Hopes rise for VW diesel deal despite CEO faux pas

[FRANKFURT] Volkswagen shares rose ahead of a crucial meeting on Wednesday at which its chief executive will try to persuade US authorities to accept a fix for hundreds of thousands of cars rigged to cheat diesel emissions tests.

Despite a toughly worded statement from Californian regulators on Tuesday, the meeting with the Environmental Protection Agency (EPA) represents Volkswagen's (VW) best chance for some time to draw a line under a crisis that erupted four months ago when it admitted to cheating the US tests.

CEO Matthias Mueller, on his first visit to the United States since the scandal broke, said on Sunday he believed a new catalytic converter system could be fitted to most affected US vehicles that would satisfy regulators.

However, the meeting with the EPA risks being overshadowed by an interview in which Mueller appeared to play down the seriousness of the cheating by Europe's biggest carmaker.

In comments aired by National Public Radio (NPR), Mueller blamed the scandal on a misunderstanding and called it a technical, not an ethnical, problem.

The remarks, coupled with the time it has taken Mueller to visit the United States since being made CEO in September, have raised fresh questions over VW's handling of the crisis.

A union source close to VW's supervisory board said he was"astonished" by Mueller's remarks. "This is a key week for Volkswagen as it struggles to regain ground in the United States. Those comments are anything but helpful and should have never been made," he said, speaking on condition of anonymity.

Barclays analysts said obtaining the goodwill of US authorities could be crucial in reducing civil or criminal penalties the German carmaker is likely to face.

After VW asked to redo the interview, Mueller - who is not confident in English - told NPR he had found the situation hard to handle as he was in a loud environment hemmed in by reporters when he made his comments at the Detroit auto show, and apologised to customers, dealers and authorities.

Shares in VW, down about a fifth since it admitted cheating the tests, rose by as much as 3.4 percent on Wednesday, outperforming the German blue-chip index. By 1230 GMT, they had pared gains to trade up 1.3 percent at 122.55 euros. "Investors are betting that a solution will come out of Mueller's meeting with the EPA," said a Frankfurt-based trader.

US environmental regulators are unimpressed with VW's efforts so far to redeem the damage done through the emission of 40 times the legal limit of nitrogen oxide by its 2.0 litre diesel cars over seven years. "VW's submissions are incomplete, substantially deficient, and fall far short of meeting the legal requirements to return these vehicles to the claimed certified configuration," the California Air Resources Board (CARB) wrote in a letter to VW on Tuesday.

VW said the letter referred to its initial recall plans submitted to California in December.

CARB said it would continue to work with the carmaker and the EPA to find a solution, but emphasised the danger to public health that VW continued to pose.

Ferdinand Dudenhoeffer, head of the Center of Automotive Research at Germany's University of Duisburg-Essen, said VW and Mueller had suffered an overall "strategic failure" in the United States.

He said: "I believe they considerably underestimated the readiness in America to resolve the issue seriously and effectively. It looks like they were playing for time. The Americans don't like that."

REUTERS