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VW owners split for first time on diesel scandal

Jun 23 2016 17:02
Christoph Rauwald and Naomi Kresge

Frankfurt – Volkswagen’s typically close-knit owners publicly split for the first time over the diesel crisis after the car maker’s home state of Lower Saxony withheld support for two executives under investigation for their role in the scandal.

Volkswagen’s second-largest shareholder abstained from what is typically a ceremonial vote at the annual meeting, declining to back former CEO Martin Winterkorn and current VW brand chief Herbert Diess.

Lower Saxony abstained to avoid interfering with an investigation announced Monday by the German state’s public prosecutors.

"During the current proceedings, the state of Lower Saxony doesn’t want to give the slightest impression that it positions itself in any way," the German state said in a statement. "That is solely the matter of prosecutors and potentially later the courts."

Lower Saxony’s move puts it at odds with the Porsche and Piech families, who used their clout to ensure both men were supported by a majority of shareholders.

The rift capped a tumultuous annual meeting where Chairman Hans Dieter Poetsch, chief financial officer when the cheating occurred, bore the brunt of investor dissatisfaction over the automaker’s handling of the scandal, which has wiped billions of euros off VW’s market value and led to the recall of millions of vehicles.

Lower Saxony joined in ratifying Poetsch’s actions.

The prosecutors are probing whether Winterkorn and Diess were too slow to disclose the potential cost of rigging diesel cars to pass emissions tests. One topic under investigation is a VW meeting about damage and product issues last July that the two executives attended and where the diesel issue was discussed on the side lines.

Winterkorn asked for further clarification, according to VW. The car maker didn’t notify investors until four days after US authorities went public in September.

Spokesmen from Volkswagen and its largest shareholder, Porsche, both declined to comment on Lower Saxony’s abstention.

Shareholder lawsuits

The market-manipulation investigation will potentially aid shareholder lawsuits against the automaker. The California State Teachers’ Retirement System claimed on Tuesday that VW misled investors about emissions, seeking damages that could reach as high as €700 if others agree to join the action.

Another 278 institutional investors sued in March, seeking €3.3bn in a lawsuit over the timing of the market disclosures.

Volkswagen - which has so far set aside €16.2bn to cover costs for the scandal, including repairs, legal costs and fines - said the investigation announced this week doesn’t involve new facts or revelations.

The automaker also argues the suits are without merit and that it informed investors properly based on the information available at the time.

Volkswagen shares have declined 23% since the scandal broke in September, shaving about €11bn off the company’s value. The stock was 2.2% higher at €125.60 as of 2:44 p.m. on Thursday in Frankfurt.

During Wednesday’s annual meeting, which often descended into shouting and arguing, investors questioned when they would get full information about the origins of the crisis and bemoaned the job management has done reacting to it.

"The crisis is a crisis of trust," said Gerd Kuhlmeyer, who represents a coalition of employee shareholders and described seeing tears in VW workers’ eyes over the scandal. "

"Customers’ trust has been lost and needs to be won back, and so must the trust of investors."

Limited influence

As the meeting dragged on for more than 13 hours, scores of investors with non-voting shares encouraged owners with voting stock not to give their stamp of approval to the performance last year of the entire management and supervisory boards.

In a sign of non-voting shareholders’ limited influence, Lower Saxony joined the controlling Porsche and Piech families and Qatar to sign off on the actions of all the other members of the two boards.

Olaf Lies, Lower Saxony’s economy minister and a Volkswagen supervisory board member, downplayed talk of a rift between the two largest shareholders.

The relationship with the Porsche and Piech families is "constructive,"  and  "there’s mutual respect" for the respective votes at the annual general meeting, Lies told reporters on Thursday.

The owner families, descendants of the creator of the VW Beetle, own 52% of Volkswagen’s voting stock. Lower Saxony holds 20% and has special rights, along with workers, that are enshrined in Volkswagen’s bylaws.

Qatar, the third-biggest stakeholder with 17% of the common shares, backed all of the measures.

"We had hoped to invest in a world market leader but invested in a world costs leader," said Alexander Scholl, a representative for Deka Investment.

volkswagen  |  industrial  |  scandals
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