10/07/2015

Volkswagen's supervisory board was holding crisis talks on Wednesday, facing deadlines from German regulators and U.S lawmakers to explain its rigging of diesel emissions tests and what it is doing to tackle the scandal.

The 20-person board gathered at the German carmaker's headquarters in Wolfsburg at around 9 a.m. (0700 GMT). Sources close to the matter said talks were likely to last for hours.

More than two weeks after it admitted to cheating U.S. emissions tests, Europe's largest carmaker is under pressure to identify those responsible, to say how vehicles with illegal software will be fixed and whether it also cheated in Europe.

The biggest business crisis in Volkswagen's 78-year history has wiped more than a third off its share price, forced out its long-time chief executive and sent shockwaves through both the global car industry and the German establishment.

Germany's KBA watchdog has set Wednesday as a deadline for Volkswagen to spell out plans to make its diesel vehicles comply with emissions laws.

The company has said it may have to refit up to 11 million cars and vans worldwide, and new CEO Matthias Mueller said in a newspaper interview on Wednesday recalls would start in January and would be completed by the end of 2016.

But owners are anxious to know whether the refits will affect the fuel-economy and performance of their vehicles.

Volkswagen has said the illegal software was not activated on the bulk of the 11 million vehicles, most of which are in Europe, leaving uncertainty over whether it rigged tests there.

The German transport ministry has said it did manipulate European tests too, but has not given details, making it unclear whether the company faces the same level of fines and lawsuits in Europe as in the United States. It is also unclear whether owners will be obliged to have their vehicles refitted.

Equinet analysts said the cost of refits could range from less than 100 euros ($112) per vehicle to as much as 10,000 euros, depending on whether Volkswagen needs to upgrade software or install new hardware.

UBS analysts estimated the total bill for the scandal, including potential fines and lawsuits, could be around 35 billion euros, though they also noted this was more than factored into the company's share price after its recent plunge.

"A CERTAIN DEGREE OF FRIGHT"

The supervisory board meeting, where erstwhile finance chief Hans-Dieter Poetsch is being confirmed as the company's new chairman, will receive an update from an internal investigation into the scandal, two sources close to the matter said.

A representative from U.S. law firm Jones Day, which is conducting an external inquiry, will also attend.

One of the sources said it was too early to name those responsible for rigging tests, and talked of a "certain degree of fright" among management ahead of a testimony by the company's top U.S. executive before a U.S. congressional oversight panel on Thursday.

Volkswagen has come under fire in both the United States and elsewhere for a slow response to the crisis.

"We have a lot of questions. We have very few answers," complained Representative Diana DeGette of Colorado, the top Democrat for subcommittee.

Officials in Germany, where Volkswagen has been held up for years as a model of the country's engineering prowess, are also pressing for answers.

"I now expect a very transparent investigation of the circumstances. I am convinced that we will get more and more clarity," Klaus Mohrs, the mayor of Wolfsburg where Volkswagen employs around 70,000 people, told Reuters ahead of the supervisory board meeting.

Data on Wednesday showed German industrial output fell at its steepest pace in a year in August, suggesting Europe's largest economy may be losing momentum just as the Volkswagen scandal casts a cloud over manufacturing.

The car industry employs more than 750,000 people in Germany and is a major source of export income.

In his newspaper interview, Mueller rejected the suggestion Volkswagen informed financial markets too late about the test rigging despite having told officials at the U.S. Environmental Protection Agency weeks before it went public.

"Based on our understanding of the law, we informed in time," he was quoted as saying.

He also said he believed only a few employees were involved in the manipulations.

Some analysts and investors are worried that company veterans such as Mueller and Poetsch will not introduce the sweeping changes in business practices they think are necessary to restore Volkswagen's reputation.

They are also concerned about the complexity of Volkswagen's investigations.

One source close to the matter said the supervisory board of the company's flagship Audi brand would also meet this afternoon, and has hired accountants to help investigate the scandal as well.

Audi is still chaired by former Volkswagen CEO Martin Winterkorn, who resigned two weeks ago. The sources said it was unclear whether he would attend the Audi board meeting.  

By Andreas Cremer - Reuters (Additional reporting by Caroline CopleyBarbara Lewis, Jan Schwartz and Reuters bureaus; Writing by Mark Potter; Editing by Susan Thomas)