Berlin (AFP) – German police raided auto giant Volkswagen’s headquarters and other sites Thursday, as part of an investigation into a massive pollution-cheating scandal engulfing the group.
“Today, in connection with the so-called emissions scandal, raids were carried out at Volkswagen in Wolfsburg and other locations,” prosecutors from the state of Lower Saxony said in a statement.
Volkswagen US boss Michael Horn is testifying before a Congressional subcommittee in Washington on Thursday.
Evercore ISI analyst Arndt Ellinghorst, who has been following VW for years, published a note on Thursday in which he outlined five critical points that his team was focusing on in connection with Horn’s testimony:
Lack of disclosure – VW was informed of a possible emissions non-compliance by the West Virginia University study in the spring of 2014. Yet the company only informed the CARB and EPA of a “defeat device” on September 3, 2015.
Company culture – Not only did VW introduce an engine into the US with a defeat device, but it seems the company’s broader emissions control strategy included “a software feature that should be disclosed to and approved by them [EPA] as an auxiliary emissions control device (“AECD”)”. Providing that they passed the tests, VW would appear not to have held any moral qualms about fitting such devices.
Shareholders – VW state that they have “broken the trust of our customers, dealerships, and employees, as well as the public and regulators”. They do not mention a key stakeholder, namely shareholders. A stakeholder who was equally uninformed and has taken substantial pain given the share price’s -39.6% drop (Sept 17 to Oct 2).
Dependent employees – VW states that it is a company “that more than two millions people worldwide… rely upon for their livelihoods”. This statement strikes us as defensive as we don’t believe it is strictly necessary. It is similar to rhetoric used to describe GM and Chrysler, pre-bankruptcy, to convey that the companies were “too big to fail”.
Timing – VW comments in its statement that investigations are preliminary. However, rightly the company may be asked why this is the case. The testimony confirms that the company was first informed in spring 2014. Therefore, it seems reasonable to ask why VW has not been investigating this matter for some time. It also confirms that the company informed the EPA of the presence of “defeat devices” on September 3, 2015. This was 5 weeks ago, we would have expected investigations to have made substantial progress during this period.
This story is continuing to develop. We will update when we know more.