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Volkswagen says CEO got diesel snag warning as early as May 2014

[FRANKFURT] Volkswagen's former chief executive may have been warned as early as May 2014 of possible anomalies dogging its diesel engines, 16 months before the scandal erupted worldwide, the company admitted.

However, none of its top bosses could have known of the full extent of the scandal until it broke in September 2015, the company claimed in a statement late Wednesday.

VW, a former paragon of German industry with ambitions to become the world's biggest carmaker, has been plunged into its deepest-ever crisis by revelations that it installed emissions-cheating software into 11 million diesel engines worldwide.

In a bid to identify the culprits behind the scam that has sent shockwaves through the automobile sector all around the world, the embattled German giant is conducting an internal investigation, the preliminary results of which are to be published next month.

But in a statement on Thursday, VW revealed that former chief executive Martin Winterkorn - who resigned shortly after the scandal broke while still protesting his innocence - was sent a memo on May 23, 2014 regarding a study published by the International Council on Clean Transportation (ICCT) that had highlighted some of the irregularities that have subsequently come to light.

It was the ICCT that alerted VW's cheating practices to the US environmental agency, the California Air Resources Board (CARB), which then went public with the accusations last September.

"This memo was included in his extensive weekend mail. Whether and to which extent Mr. Winterkorn took notice of this memo at that time is not documented," the statement said.

Winterkorn subsequently received another memo in November 2014 that "referred to a cost framework of approximately 20 million euros for the diesel issue in North America," it continued.

"According to current knowledge, the diesel matter, as it was treated as one of many product issues facing the company, did not initially receive particular attention at the management levels of Volkswagen." On top of still unquantifiable regulatory fines in a range of countries, VW is facing a slew of legal suits, notably in the US and Germany, from angry car owners, as well as from shareholders seeking damages for the massive loss in the value of their shares since September.

They accuse VW of violating capital market disclosure rules, saying the carmaker knew about the irregularities long before the scandal broke and should have informed shareholders much earlier because they must have known it would affect the share price.

But VW said that "after careful examination by internal and external legal experts, the company confirms its belief that its management board duly fulfilled its disclosure obligation under German capital markets law." While it "deeply regrets the incidents related to the diesel issue," VW dismissed the German shareholder lawsuits as "without merit", saying until "the violation of US environmental regulations was announced" on September 18, "there were no indications whatsoever of information with relevance for the stock price." VW said it had initially assumed that a "manageable" number of vehicles - approximately 500,000 - would be affected by the diesel matter and that fines in a two-digit or lower three-digit million amount would be imposed, "as had been the case in the past in the US in comparable cases involving passenger vehicles."

"Additionally, to the best knowledge, the diesel matter appeared to be an issue that could be contained by measures that were common in such cases, including effective technical solutions, and, thus, appeared to be neutral with regard to the company's stock price."

Press reports suggested that VW could face potential maximum fines of up to US$18 billion, but a fine of that magnitude had "never been fully applied" in the past, VW said.

The German group argued that "emission deviations between test bench and road operation exist at all automobile manufacturers and are by no means automatically attributable to violations of regulations." But when VW management became aware in August 2015 that the software modifications in its diesel engines did effectively constitute a so-called defeat device prohibited under US law, it promptly informed the US authorities.

"Volkswagen was advised that in the past, defeat device violations under US environmental law by other car manufacturers had been sanctioned with settlement payments that were not especially high for a company the size of Volkswagen," it said.

In late afternoon trading on the Frankfurt stock exchange, VW shares were showing a gain of 1.0 per cent, while the overall blue-chip DAX index was weaker.


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