A German newspaper reported on Tuesday morning that Volkswagen CEO Martin Winterkorn will be fired by the end of the week. The report is unconfirmed, but it’s totally unsurprising; in fact, it seems inevitable. Winterkorn has to go, and while the full story probably won’t be known for weeks, this drama is already looking like a classic in the annals of business and leadership crises.
The immediate crisis began only last week, when the U.S. Environmental Protection Agency accused VW of programming 500,000 diesel-powered vehicles sold in the U.S. To cheat on emissions tests. VW didn’t dispute the charge. That was bad, a multi-billion-dollar problem that will deeply damage the company’s reputation. Then things got rapidly worse.
The test-cheating software was actually installed in 11 million vehicles worldwide, the company has now revealed. The U.S. Justice Department has begun an investigation into possible criminal behavior by the company or its executives. South Korea has launched its own investigation. So has Switzerland. There’s no reason to think the list will stop there.
VW has said it will take a $7.3 billion charge to its earnings, and this estimate of the scandal’s financial damage may be overly optimistic. Fines for the violations in the U.S. Alone could total $18 billion. The stock is down 40% in just two days. And it’s impossible to quantify the reputational damage,w hich could last for years as the world comes to understand what VW did: It programmed its engines for the explicit purpose of deceiving emissions testing equipment so that when this equipment was connected, the engines sensed it and drastically reduced their output of pollutants. In normal use, the engines emitted up to 40 times more nitrogen oxide, which contributes to asthma, bronchitis, and emphysema.
The deeper story is that Winterkorn, 68, has been pushing VW toward historic goals and, until last week, appeared to be succeeding brilliantly. He declared a few years ago that VW would become the world’s largest carmaker, bigger than Toyota—an insanely ambitious target, or so it seemed. This past spring, he faced a challenge to his leadership when long-time chairman Ferdinand Piech, the corporate patriarch and grandson of the man who designed the VW Beetle in the 1930s, tried to force him out for reasons that were never clear. But Winterkorn rallied support from government and labor leaders, and Piech was forced to resign. Then, in June, Winterkorn achieved his goal; VW sold more vehicles in this year’s first half than Toyota did. Three weeks ago, VW’s supervisory board agreed to extend his contract through 2018. Formal approval was scheduled for this Friday. Winterkorn triumphant.
It’s too early to say how things went so wrong. Winterkorn oversees R&D, and he ran the Volkswagen brand in the years when the deception took place, so he may have known about it, or he may have been willfully ignorant, or he may have been deceived. It’s tempting to imagine a storyline of overweening ambition that led to desperate measures, but any evidence for that has not been brought forward.
I’d be amazed if Winterkorn isn’t gone by the end of the week. It’s a terrible story that will be rich with lessons.
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