 120 000 people at six plants in Lower Saxony, including its Wolfsburg headquarters, and the government along with unions have been keen to protect jobs throughout the firm's crisis.

Natural attrition

TCI said it had “exposure” to two percent of VW's non-voting preference shares and none of the group's ordinary shares. It is therefore dwarfed by the company's dominant shareholders - the Piech and Porsche families, Lower Saxony and the Gulf state of Qatar.

However, Walker said shareholders should back TCI's recommendations - setting tough financial targets, aligning management compensation with shareholders and controlling spiralling labour costs.

“All those key recommendations are clearly shared with all investors, including the families, Qatar and ultimately Lower Saxony,” he said, adding productivity could be improved by natural attrition of VW's workforce, and controlling wage inflation and employee growth.

Bonuses for Vokswagen’s top managers after the 2015 loss have provoked a row which has drawn in German politicians.

VW will pay 12 current and former members of the management board €63.2 million (R1.12 billion) for 2015. Management board members have had 30 percent of their bonus withheld, but this will be released if the share price - currently around €125 (R2230) - reaches €140 (R2500).

Witter said management incentives and bonuses would also be looked at as part of a process of devising a new strategy 2025, which is due to be announced by mid-2016.


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