Dramatic arrest of Audi's CEO is a first — and a bit of a shock

FRANKFURT — Last week, Audi announced a partnership with Hyundai to bring fuel cell vehicles more quickly and affordably to market. Meanwhile, company executives met government officials in Berlin to pledge support for a new flying taxi pilot program in Bavaria.

Back in Ingolstadt, assembly lines continued to churn out Audi vehicles at their usual pace.

Yes, it would have been just another busy week at the Volkswagen premium brand were it not for a little matter of the arrest and imprisonment of Audi's CEO, Rupert Stadler.

Stadler was apprehended at his home in the early morning hours of June 18 — a stunning development that company insiders say they didn't see coming. The 55-year-old executive could face charges of fraud in connection with "defeat device" software found in Audi diesel vehicles in Europe.

Evidence emerged that Audi had played a key role in developing the illegal emissions software while Stadler was CEO. A week after naming him a suspect in their investigation, German authorities swooped in after a wiretap reportedly indicated Stadler was influencing witnesses to cover up the affair. Brought immediately before a magistrate, the Audi CEO was denied bail on the grounds he might obstruct the investigation were he to remain at large.

That makes Stadler, the son of a Bavarian farmer who studied corporate finance in college, the highest-ranking official at Volkswagen Group to be arrested because of the scandal. He is the first German CEO to be taken into custody on the suspicion of corporate wrongdoing while still in office.

Image problem

Audi's unions were concerned Stadler's arrest put the company at risk. "Our brand image cannot continue to suffer from this onerous situation," said Audi's vice chairman and senior labor leader, Peter Mosch.

Following the arrest, Volkswagen's board informed financial markets that Stadler was no longer in charge and that it had accepted his request to step down temporarily.

The board had plenty of warning that Stadler's arrest was possible, but repeatedly backed the CEO — most recently assigning him the task of coordinating global sales and marketing for VW Group in addition to his Audi duties.

"Everyone can say you should have seen this coming but others have been named a suspect before and nothing happened," said an Audi insider. "Precisely because he is the only CEO to be arrested on the job for allegations of fraud did it take us by surprise."

The person suggested Munich prosecutors may have wanted to shock Stadler into becoming a cooperative witness, rolling over on possible compatriots in exchange for leniency.

Now the debonair Stadler, who looks like he wakes up every day in a suit, wears a correctional uniform courtesy of the Augsburg penitentiary one hour north of Munich. His phone calls are monitored, his access to information limited and his visits restricted heavily.

"These guys aren't hardened criminals — they're not used to this," he said. "They [prosecutors] are going to apply pressure and see what he does."

Officials from the Bavarian State Ministry of Justice declined to provide precise details concerning his imprisonment, and spokespeople for the Munich prosecutor's office also declined to comment.

Family ties

That the situation arose is mainly due to the close relationship Stadler has had with the Porsche and Piech clans that control Volkswagen Group. Part of the reason Stadler has been able to remain in his position despite mounting evidence of wrongdoing at Audi is the unwavering support of the two families

Stadler owes his professional career to them. His meteoric rise to the top began when he took over as head of the office of then-Volkswagen Group CEO Ferdinand Piech in 1997.

When his mentor switched to the chairman's seat on the supervisory board in 2002, Stadler gained a seat on the board of Audi as finance chief at age 40. Stadler was also criticized for potential conflict of interest, since he also worked for several years as a financial adviser to the families, sitting on the board of private foundations that pooled their wealth.

These close ties helped ensure that while four out of Audi's seven senior executives were replaced in September alone, Stadler remained in place. Apart from the CEO, only the purchasing chief predates May 2017. Even one assistant to the two families voiced his surprise that he could remain untouched for so long although part of the reason was practical: "They didn't want Stadler leaving his potential successor to deal with a burden like this."

On Tuesday, June 19, the VW Group board appointed Bram Schot, sales chief at Audi for less than a year, to fill the CEO role on an interim basis and represent the brand at group management board meetings — a decision unions supported.

"It is now important that the interim CEO presses on with the internal investigation with determination and brings this to a conclusion so our company can be steered back towards calmer waters," Mosch said.

Munich's dramatic arrest could be risky and backfire. Prosecutors in Stuttgart had to eat crow after they unsuccessfully went after ex-Porsche CEO Wendelin Wiedeking on allegations he manipulated markets during his attempt to acquire Volkswagen a decade ago.

"You have to give Stadler an opportunity to clear his name but it's like he's already been convicted. Nowhere have I seen anyone report the man must be presumed innocent," said a second Volkswagen source. "What happens if he is acquitted for example? By that point no one will be interested."