Something was different last January when Volkswagen Group CEO Martin Winterkorn took the stage for his annual speech on the sidelines of the Detroit auto show in January: He addressed the gathering in English.
His speech at Fishbone’s, a Cajun restaurant a short walk from both the Chrysler Freeway and the riverfront GM Plaza, was halting, uneven, and read from a script. But at least it wasn’t relayed through a translator, as Winterkorn had typically done in the past.
For the 68-year-old executive, the switch was a symbol of his commitment to reversing years of underperformance in the world’s most competitive auto market. The VW brand had just over 2 percent of U.S. car sales -- a fraction of what Nissan and Toyota have, let alone Ford or GM.
“We are -- and I am -- fully committed to the United States,” Winterkorn said at the show. “We are putting the Volkswagen brand on track.”
Yet even as Winterkorn spoke, the crisis that would be his undoing was starting to surface. American environmental officials had begun investigating why emissions from VW diesels were many times higher in road tests than levels measured in labs -- which ultimately led to revelations that the company’s cars had software intended to fool regulators.
To regain relevance Volkswagen hadn’t enjoyed in the U.S. since hippies painted flowers on their microbuses and The Love Bug was playing at the local drive-in, Winterkorn had bet that Americans, who were rapidly shifting to Japanese-made hybrids, could be convinced to try diesel. The gamble seemed to pay off - - until this week.
"They were under a great deal of internal pressure to ‘do something’ in America," said Stefan Bratzel, a former product manager with Daimler who now teaches at the University of Applied Sciences, near Cologne. "They wanted to deploy diesel in America as a way of differentiating themselves from Toyota."
The scale of the diesel scandal, which has now claimed Winterkorn’s job and wiped about 21 billion euros ($24 billion) off of Volkswagen’s market value, has stunned industry veterans, lawyers, and regulators. How could the German powerhouse do something so wrong, for so long, at such risk?
The answer has a lot to do with Winterkorn’s goal of overtaking Toyota Motor Corp. -- producer of the Prius hybrid -- as the world’s No. 1 carmaker. To help get there, he set a goal of almost tripling VW’s American market share to 6 percent by 2018. Later, he opened the company’s first U.S. factory since 1988, in Tennessee, and made the Passat sedan bigger and cheaper to appeal to American tastes.
Diesel, though, was always going to be a tough sell to American car buyers, who mostly associate it with smoke-belching buses and roaring 18-wheelers. To change that perception, Volkswagen, along with Daimler and BMW, marketed "clean" diesel as a sort of petrochemical miracle cure that offered more miles per gallon than gasoline.
Diesels often have a tank of a urea-based solution that’s mixed with exhaust where it binds with nitrogen oxides -- a big component of smog -- to reduce emissions. Volkswagen said its smaller cars could meet emissions goals without the extra tank, meaning less weight, better performance, and lower prices.
Soon, Volkswagen’s diesels were no longer a curiosity on American roads. From 2010 to 2014, its U.S. diesel sales climbed 35 percent to almost 80,000 vehicles, growth that helped the company meet Winterkorn’s long-cherished goal. In the first half of this year, VW squeaked past Toyota to become the largest carmaker by unit sales for the first time.
Too good to be true
Volkswagen’s diesels promised the fuel economy of hybrids but with better acceleration, said Maryann Keller, an independent auto consultant. That turned out to be too good to be true.
Diesel buyers "saw this as an environmentally acceptable option without sacrificing performance," Keller said, but after the scandal many customers will likely gravitate toward hybrids. "In the U.S., this could kill diesel."
Researchers at West Virginia University began examining VW cars in 2013, and were puzzled by discrepancies between emissions in the lab and on the road. The diesel Passat and Jetta they tested had emissions 35 times higher than standards in the lab; a diesel BMW X5 was at or below the standards.
The researchers published the findings in May 2014 without naming the vehicles, though they were identifiable by engine specifications that were reported. That prompted regulators in California to start their own investigation, which eventually uncovered the so-called defeat device -- software that VW had installed to cheat on emissions tests.
In his resignation statement on Wednesday, Winterkorn -- who has a reputation for obsessive attention to engineering details -- said he was "not aware of any wrongdoing on my part" and that he was "stunned" by the revelations.
Even if Winterkorn was unaware of the cheating, experts say it’s unlikely it could have been the work of only a few individuals. Emissions and mileage standards are a central component of car and engine design, affecting weight, performance, and price.
"The system is so intricate that it is totally impossible that there was not, up and down the line, knowledge of what they were doing," said John Alan James, a former consultant for automakers such as General Motors and Volvo who now chairs the corporate governance center at Pace University in New York.
Winterkorn is likely to have many more opportunities to practice his English as American prosecutors, regulators and lawyers round on Volkswagen. The Federal Bureau of Investigation has opened a criminal probe, and an investigation by the Environmental Protection Agency could result in as much as $18 billion in penalties. That’s before class-action suits, state- level investigations or cases brought by other federal agencies.
In July 2014 in Wolfsburg, the company town west of Berlin where Volkswagen has its headquarters, Winterkorn had spoken at length -- in German -- about his ambitions for the U.S. The occasion was the announcement of a new sport-utility vehicle to be built in Tennessee, "a true American car, big, attractive, and with lots of high-tech," as Winterkorn put it, that would capture the country’s attention.
A little over a year later, and for very different reasons, Volkswagen’s certainly got it.